Annuities vs. Certificates of Deposit
What do you do in a low interest environment while trying to play it safe, especially if you’re using the interest to finance your retirement income? A Certificate of Deposit (CD)?
According to bankrate.com, the average five-year CD is paying well below 1.25% *. And with the CD, liquidity is an issue. If you get out early, breaking the rules, you can lose some past interest and your interest rate may reset at a lower level.
Another product today might just do the job – It’s called the multi-year guaranteed annuity or MYGA. Some MYGAs are currently paying much more for five years guaranteed – up to a 100% increase over most CDs and much more than treasuries.
MYGAs are tax-deferred and like most annuities of this sort, you can always take out your annual interest and also your required minimum distributions without penalties if it’s a qualified plan. Some MYGAs even allow you to take out 10% per year without a penalty. But there are penalties for early withdrawal.
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