Over the past decade or so, the United States has been in the midst of a historically low-interest rate period. Even so, though, due in large part to the exceptionally volatile stock market – and in turn, the risk of substantial investment losses – many investors have been fleeing risky equities and have moved more funds into fixed rate options.
This is particularly the case for those who are on the cusp of retiring, as it appears that safety – albeit at a low rate – is the “lesser of two evils” between keeping principal intact or losing some (or all) of it.
That being said – even though most of us love guarantees – does it really make sense to lock in a certain rate for a set period of time, as you can do with multi-year guaranteed fixed annuities?
Or is it better to take a chance, given that rates could be rising down the road?
An unpredictable stock market has sent a record number of investors to lock in current rates with fixed investments and financial vehicles – at a time when interest rate percentages are still near all-time lows.
One reason for this is because safety can be far more appealing – even more so than the opportunity to gain. This is particularly the case with those who are fast approaching retirement.
But, while many would argue that locking in at a certain rate can still essentially result in a loss (i.e., by falling behind inflation and by not keeping your purchasing power on par), the truth is that there can still be some viable reasons to do so…depending on which financial vehicle you use.
Not All Fixed Rate Financial Products are Created Equally
Some of the more popular fixed-rate products of late include the CD (certificate of deposit) and the fixed annuity. But, while you won’t technically lose principal in either of these vehicles, there are some items to consider before making a commitment on one or the other.
First, unlike a certificate of deposit, annuities are not guaranteed by the FDIC. Rather, because they are an insurance product, they are covered by state guaranty funds instead. Before you go the route of the CD though – even if both the CD and the fixed annuity offer guaranteed rates for a certain period of time – consider this:
Because the funds that are inside of an annuity are allowed to grow on a tax-deferred basis, you won’t have to pay taxes on that gain until the time of withdrawal. And, if that time is many (or even just several) years away, this tax-deferral can truly help to grow and compound the earnings.
In addition, there is one other “small” factor that can put fixed annuities far and away the better alternative than other fixed options like CDs. That is the guarantee of income for life. If the lifetime income option is chosen with a fixed annuity, the recipient can count on a guaranteed stream of incoming cash flow for the remainder of his or her lifetime – regardless of how long that may be.
That’s something that CDs can’t do. Neither can bonds, money market accounts, or even good solid blue-chip dividend-paying stocks.
How to Find the Best Annuity for Your Short and Long Term Objectives
Even fixed annuities that may initially appear to be the same can differ – sometimes significantly – from one product to another. Because of that, it is recommended that, before you make a commitment to a fixed annuity, you discuss and compare your options with a trusted source.
That’s where we come in.
At Annuity Gator, our mission is to ensure that consumers understand annuity products BEFORE they buy – rather than locking into a long-term contract that can be difficult – and expensive – to get out of.
We make shopping for annuities easy – and we work with you one-on-one so that you get all of the questions answered that pertain to your particular situation, goals, and objectives. Then, and only then, will you be ready to make the best decision possible.
Ready to skip the high-pressure sales tactics and just simply learn more about how an annuity could benefit you? Just reach out to us, toll-free, at (888) 440-2468, or using our secure contact form here.