Ken Nuss

	While many people put all their money dedicated to annuities in either the fixed-rate or fixed indexed bucket, you don’t have to.

Both plain fixed-rate annuities and more complex fixed indexed annuities (FIAs) can beat bonds.

 from famed economist Roger Ibbotson says that investors should consider FIAs as a low-risk bond alternative likely to produce better returns. Ibbotson’s groundbreaking research includes extensive simulations. He and his team found that uncapped FIAs would have outperformed bonds on an annualized basis over 90 years, from 1927 to 2016.

Furthermore, the big capital gains in bonds over the last 10 years are highly unlikely to recur over the next 10 years, Ibbotson wrote. If rates rise, bond investors will instead incur capital losses.

FIA returns are linked to the performance of stock indexes such as the S&P 500 but are guaranteed not to lose money. Thus, they provide some of the upside of the stock market with none of the downside.

As a result, uncapped FIAs offer a more tailored risk profile than bonds, capturing a portion of the growth offered by large-cap stocks, while lowering overall market risk, the study found.

The study is an important advance that validates FIAs as asset class thoughtful investors should consider. They offer a wide range of designs, but the inherent complexity means it is wise to have an unbiased advisor walk you through your choices.

FIAs are tax-deferred. Interest isn’t taxed until withdrawn.

While FIAs may outperform plain fixed-rate annuities over the long term, the latter have many advantages over bonds too.

Some investors prefer fixed-rate annuities because they’re more predictable and easier to understand than the indexed variety. Like CDs, they offer a fixed rate of return for a set period of time, but unlike CDs, deferred annuities are always tax-deferred.

There’s no sales fee, so all of your money goes to work immediately.

Fixed annuities have more guarantees and less risk than bonds, especially bond funds. If rates go up and you sell a bond prior to maturity, it will be worth less than its original cost. With an individual bond, you can avoid this by holding it to maturity.

But investors in bond funds don’t have that option. If interest rates spike up after you buy a fund, the value will decline.

Owners of individual bonds, except Treasuries, also face default risk.

In contrast, a fixed annuity is guaranteed by the issuing insurance company. State regulators constantly monitor the financial strength of insurers. State guaranty associations provide an additional level of protection.

With fixed annuities, the insurance company bears the underlying investment risk, shielding annuity owners from both bond market volatility and default risk.

Fixed annuities also let you reinvest interest earnings without risk. Reinvested interest earns the same rate as the base annuity, so the yield is guaranteed.

Contract owners who need income can choose to receive taxable interest earnings monthly, quarterly or annually.

Consider Splitting Annuity Money Between Fixed-Rate and Fixed Indexed

While many people put all their money dedicated to annuities in either the fixed-rate or fixed indexed bucket, you don’t have to.

Savers should consider acquiring both types. Using both lets investors get predictable interest income from fixed-rate annuities while having the opportunity to earn higher yields over the long term with the indexed variety.

FIA yields vary from year to year. If the market index is down for the year, the yield will be zero for that year.

Fixed indexed annuities are suited for investors with a time horizon of seven or more years and who have other funds they can tap in the interim.

If you need to withdraw interest earnings annually, I’d recommend plain fixed-rate annuities. If not, consider a fixed indexed annuity.

The Ibbotson and Zebra Capital Management whitepaper, “Fixed Indexed Annuities: Consider the Alternative,” can be obtained from 

Annuity expert Ken Nuss is the founder and CEO of 

, a leading online provider of fixed-rate, fixed-indexed and immediate-income annuities. launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities. More information is available from the Medford, Oregon, based company at 

Articles

Bond yields are low. How can investors get a better return without taking on more risk?

Want to Do Better Than Bonds? Consider Fixed Indexed Annuities and Fixed-rate Annuities

Having to make early withdrawals during market downturns can decimate a portfolio.

Consider a retired couple with a $1 million portfolio. During their first year of retirement, the market drops 26 percent and they also make a $40,000 withdrawal, or 4 percent of their original principal, at the end of the year. Now their portfolio is down to $700,000.

In year two, the market is up 4 percent, but because their second $40,000 withdrawal is at the end of the year, their portfolio will shrink to $688,000.

Unless there’s a big multi-year market rally soon, the portfolio can enter a death spiral. Even several years of good returns won’t stem the decline, and eventually, it can vanish.

In contrast, if an investor enjoys strong returns during the early years, his or her portfolio will continue to grow despite withdrawals. It can withstand bear markets later on.

It’s just a matter of luck if a down market strikes early or late in your retirement. But you can’t rely on luck.

What’s the answer? Completely avoiding equities isn’t a good choice for most retirees because it precludes growth.

Achieving the right balance between volatile equities and stable investments is a calculation that’s different for every retiree.

The challenge is to get the best combination of yield and liquidity from the guaranteed portion of your retirement savings.

Having some cash is okay, but a large allocation isn’t wise. Yields on money market and savings accounts are running well behind the rate of inflation, even before taxes.

Certificates of deposit pay more but are largely illiquid, and yields aren’t impressive these days.

Guaranteed annuities offer a good solution for a portion of your retirement money. There are a number of types that can be deployed to meet virtually any retiree’s needs.

Various types of fixed annuities all guarantee your principal, but their characteristics are quite different.

A retiree can choose an immediate annuity that produces an immediate stream of income for either a set number of years or a lifetime. The monthly payments provide a cushion so that the owner won’t have to sell equities to raise cash in a down market. Meanwhile, the money remaining in the annuity is earning a much higher internal rate of return than cash equivalents.

Retirees can also invest in deferred fixed-rate annuities, which act much like a CD by providing a (usually higher) set rate of interest for a set period of time, plus tax deferral and some liquidity. These annuities often permit the owner to withdraw up to 10 percent annually without penalty. The accumulated interest portion of amounts withdrawn, however, is usually fully taxable.  

Another good option is the fixed-indexed annuity, which is immune to stock-market downturns while offering a share of the gains when the market goes up.

It gives you an opportunity to earn more interest than you can get from a fixed-rate annuity or a bank CD. You can shelter some of your money from market risk without locking in a lower interest rate.

Fixed indexed annuities, however, are less liquid than other investment alternatives, so it wouldn’t be a wise choice to put all of your retirement money into them. But they do help buffer a portfolio from severe ups and downs while offering potentially higher earnings than fixed-rate annuities over the long run. Many also offer lifetime income riders that can further reduce income uncertainty during retirement. The surrender terms of fixed-rate and fixed-indexed annuities can be laddered so that at least one is maturing each year and can be tapped if needed.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed and immediate-income 

. He launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities. More information is available from the Medford, Oregon, based company at 

Click here to sign up for more Dentist's Money Digest content and updates.

Adhering to New Dental Codes Brings Financial Benefits

Dentist Fueled by Creating Experiences for His Patients

Dental Accounting Tips To Make the Numbers Work For You

Market Plunge Plus Withdrawals During Early Years of Retirement May Cause Portfolio Death Spiral

The longer you delay taking payments and the more advanced age you start taking them, the greater the monthly payout.

More people are living into their late 80s, 90s and even past 100. But longevity isn’t so great if you run out of money.

To avoid that risk, you can buy longevity insurance. It’s a special kind of deferred annuity that assures you’ll have a guaranteed income forever, even if you live to 100 or beyond.

The longevity annuity hedges against the financial risk of living a very long life. You can think of it as the opposite of life insurance.

Independent experts say it’s worth considering. Writing in the 

l, Jason Scott of Financial Engines asserted, “For a typical retiree, allocating 10—15 percent of wealth to a longevity annuity creates spending benefits comparable to an allocation to an immediate annuity of 60 percent or more.”

The longevity annuity — also called a deferred income annuity — combines tax-deferral with a future stream of income. Instead of paying anything immediately, it defers payments until a future date of your choice. Most buyers choose to start taking payments when they turn 80 or older.

You’ll know the exact amount of monthly lifetime income you’ll receive and the exact date when it begins. You can buy either a single-life annuity or a joint-life annuity, which typically covers both spouses.

It’s the most efficient way to protect against outliving your assets in very old age.

The power of the approach results from two things. First, the insurer invests your money for many years, enabling it to compound until you begin receiving income. Second, buyers who do not live to an advanced old age in effect subsidize those who do.

A Different Way to Structure Retirement Income

The longevity annuity offers a different way to plan for retirement.

Suppose you’ll retire at 65. You can use part of your money to buy a longevity annuity that will provide substantial lifetime income starting at 85, for example. Then, with the balance of your retirement money, you only need to create an income plan that gets you from 65 to 85 instead of indefinitely.

You don’t have to deal with the uncertainty of trying to make your money last for your entire lifetime.

Also, since you know you’ll have assured lifetime income later on, you can feel less constrained about spending money in the early years of your retirement.

You can buy a longevity annuity with taxable savings or within an IRA. The latter is called a qualified longevity annuity contract (QLAC), which is a type of longevity annuity designed to meet specific IRS requirements. There’s a $130,000 lifetime limit on deposits.

The annuity can be purchased with a lump sum or a series of deposits. The issuing insurance company guarantees a lifetime income to begin at whatever age you choose, starting no later than 85.

If you’re married, you and your spouse can each buy individual longevity annuities, or you can purchase a joint payout version, where payments are guaranteed as long as either spouse is living.

What happens if you die before you start receiving payments or only after a few years, when the total amount of payments received is less than the original deposit? To deal with that risk, most insurers offer a return-of-premium option that guarantees your beneficiaries will receive the original deposit premium.

This is a popular option, but it does reduce the payout amount slightly when compared to the payout amount without the return-of-premium guarantee.

It comes down to personal preference. If you don’t have a spouse or anyone else you want to leave money to, you won’t need this option.

		Male buyer, 65, $150,000 deposit, income starts at 80, with return-of-premium guarantee: $2,351 monthly lifetime income

		Female buyer, 65, $150,000 deposit, income starts at 85, return-of-premium guarantee: $3,627 monthly lifetime income

		Joint for spouses, both age 70, $150,000 deposit, income starts at 83, no return-of-premium: $2,189 monthly lifetime income

More information about longevity annuities, including a video, is available at 

www.annuityadvantage.com/annuity-type/deferred-income-longevity-annuities

Annuity expert Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed and immediate-income annuities. He launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities. More information is available from the Medford, Oregon, based company at 

Weighing the Pros and Cons of Dental Service Organizations

Dental Podcasts Enhance Networking, Revenue Potential

Buffering the risk of living to a very old age.

Longevity Insurance Is Underused in Retirement Planning

The right mix of growth, safety and safety-plus-growth-potential investments is determined by your risk tolerance.

Financial planners agree that pre-retirees and retirees need investment growth to beat inflation.

But while equities have outperformed fixed options in the long run, markets can plummet and take many years to recover. Retirees who have too much money tied up in the stock market take a big risk. If you need income and have to take withdrawals when the market is down, you may deplete your savings prematurely.

At the other extreme, putting all your money in safe Treasuries and CDs presents a different risk. With their low yields, they may not offer a sufficient bulwark against inflation.

So how can you structure your savings to grow faster than the rate of inflation? How can you obtain safety, yield and growth potential?

Divide your retirement portfolio into 3 buckets: 

By splitting up your savings wisely among these 3 slices, you’ll have the best shot at beating inflation without taking excessive risk.

 include certificates of deposit, bank accounts, Treasuries, municipal bonds and fixed-rate annuities. Safe investments, except annuities and municipal bonds, increase your taxable income unless they’re in a qualified retirement account.

Among safe-bucket choices, only fixed-rate deferred annuities are tax-deferred. Without the drag of annual taxes on your interest earnings, your savings will grow faster until you need the money.

Tax deferral is a key tool to beat inflation. Max out your contributions to your IRA or 401(k) or similar plan, and then shelter from taxation even more of your retirement savings in annuities.

Like CDs, fixed annuities pay a fixed rate of interest for a set period of time that you choose. But they usually pay considerably more than CDs with the same term. For instance, the highest-paying 5-year CD was recently yielding 2.45% versus 3.30% for a 5-year annuity.

That extra 0.85% point of yield means that that the annuity is paying 34.7% more than the CD. Combining a markedly higher yield with tax deferral makes for a big long-term advantage.

. The fixed index annuity is the only vehicle in this category.

This is the only asset I know of that both guarantees your principal and gives you market-based upside potential. It can hedge against inflation without adding downside risk.

Your principal is guaranteed, but the interest rate varies according to the performance of an underlying market index. The product is suited for people who want principal protection but are willing to withstand some interest-rate uncertainty.

You get an opportunity to earn more interest than with other safe investments. You can shelter some of your money from market risk without locking in a lower fixed interest rate.

The fixed index annuity credits interest based on the changes to a market index, such as the Dow Jones Industrial Average or S&P 500. Interest is credited when the index value increases, but when it falls, you lose nothing. Since the minimum interest rate is usually 0, there may be years when you earn no interest.

In exchange for downside market protection, you’ll usually receive less than 100% of the index’s gains — how much you’ll get depends on the limiting factor(s) used.

A cap rate sets the maximum rate of interest. A participation rate determines what percentage of the increase in the underlying market index will be used to calculate the index-linked interest credits during the index term. A spread rate or margin is a percentage that’s deducted from the change in the underlying index value to determine the net amount of index-linked interest credited to the annuity.

Fixed index annuities are suited for investors with a longer time horizon of 7 or more years. People who can meet their liquidity needs from other accounts are good candidates.

 primarily US and foreign stocks, are generally considered the best long-term inflation hedge but have unpredictable returns over the short and medium term. Retirement savers should decide how much risk they can withstand today while gradually reducing their equity portion as they age.

How much should you allocate to these 3 buckets? One question to ask is: How much of my funds am I willing to wait to regrow in case of a market decline before I want or need to access them?  Also, consider your need for cash and/or income.

If you need to withdraw interest earnings annually, I’d recommend plain fixed-rate investments for that portion of your assets. Beyond that, the right mix of growth, safety and safety-plus-growth-potential investments is determined by your risk tolerance.

, a leading online provider of fixed-rate, fixed-indexed and immediate-income annuities. He launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities. More information is available from the Medford, Oregon, based company at 

Beat Inflation, Reduce Risk by Splitting Savings Among Safety, Safety-Plus-Growth, Growth Buckets

	The top 3-year CD was paying 1.85% versus 2.15% for the top comparable annuity — a 16.2% advantage.

	Americans love certificates of deposit. But fixed-rate annuities, which function like CDs, usually pay a significantly higher guaranteed rate, and they offer tax deferral.

CDs have one main advantage over annuities: they’re insured by the FDIC. But I think it’s a tiny advantage, all things considered.

Fixed annuities are guaranteed by life insurance companies, which are strictly regulated by the states to ensure solvency. And fixed annuities are also protected, by state guaranty associations up to certain limits.

Fixed-rate deferred annuities are also called multi-year guarantee annuities or CD-type annuities. Like CDs, they provide a set, guaranteed interest rate for a stated period of time, usually 3—10 years.

As with a CD, there’s no sales charge. Whether you deposit $10,000 or $100,000 in a fixed annuity, all of it goes to work for you immediately.

Here are the main ways fixed-rate annuities beat CDs.

Substantially higher rates, sometimes more than 1/3

 The highest-paying 5-year CD was recently yielding 2.45% versus 3.30% for a 5-year annuity — that’s 34.7% more.

The top 3-year CD was paying 1.85% versus 2.15% for the top comparable annuity — a 16.2% advantage.*

All CD interest is subject to federal and state income tax annually, even when it’s reinvested and compounded in the CD. A fixed annuity is tax-deferred. You won’t receive an annual 1099 and you won’t pay tax on the interest until you withdraw it. At the end of the annuity’s initial guarantee period, you may renew it for another term or roll it over into another annuity to continue deferring taxes.

Tax deferral doesn’t apply when you hold an annuity in an IRA or other retirement account because those accounts are already tax advantaged. Since you get a guaranteed, competitive rate, they’re still a top choice for the portion of your retirement assets you want to protect and shelter from market risk.

For certain retirees, lower taxes on Social Security benefits. 

About 40% of retirees who receive Social Security pay taxes on at least a portion of their benefits. By reducing eligible income, you may be able to cut the amount of your Social Security benefits subject to income taxation. Someone who ditches their taxable CD and purchases an annuity reduces the income that may trigger the tax on Social Security benefits. Most of the 40% of recipients who pay taxes on their benefits will profit from this strategy, but high-income retirees won’t.

Almost all banks impose substantial penalties on all early withdrawals from CDs. Most fixed-rate annuities let you withdraw interest or up to 10%  of the value annually without penalty, points out. You will, however, have to pay income taxes on any interest withdrawn. Additionally, if you make an early withdrawal before age 59½, you’ll also owe the IRS a 10% penalty on withdrawn interest earnings.

*Sources: AnnuityAdvantage’s database of 290 fixed-rate annuities and Bankrate’s list of CDs

CDs have one main advantage over annuities, but it's a tiny advantage, all things considered.

Annuities Beat CDs by Offering Higher Guaranteed Rates and Tax Savings

	Because annuities, life insurance policies and retirement plans list beneficiaries, they all bypass probate court, meaning that the will won’t determine who gets the proceeds.

Once you’ve bought an annuity or a life insurance policy and named your beneficiaries, you may never think about your beneficiaries again — but that could be a big mistake.

If you get divorced and remarry, but fail to change your beneficiary from your ex-spouse to your current spouse, your ex will receive the proceeds. Besides divorce, other life changes such as marriage or death of a loved one are occasions to review beneficiaries.

Additionally, there may be new people in your life that you want to include, like grandchildren or perhaps there’s a charitable organization you wish to support.

Before making any changes, it’s important to understand how primary and contingent beneficiaries work.

If you’re married, your spouse is usually your primary beneficiary and your child or children are contingent. Contingent beneficiaries will receive the proceeds on your death if your primary beneficiary passes before you do or at the same time as you.

While you should notify the insurer about the death of a primary beneficiary, even if you don’t, the proceeds will automatically go to contingent beneficiaries.

If you have a number of grandchildren, the issue becomes more complex.

The default is to name your spouse your primary beneficiary and name your children contingent beneficiaries, who’ll all share equally in the proceeds, but suppose you’re married and have 3 adult children.

Here’s where it gets complicated. Suppose child A has 3 children, child B has none and child C has 2, for a total of 5 grandchildren.

What would happen if both your spouse and child C predecease you? In that case, unless you’ve set up your beneficiaries correctly, all the proceeds would go to your 2 surviving children. Child C’s two children would be disinherited.

Instead, you can specify that if 1 of your children is deceased that their share will go to his or her children. This is called a per stirpes distribution.

That means that each branch of the family will receive an equal share. If that’s what you want to do, you must request per stripes because equal distribution (per capita) is the default.

Per stirpes designations are available from most but not all insurance companies.

Because annuities, life insurance policies and retirement plans list beneficiaries, they all bypass probate court. This means that the will won’t determine who gets the proceeds — which is why having the right beneficiaries is so crucial.

My brief video about using per stirpes can be viewed online at 

https://www.youtube.com/watch?v=rOBK-nVYxgA

Contact:  Henry Stimpson, Stimpson Communications, 508-647-0705, Henry@StimpsonCommunications.com

Ensure fairness across generations by choosing the right annuity or life insurance distribution method.

It's Crucial to Update Beneficiaries When Life Changes

	 Annuities are issued and guaranteed by insurance companies, so it’s important to choose a financially strong company.

In the current bull market, those who made money now find their asset allocation out of kilter. People who planned to put, say, 55% of their money in stocks may find they’re now 75% in equities.

A bear market could wreak havoc on both portfolios and the psyches of investors, who’ve experienced an unstoppable stock market for 8 years. Financial experts agree it’s important to rebalance periodically, which is especially crucial for retirees and near-retirees.

If you want to move some of your money out of stocks, what are the pros and cons of various alternatives?

Money market funds are safe and liquid but pay little interest. Certificates of deposit are FDIC-insured but somewhat illiquid and pay modest yields. Bond funds are liquid and convenient, but short-term funds also pay modest yields. Longer-term funds pay more but their share prices are vulnerable to interest-rate hikes.

Fixed annuities are often overlooked. They offer a proven way to lower your risk. As well as guaranteeing your principal, they can cut your taxes and boost your yield.

Annuities do have limited liquidity, however, so they’re best for savers who can hold them to maturity, usually 3&shy;—10 years, depending on the contract.

There are 2 main choices: fixed-rate annuities or fixed indexed annuities. Both options lower your risk profile and protect your principal. Fixed-rate annuities are straightforward while fixed index annuities are more complex, but offer more potential upside.

Fixed-rate annuities are similar to CDs but pay more

A fixed-rate annuity is much like a CD, it pays a guaranteed rate for a set number of years. An annuity has two key advantages: tax deferral (when held in a taxable nonqualified account) and most often a markedly higher rate than a CD with a similar term.

They’ve grown increasingly appealing since rates 2017 have risen. You can now earn up to 3.30% for a 7-year annuity, up to 3.15% for a 5-year contract, and up to 2.10% for a 3-year annuity, according to AnnuityAdvantage’s database of 290 fixed-rate annuities from 35 insurers.

Annuities are issued and guaranteed by insurance companies, so it’s important to choose a financially strong company.

Once the term is up, the owner has many choices, including rolling over money into another annuity and continuing to defer taxes. You can also choose to annuitize the contract to create a stream of income guaranteed for life.

Fixed indexed annuities: guaranteed principal plus upside potential

While people are worried about downside risk, they equally don’t want to miss out on potential stock market gains and a fixed indexed annuity can meet both concerns — allowing you to have your cake and eat it too.

The product gets its name because the rate of interest it pays annually is based on the changes to a market index, such as the Dow Jones Industrial Average or S&P 500. Interest is credited when the index value increases.

The big advantage is when the market falls, you lose nothing. Even if there’s a 2008-09-style crash, you won’t lose a cent.

In exchange for guaranteed principal, you’ll typically receive only part of the market’s gains as an interest credit and you can shelter some of your money from market risk without locking in a lower fixed interest rate.

Because several different indexing methods may be available in 1 policy, with most companies offering annual reallocation windows, it takes some thought to select which method(s) to choose.

You won’t know the interest rate you’ll earn until the index or indexes have completed their measuring period. Usually, this is annually, but some annuities won’t credit earnings until the end of 2—3 years or more. The minimum interest rate is usually 0, so there may be years when you earn no interest.

When you’re rebalancing to reduce risk, make sure you consider all your money, in both taxable and retirement accounts.

While most people think of using fixed index annuities only for taxable (nonqualified) money, they’re also a compelling choice for a portion of your IRA or Roth IRA money.

Despite the tax-deferral feature not applying to a retirement account, which is already tax-deferred, a fixed annuity still has the benefits of guaranteed principal and a higher yield than a CD or most other fixed-income options.

Recognizing Body Dysmorphic Disorder in Cosmetic Dentistry

Balancing Investments and Student Loans After Dental School

The Dream of Independent Dentistry is Alive and Well

If the bull market has skewed your asset allocation, fixed-rate annuities or fixed indexed annuities can help.

Ways To Reduce Bull Market Risk

Tax deferrals allow you to pay applicable investment taxes at a later date.

If you’re contributing the annual maximum to your IRA or 401(k) plan, you’re ahead of most people. But tax-qualified contributions alone will probably not give you what you’ll need for retirement, according to Ken Nuss, CEO of AnnuityAdvantage.

Promote Your Practice on Facebook with These 3 Simple Methods

Recognizing and Addressing Drug-Seeking Behavior in Your Practice

Weekly Tech: The Alzheimer's Drug that Stimulates Tooth Regeneration

Tax deferral is a powerful tool in saving enough to meet your retirement goals. And that’s why tax laws encourage people to use both retirement accounts and annuities. 

“Retirement accounts are great, but they have strict annual contribution limits. Because nonqualified annuities don’t, they can play a key role in achieving your retirement goals,” he points out.

Consider a fixed annuity paying 3 percent — a rate that’s readily available today—versus a certificate of deposit paying the same rate. Assume the buyer’s combined federal-state income tax rate is 25 percent, a typical figure. After 10 years, a $100,000 premium payment made to a tax-deferred annuity will grow to $134,392. But the CD will only grow to $124,920, assuming income taxes are withdrawn and paid each year.

That is a $9,472 advantage for the annuity owner when compared to the bank CD. After 20 years, the annuity advantage increases to $24,560, Nuss says. 

This comparison, however, ignores the fact that annuities today typically pay much more than a CD of the same duration.  A recent web search shows that the highest yielding CD on the market was 2.35 percent for a five-year term — that’s 21.7 percent less than 3 percent.   

The CD owner pays taxes on the interest annually. The annuity owner will owe tax on accumulated interest when it’s withdrawn. Withdrawals, however, can be put off until the owner needs the money and may be in a lower tax bracket. And there’s also the option of eventually annuitizing the money, which spreads out the tax burden over one’s lifetime, he says. 

Besides tax deferral, a fixed annuity offers a guaranteed rate and guaranteed return of principal. All authorities on investing recommend diversifying one’s investments among stocks and fixed-income products, which include savings and money market accounts, bonds, CDs and fixed annuities. As you get closer to retirement, you should shift a larger percentage of your money from equities to fixed-income.

“Since you’re going to need balance in your portfolio to counteract the volatility and risk of stocks, you might as well get the best long-term return from your fixed-income allocation. An annuity can give you both an attractive rate and tax deferral,” Nuss says. 

Annuities do have one marked disadvantage: When you make a partial withdrawal, interest earnings are considered withdrawn and taxed before principal. But even that disadvantage has a positive aspect.

“Since you know you’re going to pay a tax on withdrawals, you have a strong incentive for leaving your money in the annuity until you need it during retirement instead of spending it on something frivolous,” he says. 

And while most people think of using fixed annuities only for taxable (nonqualified) money, they’re also a compelling choice for a portion of your IRA money, Nuss says. While the tax- deferral feature doesn’t apply to an IRA, which is already tax-deferred, or to a tax-free Roth IRA, an annuity still has the benefits of guarantees and a higher rate than a CD or other fixed-income options.

Rates on fixed annuities have risen a little this year. They now pay up to 3.30 percent for a seven-year annuity, up to 3.15 percent for a five-year contract, and up to 2.10 percent for a three-year annuity, according to AnnuityAdvantage’s database of 290 fixed-rate annuities from 35 insurers.

Annuity expert Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed and immediate-income annuities. He launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities. More information is available from the Medford, Oregon, based company at https://www.annuityadvantage.com.

When it comes to retirement savings plans, even annual maximum contributions may not be enough to allow you to retire comfortably. Ken Nuss, CEO of AnnuityAdvantage, recommends annuities for the tools they come with. Continue below to learn how annuities can benefit you. 

Tax Deferral and Guarantees Make Annuities a Compelling Way to Save for Retirement

A lifetime annuity, which allows you to create a custom pension, protects you as you enjoy your golden years.

There is a time-tested way to create your own supplemental pension: Economists agree that annuitizing a significant portion of your retirement savings is the way to go, according to a study from Wharton Financial Institutions Center.

By buying a lifetime income annuity, you can create your own custom pension. Also referred to as single-premium immediate annuities, you can convert your savings into a monthly income that is guaranteed for life.

Few people have enough income from Social Security and ever-shrinking company pensions to fully support their retirement. They need a way to get additional guaranteed lifetime income. Luckily, there are options available so pending retirees can manage their own custom-made pensions. Read on to see what our annuity expert advises.