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This article is for informational purposes only and does not constitute investment advice. Investing involves risk, and readers should conduct their own research and due diligence before making any investment decisions.
As you get closer to retirement, it’s smart to move a significant portion of your savings from equities to principal-guaranteed products, such as bank certificates of deposit and fixed annuities. When there’s a significant downturn in the market, your retirement plan will remain intact.
“You won’t be forced to sell stocks or stock funds when the market is low,” says retirement-income expert Ken Nuss, CEO of AnnuityAdvantage, an online annuity marketplace.
Principal-guaranteed products include bank certificates of deposit, fixed-rate annuities, and income annuities.
Fixed-rate annuities often outperform CDs
Bank CDs pay a set rate for a fixed term and are backstopped by federal insurance. They are completely safe, but retirees and pre-retirees should consider an attractive alternative, the fixed-rate deferred annuity, he says.
This product, technically a multi-year guarantee annuity (MYGA), is sometimes called a CD-type annuity. It also pays a guaranteed rate of interest for a set term. However, it additionally offers tax deferral until you make receive income from it, and you can defer those payments indefinitely. Your money can grow faster free of federal and state taxes until you need it.
Rates have increased substantially in recent months, and today some fixed-rate annuities pay well over 5.00%. See this database of current MYGA annuity rates.
Issued by insurance companies, annuities aren’t federally insured like CDs, but life insurers have a solid track record of meeting their obligations, and state guaranty associations offer additional protection. Check the A.M. Best rating of the issuing insurer before you buy.
Create a private pension with a lifetime annuity
An income annuity offers a different approach. You turn over…
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