Readers sometimes chide me for writing the term ‘annuity income.’ Technically, they point out, annuities do not distribute pure income, meaning cash that has been generated from their portfolios’ investments. Instead, annuity payouts blend 1) genuine income with 2) realized capital gains and 3) return of capital. Their admonishments are justified. Although annuity providers are legally permitted to call their payments ‘income,’ permission granted by regulators does not make the usage correct. As with Required Minimum Distributions from retirement accounts, annuities distribute not only the profits earned by the investor’s principal, but also the principal itself.
The Catch to High Investment ‘Income’
