Question

Ruben is a retired pensioner looking to invest $10,000. He is interested in an income stream that receives preferential tax treatment. Which of the following investments would be most appropriate for Ruben?

Answer 1

Ruben should consider a 401(k) or an annuity for a tax-advantaged income stream; 401(k)s offer growth potential to offset inflation, while annuities provide stable but potentially non-increasing payouts.

Step-by-step explanation:

For Ruben, a retired pensioner looking to invest $10,000 for an income stream that receives preferential tax treatment, a "defined contribution" plan like a 401(k) or an annuity might be appropriate. These investment vehicles offer tax deferral, with 401(k)s being portable and potentially offering real rates of return that can combat inflation. Annuities provide a fixed income stream, which may be less susceptible to market volatility and can offer stable payouts, although with the tradeoff of typically fixed payments that do not increase with inflation.