In a shaky economy, should you invest in an annuity or a certificate of deposit? – St George News

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SPECIAL FEATURE – While both bank certificates of deposit (CD) and annuity insurance offer guarantees, the rate of interest earned may be a different story.

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Aside from near zero interest rates thanks to the Federal Reserve, those who save in traditional funds like CDs and savings accounts face increased fees and possible institutional bankruptcy. When the economy falters, the Fed usually cuts interest rates.

While this can be fine, it penalizes those with large cash reserves parked on CDs or savings accounts, and often leads them to take more risks with their money than they normally would. Despite historically low interest rates, banks continue to tighten lending standards and aggressively avoid risk, making it difficult for small businesses and individuals to borrow.

Put simply, safety rules apply in a shaky economy.

When faced with economic uncertainty, most people crave security, especially if they can retire in a few years. Although they are aware of the erosive effects of inflation on their wealth, many retirees fear losing money that they don’t have time to replace. Because of this, those nearing retirement often seek to transfer their more fragile assets to safer instruments like annuity products or bank CDs.

Should you choose an annuity or a CD?

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Say you’re someone with cash on hold on a low-to-zero interest account and want to find ways to make that money work harder, smarter for you. On the one hand, it’s hard to resist the siren song of higher returns in the market. On the flip side, the thought of losing even a dime of your nest egg is almost unbearable when you’re just a few years away from retirement.

After examining their goals and risk tolerance, many early retirees choose to balance their portfolios with “safe money” products such as annuities or bank CDs. While CDs are a traditional safe money option, annuity products offer some additional benefits.

When deciding whether to invest money in an annuity or a CD, you should ask yourself the following:

  • Is it important that the government support my investment?
  • Do I want a guaranteed, predictable income?
  • How long do I want to invest my money in a product?
  • What do I do with the money when I have saved it?
  • How important is portfolio diversity to me?
  • What are my long term and short term monetary goals?
  • Do I want to create a legacy?
  • Do I need to have a product that I can customize to suit my needs?
  • Is liquidity a major concern?
  • Do I want to use this product to plan long-term care needs?
  • Am I looking for a short-term or a long-term solution?
  • Do I understand all the pros and cons of annuities and CDs?
  • Can the pension insurance companies settle my claim in due course?

Bottom line: When the economy falters, safety becomes paramount, especially for those close to retirement or who have already left the world of work. Both pension and bank CDs offer asset protection. However, for those with specific goals, annuities can be a better match for their long-term financial goals.

When making these decisions, it is advisable to consult with a qualified planner who has specific knowledge about retirement products and the retirement phase of life.

Copyright © Lyle Boss, all rights reserved.

Lyle Boss is a member of Syndicated Columnists, a national organization that advocates a fully transparent approach to money management. As an asset protection instructor, he has helped thousands of seniors find their financial retirement options. Its clients include government employees, teachers, doctors, farmers and business people to name a few. Boss has been actively teaching advanced estate planning and wealth preservation for more than 20 years in locations like the University of Utah and in over 200 Senior Retirement Consumer Education Workshops throughout Utah, Idaho, and Wyoming. Boss and his wife Deanna live in South Ogden and St. George, Utah.

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