Saving Safely
What is Saving Safely for Retirement?
Most people who think about saving safely for retirement immediately think about saving safely in a bank Certificate of Deposit (CD) or savings account. However, you can also use annuities to create retirement wealth securely or to create an income for life.
Here’s the real story about saving safely
There are two places that you can deposit your money and save safely for retirement with the protection of principal:
- At a bank in a checking account, savings account or Certificate of Deposit.
- At an insurance company in a fixed annuity such as a Traditional Fixed (or fixed index) Deferred Annuity or a Multi-Year Guarantee Annuity (MYGA).
But many people have a saving problem
The problem most of us have is that we were taught the wrong lessons about saving by the people who loved us the most. Starting at an early age for many of us, our parents trained us to save all our money in a FDIC insured account in a bank. The reality is that liquidity has a cost. While your money may be accessible, it may not earn much interest.
What that means is
While you are saving safely for retirement, you may have overlooked saving with an insurance company. As a result, you probably ignored some places to put some of your safe money like the:
We offer fixed annuities with contractual guarantees so we can help our clients save safely with principal protected growth.
Why does this matter?
The past few years have been a challenging time for saving safely for retirement and investing. Prolonged low-interest rates combined with increased volatility in the financial markets are causing people to feel anxious, helpless, vulnerable and unsure about what to do next. Fixed annuities can help you reduce your stress and get you on the path to a secure financial future.
The Bottom Line is
The United States has been in a prolonged low-interest-rate environment for many years, and low rates are likely to continue. Furthermore, the worry some people have is the nearly twenty trillion dollar U.S. government deficit will also affect the economy. Therefore, to make ends meet, some retirees are withdrawing all the interest and part of their principle. Consequently, they are going broke safely.
You get a guaranteed minimum rate of return
A fixed annuity has an initial contractually guaranteed interest rate. As a result, at renewal, the fixed annuity usually renews at the prevailing rate, but not less than the minimum renewal interest rate specified in the contract.
Why pay taxes every year?
Your CD interest is taxed as ordinary income for each year you earn it, whether you take it or not. However, your fixed annuity interest is taxed as ordinary income for each year only if you withdraw it. Also, if interest in a fixed annuity is tax-deferred if not taken, and will continue to compound interest until withdrawn. In fact, if you are at the "tipping point," as accountants call it, an annuity could help you lower your taxes.
Keep in mind
Withdrawals may be subject to ordinary income taxes. Also, if you are under age 59½, you could be subject to an additional 10% federal early withdrawal income tax penalty on any gain.
It’s a great way to leave a legacy
Whatever you have in your fixed annuity passes directly to a named beneficiary or beneficiaries, by contract, and usually avoid probate court. Therefore, when you die, the heirs you chose, receive whatever cash value remains in your fixed annuity. In fact, some insurance companies allow a spouse or children to continue to use the same annuity but change the name and beneficiary on it.
There are no annual fees
There are usually no annual fees for a bank Certificate of Deposit. In the past, it was extremely rare for a fixed annuity to have a yearly fee. We do not know of any fixed annuities currently available that has an annual fee.
You can always choose a guaranteed income for life
With a fixed annuity, you can choose to annuitize it for a series of income payment, possibly for life. You should check with your insurance company about the payout options. Guarantees are backed by the full faith and credit of the insurance company you choose.
If there is a downside ...
Should you cancel your bank Certificate of Deposit before the end of the term, you will likely need to pay a penalty for early withdrawal. Also, if you cancel your fixed annuity before the end of the term you will likely need to pay a penalty for early withdrawal called a surrender charge. However, the actual surrender charges vary from company to company and product to product.
If you need maximum income, not safety
Are you are looking for the maximum payment, and are not focused on saving safely for retirement? If so, other fixed annuity alternatives are available to provide income now or income later including the:
- Single Premium Immediate Annuity (SPIA).
- Deferred Income Annuity (DIA).
- Qualified Longevity Annuity Contract (QLAC).
- Lifetime Income Rider on a Traditional Fixed Deferred Annuity.
In Conclusion
A fixed annuity is a savings vehicle like a bank account or bank Certificate of Deposit (CD). It builds cash value on a tax-deferred basis and has a minimum interest rate guarantee so you can be saving safely. Guarantees are backed by the financial strength and claims-paying ability of the insurance company or companies you choose.
Finally
If you are at or near retirement and you have any questions or need a little guidance, feel free to contact us. We know retirement planning can be confusing, so it is important to get the facts before you make any long-term decision.
