Brian Gruss Licensed Insurance Planner

Let’s take a apples to apples approach at looking at some of the differences between a CD (Certificate of Deposit) and a annuity.

CD’s have immediate tax liabilities,; this creates the need for a higher rate of return

With a fixed annuities, you will eventually have to pay taxes on the money you withdraw.  However, as the numbers below shows, fixed annuities require a much lower interest rate to generate the same return as a CD.

For example, if your income places you in the 28% tax bracket and you purchase a tax-deferred fixed annuity with a guaranteed interest rate of 4.25 percern, you’d need a CD with an interest rate of more than 5.9 percent to outperform the annuity.

Now let’s say that your income places you in the 25 percent tax bracket and you purchased a fixed annuity with a guaranteed interest rate of 3.5 percent, you would need to purchase a CD with an interest rate of more than 4.67 percent to outperform the annuity.

If your CD’s are not performing like you would like them to, let’s talk about how annuity might be able to help you out.  I offer annuities through multiple carriers and ranging in years from 2-14.

Oh and with most annuities unlike most CD’s you can withdraw a portion of the annuity without any penalties from the carrier.

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Why do you buy insurance?

Insurance is purchased for one reason and one reason only, to protect against a potential future risk. Traditionally purchasing insurance is not fun, it’s not easy and you really are not for sure after you purchased a policy whether you did the right thing.

I work with my clients to educate them of all their options so that they can make the best decision for themselves, family or businesses. You may be asking why I don’t push my “goto” carrier (which in the insurance field is usually the one paying the highest commission). First of all I don’t have a “goto” carrier. I contract with mulitple “A rated” carriers, and use them equally so that my clients have the best available options for their unique situations.

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Retirement Planning: The Advantages of Fixed Annuities

A fixed annuity is a contractual obligation rendered by an insurance company with a pledge to disburse income to a recipient based on a fixed return on investment. Therefore, they are ways for the holders of such instruments to be guaranteed future dividends or a source of income. That’s why, when selecting from the variety of annuities available, annuities are a logical choice to make for retirement planning.

Fixed annuities have a rate of return or ROI that is equal to the rate of return of the market. Therefore, they offer a lower risk to the consumer and, as a result, more financial security. Comparatively, variable annuities incur more risk for the consumer. Variable annuities typically glean a higher return rate although the holder of these types of instruments is also more vulnerable financially. Therefore a greater risk is supplied. Subject to market rates, you can possibly lose a portion of what you invest.

On the other hand, fixed annuities offer the convenience and comfort associated with a lower-risk instrument. The holder of the annuity simply opts for a lower rate of return. You might say a fixed annuity can be likened to a CD, except you realize a far greater return on your investment because your money is committed for a far longer period of time.

Investing in fixed annuities is financially sound from a tax standpoint as all deposited funds in such annuities are tax-deferred until which time you decide to receive income from the annuity. At that time, taxes are taken out only on the income growth, thereby making these types of annuities ideal for retirement planning.

Because of the tax advantage, these products are used primarily for long-term planning purposes. In other words, income cannot be collected from the annuity prematurely, which means before the age of 59 ½, as the holder can be assessed taxes, fees, and penalties. Also, surrender charges are imposed if you choose to cash in your annuity before the specified time. The charges can be excessive so one should consider them for long-term investment purposes only.

If you are truly serious about planning for retirement and are someone who needs a financial product that provides a minimal amount of risk, a fixed annuity may well be worth your consideration.

Take time out to contemplate all the pros and cons of owning such an instrument. For retirement planning purposes though, fixed annuities are ideal because, as previously stated, they offer a tax advantage for the consumer.

Additionally, the opportunity to invest in other enterprises is increased because of the annuity’s tax benefits. You can become prosperous with your short-term investments while investing in a solid financial product in order to secure your future income needs.

In summation, fixed annuities provide the kind of financial security you need now to realize monetary growth in other areas, and the assurance that you will be provided an adequate future return on your investment.

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