Alternatives to low-rate CDs, Treasuries and Money Market Accounts
MEDFORD, OR / ACCESSWIRE / March 16, 2021 / Alternatives to low-rate investments can pay a higher guaranteed rate of interest. CD-like fixed-rate annuities, fixed indexed annuities, and income annuities can all safely offer a higher rate and/or more income.
Ken Nuss, CEO of AnnuityAdvantage, an online annuity marketplace, covers their advantages in Kiplinger.com.
Fixed-rate annuities pay more
Also called a multi-year guaranteed annuity, a fixed-rate annuity acts a lot like a bank CD. Both guarantee a rate of interest for a set period.
But fixed-rate annuities pay much higher rates than comparable CDs today. As of mid-March 2021, you can earn up to 2.95% a year on a five-year fixed-rate annuity and up to 2.25% on a three-year contract, according to AnnuityAdvantage's online rate database. The top rate for a five-year CD is 1.25% and 1.05% for a three-year CD, according to Bankrate.
"By acting now, you'll probably get a better rate today than next month or beyond," Nuss writes.
Annuity interest is tax-deferred until withdrawn. You can either receive the interest annually and pay tax or let it compound in the annuity and thus defer taxes.
Fixed-rate annuities are suitable for both nonqualified accounts (savings that would otherwise be taxable) and in qualified retirement plans, such as IRAs, Roth IRAs, and 401(k) and 403(b) plans.
Fixed indexed annuities offer potentially higher long-term returns
Indexed annuities credit interest based on the growth of a market index, such as the S&P 500 index. The interest rate thus fluctuates annually. In up years, you'll profit. In down years, you'll lose nothing but won't earn anything.
For example, in year one, you might earn 9%, 0% in year two, and 4% in year three, and so on. If you're okay with the risk of earning nothing some years, in the long run, you'll likely earn more interest than you'd get with a fixed-rate annuity.
It takes some research to compare and determine which indexed annuity is best suited for you. Work with an annuity specialist, such as AnnuityAdvantage, that has the necessary resources and training to assist you in this process, he says.
Income annuities for more guaranteed lifetime income
If you're looking for the most guaranteed income, consider an income annuity. Unlike fixed-rate or fixed indexed annuities, once purchased, income annuities have no accumulation value, so they don't pay a stated rate of interest. You pay a lump sum or a series of deposits to the insurer, which guarantees a stream of income.
You choose how long the payments last-for example, you could select ten years. Most people, however, choose a lifetime annuity that will pay you (and optionally, your spouse) guaranteed monthly income no matter how long you live.
Income annuities produce more income because each income payment is made up of both taxable interest and tax-free return of principal (your own money coming back to you). It's a bit like the flip side of a mortgage, where each payment you make includes principal and interest. A mortgage gets paid off eventually. However, lifetime income annuities keep on paying the same amount, even after the insurer has repaid your entire principal.
Lifetime income annuities serve as longevity insurance. They protect you against the risk of running out of money should you live into your 90s or beyond.
Deferred or immediate payments-your choice
A deferred income annuity, which pays out starting on a future date that you choose, lets your money grow tax-deferred until you start receiving income.
If you need income soon, an immediate annuity can be a great solution. Typically, you'll start receiving monthly payments within about a month of purchase.
One precaution
If you withdraw money from an annuity of any type before age 59½, you'll normally owe the IRS a 10% penalty on the interest earnings you've withdrawn, plus regular income tax. If you're much younger than 59½, don't buy an annuity unless you're sure you won't need to take out money before that age.
Annuity expert Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and immediate income annuities. It provides a free quote comparison service. He launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities. Ken writes on retirement income and annuities regularly for the Kiplinger website, Newsmax, and Physician's Money Digest.
More information, including updated interest rates from dozens of insurers, is available at https://www.annuityadvantage.com or call (800) 239-0356.
Retirement-income expert Ken Nuss, CEO of AnnuityAdvantage
CONTACT:
Henry Stimpson
Stimpson Communications
508-647-0705
Henry@StimpsonCommunications.com
SOURCE: AnnuityAdvantage
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