Indexed annuities vs other savings alternatives
Let's examine the five most common options for retirement savings: CDs, money market funds, bond funds, stocks and real estate funds. On the Annuity side we have never had it so good. Lets look at why I can say that.
CDs
According to www.bankrate.com, the average 5 year CD rate is 3.6% whereas the highest rate is 4.75% (from a few internet banks). Caps on some point to point indexed annuities are as high as 9%. Rarely, has current cap rates been twice as high as the highest CD rates. Its' a good time for indexed annuities or Multi Year Guarantee Annuity (MYGA). 5 Year MYGA rates are between 4 -5%.
Money market funds
According to www.bankrate.com, the average money market fund yields 2.6% whereas the highest rate yields 3.4% (from a few internet banks). Caps on annuity products are almost three times money market funds. Average inflation rates have been between 2-3% and are trending higher due to gas prices, food prices, transportation costs and almost everything we need to buy.
Bond funds
Here's what we know. The 10 year bond yield is 4.07%, close to all time lows. We also know that rates have climbed in the last few days concurrent with new inflation reports. Oil of course is a record high around $133 per barrel. Looks like higher rates are certainly a real possibility making the purchase of bonds and bond funds very risky. The next few years may see bond true yields approaching 0% as interest rates rise and yields on current bonds fall.
Stocks
Do you feel lucky? Most investors have seen losses in the last year or two. Stocks are for risk money. Diversify part of holdings into Safer Money Alternatives. Enough said.
Real estate related
Can you say the word foreclosure? How about falling real estate prices. Last year I was told by a client that he didn’t need to invest in anything but real estate. Today he is wrapped up with assets he can’t sell that have a falling real values even if he could find a buyer. Lets not forget that he has to pay a 5-7% sales commission when he sells compounding the loss. I am not suggesting one should not hold real estate investments but I am suggesting it should be balanced with a Safer Money Alternative.
Inflation and Taxes impact on taxable earnings
Average inflation rates have been between 2-3% and are trending higher due to gas prices, food prices, transportation costs and the cost of almost everything we need to buy. When you combine the inflation rate and the income tax rate many years see a real loss of buying power with the typical yield of money market funds or bank CD’s. That is not a successful long term or retirement plan!
Are there any alternatives avoiding this pain
Everyone should have diversified some of his assets into a Safer Money Alternative like Fixed Indexed Annuities (FIA) or Single Premium Immediate Annuities (SPIA) that produce a lifetime income stream that an individual or a couple can not outlive. Some of these alternatives can even increase your income over time offering some inflation protection. Contact me to discuss your Safer Money Strategy for part of your assets.
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