Annuities: Worth the Complexity for the Benefits
Michael identified two features of his annuity that won him over: the rate and the tax benefits. Annuity interest rates are highly competitive, meaning issuers will fight to put more money back in your pocket for your annuity purchase.
“It fits what I was looking for with a good rate and tax benefits,” Michael said. “One thing I like about an annuity is that you don’t have to pay taxes until you actually get the interest dividend from the account. So you can accumulate until you decide to withdraw and then it will be taxed.”
An annuity’s tax deferral feature and high interest rate can be beneficial to retirees compared to another option, like a CD, because it provides security plus a greater investment return.
It’s no secret that annuities have a bad rap for being complicated, which could be why some retirees are hesitant to invest in one. However, Michael explained how finding a trustworthy agent can make the buying process easy.
“The process of buying an annuity? No, it wasn’t difficult. Finding the right person to represent me was the most difficult [part] because I had to make sure they had my interest at heart, not just their own.”
Does This Mean CDs Aren’t Worth It?
Michael’s take doesn’t mean that you should disregard CDs altogether. Instead, consider CDs a smaller piece of the retirement planning puzzle. Annuities have a lot of benefits that specifically cater to retirees, while CDs provide smaller benefits that can apply to all age ranges.
In fact, Michael himself has several CDs incorporated into his retirement plan. “I have a diversified portfolio of stocks, CDs and annuities. I don’t put all my eggs in one basket.”
Editor Bianca Dagostino contributed to this article.
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