If you've seen the latest interest rates offered in traditional safe money vehicles such as bank cds, money markets, and bank savings accounts, I'm sure you just about laughed out loud or even worse...about had a heart attack.  With the 10 year US Treasury Bond currently yielding 0.65%, rates in every other safe money instrument are also at all-time lows.  

According to Pantera Capital CEO Dan Morehead, "The United States printed more money in June 2020 than in the first two centuries after its founding."  Over a three-and-a-half-month period, the US Federal Reserve, the American central bank, has printed a little over $3 trillion in order to counter the economic impact of covid-19.  With more money on the way, many economists fear that this could lead to interest rates continuing to plummet, possibly into negative territory for the first time in US History. 

So what does this all mean if you're retired or planning to retire within the next 10 years and you're looking to grow your money safely?

The Fed

With most safe money instruments leaving more to be desired, retiree's have a dilemma on their hands.  The only viable options are to either expose your portfolio to more risk by taking on more stocks instead of bonds with hopes the total returns will meet your income and retirement goals.  Or, continue to invest in lack luster savings vehicles to keep your risk exposure reduced.  Doing the latter however, could be exposing you to other hidden risks such as interest rate risk which we will dive into on the next post.  If you chose to keep your money in bank cds, money markets and bonds, this will mean you may be forced to reduce your overall retirement income spend to offset the low interest rates.

If the two options above aren't suiting your needs and tolerance for risk, there is an alternative.

Depending on your needs and goals, there are different types of annuities that still offer the conservative retiree some options well worth taking a look at.  Let's take a deeper dive in.

If you're looking to earn a guaranteed interest rate read this:

Multi-Year Guaranteed Annuity (MYGA):  A multi-year guaranteed annuity is the insurance industries equivalent to the bank cd.  Like a bank cd, a MYGA has a time-deposit requirement.  The longer you agree to keep your money in, the higher the guaranteed interest yield.  Rates today are in the 2.5%-3.5% range.  Common term lengths are 3-5 years.  Not only do these offer a more competitive guarantee on the interest rate versus a bank cd, but they also offer the ability to withdraw up to 10% per year and grow tax-deferred.

If you're looking to replace bonds in your portfolio or bank cds/money markets to increase your upside earning potential (anything beats 1%) while still having your principal protected from market risk, read this:

Fixed Index Annuity (FIA):  Fixed Index Annuities are the fastest growing type of annuity in the marketplace and for good reason.  FIAs offer the investor the ability to participate in index linked gains tied to market performance without having to risk any of their principal.  An FIA offers a guaranteed 0% floor. If the market doesn't perform, your principal is credited with a zero. If the market does well, your principal is credited with interest based on your index crediting strategy in the annuity.  FIAs allow up to 10% withdrawal per year with no penalty.  Because there is no market risk in the annuity, the insurance company does require a time deposit.  Typically terms are between 5 and 10 years.  At the time of this writing, we are seeing average annual credited interest rates between 6-10% during the last 10 years.

With the retirement landscape changing ever so fastly and retirees understanding the importance of being safer with their money, it comes down to knowing what tools are available to you to help you achieve your goals.  Annuities arguably have a place in most retirement portfolios.  The safety and guarantees they offer are unparalleled compared to traditional safe money vehicles.  Not all annuities are created equal, so be sure to find a licensed professional that is independent.  An independent advisor will have access to every insurance product on the market, giving you more opportunity to find the best one for your situation.  

Annuity Association is happy to offer potential clients a complimentary evaluation appointment with a local licensed Fiduciary Advisor to help you determine the right financial strategy for retirement.  Complete the form below to request your appointment and a member from our client services team will contact your shortly.