Annuities Have Their Place
Not All Annuities Are Bad
APRIL 10, 2023 | ANNUITIES, FIA, MYGA | BY Tim Haas, CFP®
Annuities Have Their Place
Not All Annuities Are Bad
APRIL 10, 2023 | ANNUITIES, FIA, MYGA | BY Tim Haas, CFP®
Annuities Have Their Place
Not All Annuities Are Bad
For the right client these days , a fixed 5-year guarantee annuity with interest rate returns from 4% to 5.4% these days is a pretty good deal for some people. If you need to use some of the funds over the next five years, many annuities allow you to draw 10% per year. Or let the money grow.
Money Markets are an interesting alternative with high interest rates right now, but those rates aren't guaranteed for a long period and interest is taxable each year. Annuities income is taxed at distribution and the principal grows tax-deferred until income or surrender.
That’s a better return than most banks. See this reference to average CD rates at bankrate.com. DISCLOSURE: The interest gains are deferred until withdrawn, then taxed first as income when withdrawing the funds, and there is no FDIC insurance. Annuities are secured by the financial health and well-being of the annuity company, which offers a strong value proposition in comparison to FDIC insurance.
Best approach: Consult with a professional, who is willing to share all the details, including his or her compensation (motivation) in placing the annuity. As with bank CD’s and most financial instruments, someone is making money on your money most of the time. However, net return is what we’re after for funds that need to be protected from stock and bond market volatility over a certain period of time.
There are much more complex annuity products than fixed annuities. Work with someone that you trust and are comfortable discussing financial concepts with, so that you feel confident about the decisions you make. Take your time and stay focused on your goals and what you want. Be cautious before changing your initial direction and moving to any other annuity product than a fixed rate annuity with a 5-year surrender period or less.
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