Although my banker keeps pressuring me into buying an annuity, I feel more comfortable with CDs. My late husband and my tax adviser both disliked annuities for various reasons, including complexity and expense. I don't like the idea of paying out a large sum of money to an insurance company in return for getting a fixed sum of money each month (which would be taxable), That fixed sum of money each month would also not necessarily keep up with inflation. OK, I'm getting a lower interest rates with CDS but I think the advantages of a CD outweigh the potential disadvantages of an annuity. How do you feel about annuities versus CDs?
How do you feel about annuitiies versus CDs?
- Thread starter Candi1
- Start date
Timewise 60+
Senior Member
I do the math to calculate the 'net' return from each including all costs, fee's, etc. Then I look at how stable the company (s) are behind the CD or annuities. I usually go with the one that has the strongest business offering the investment, unless the other one is paying much higher and is not really a risky company. Almost always I go with the strongest company, as we are retired and cannot risk using any of our working capital as we cannot earn it back if we lose it...
Again, with annuities, I would be giving up access to my money in return for a monthly payout that, wth time, might not keep up with inflation.
Timewise 60+
Senior Member
Depends on how your annuity is set up.
Brookswood
Senior Member
The big difference from the bankers point of view are the high fees the bank collects on the annuity vs the CD.
Annuities are a tool to deal with a financial problem. If I chose to use that tool I would not buy it from a local bank or such. Read the contract before you sign anything. That alone will be an eye opener if you can get through it all and understand it.
IMO, the best annuity deal is to take SS at age 70. And it has a nice cost of living adjustment from the guys who own the money printing press.
Annuities are a tool to deal with a financial problem. If I chose to use that tool I would not buy it from a local bank or such. Read the contract before you sign anything. That alone will be an eye opener if you can get through it all and understand it.
IMO, the best annuity deal is to take SS at age 70. And it has a nice cost of living adjustment from the guys who own the money printing press.
Last edited:
Brookswood
Senior Member
You can get inflation adjusted annuities, but, they are more expensive and/or often start with a lower monthly payout. That's not great in my opinion.
Where do you get your CDs? From the bank that is offering you the annuities? If so check out the rates on fully insured CDs sold by brokers such as Schwab and Fidelity. Often they are higher than what the local banks and credit unions are offering. That will help your decision process. No need to rush.
For example, two weeks ago I purchased a two year FDIC insured CD paying 5% at Fidelity. My local big name bank was offering 3.2% on a 25 month CD. A cool $180 a year more for a $10,000 two year CD bought through Fidelity. What is your bank paying on a two year CD? How doe they compare to what Fidelity and Schwab are offering on FDIC insured CDs?
This isn’t rocket science.
Last edited:
The estimated SS COLA for 2025 won't even keep up with inflation: they're predicting a COLA of 2.6% or less.
Teacher Terry
Well-known Member
I have CD’s but won’t buy annuities. Too many downsides.
I purchased a 9-month CD from Chase Bank last Dec. paying 5% so when it matures in Sept. I will have gotten close to $3,700 in interest. Right now, Chase CD interest rate is 4.75% so if that's still true when my CD matures, I just might roll it over. At the moment, they're not offering CDs longer than 9 months. If they did, I would have bought 2-year CD at 5%.
Brookswood
Senior Member
Why limit yourself to Chase? If you go through Fidelity or Schwab, they offer CDs from dozens of bank at different rates and maturities. If interest rates start to drop (I have no crystal ball and can’t predict anything), locking in two or three years at close to 5% may be a good idea.
Have you considered a CD ladder with steps at one, year, two years, three years going out as far as you like? The ladder give some flexibility if rates change. Or you need the money earlier than you thought.
But, if you are going to lose sleep at night and be stressed out, then it might be best to stay with 9 months at Chase. It’s your choice. I try to list options that readers of this thread might choose to take advantage of.
Personally, if I was choosing between living off of CD interest (which is also taxable, so no tax benefit over annuity) versus living off an annuity income, I would prefer the annuity. From my limited experience with CD interest rates, they can drop really low, and I think I'd be more comfortable receiving a dependable monthly amount (I'm assuming annuities can pay a dependable amount, but I am not really familiar with them).
But there are other choices, such as putting the money into an income fund investment. For example, if you bought $300,000 of SPYI it looks like it paid out $32,000 of income (over the past 12 months) but charged a little over $2000 in fees. I don't know a lot about income funds but I'd guess your principal would be at risk, and the returns would vary according to the stock market. I suppose there would be more conservatively invested income funds that would be very low risk (and pay less income).
Or, the money could be put into a dividend paying fund. One like SCHD would pay mostly qualified dividends so that would help with taxes.
I think the big plus of annuities is, after the initial period of hassle learning about them and picking the right one, it is a large burden that you can leave behind and not have to worry about again, just be comfortable knowing the money will show up every month for the rest of your life. I watched a YouTube video about spending in retirement, and people with pensions and annuities were more happy with spending money than other people.
Muskrat
Senior Member
- Location
- Mainly arizona
Here is what I know for myself…I understand cd’s much better. It is, actually, a bit of rocket science. These days you need to know the insides outs of any product you choose to invest in. For instance the actual term of a cd. What , exactly, does that mean in regards to the cd you are purchasing. Understand how the penalties work. What happens if you withdraw…say half…early? Understand an automatic rollover if you do not notify the bank your desires. This is why I can’t say a thing about annuities…they are far far more varied and complex.
Brookswood
Senior Member
In my mind a mix of income sources is best, but the original message asked about annuities and CDs, two very conservative investments. Both are low risk and good for people who can’t tolerate much risk.
Mobilman44
Member
You can't go wrong with CDs. They can be set up for many different term lengths, and in various amounts. As interest rates rise, you can redo them. Otherwise, just let them roll over. A banker will likely push annuities as they are in the banks best interest, with one reason being you are tied to that bank.
With a CD, when the term is complete you can renew or rollover, or "take the money and go elsewhere".
With a CD, when the term is complete you can renew or rollover, or "take the money and go elsewhere".
Sure you can. Some CDs are callable, typically higher rate/longer term CDs. If the interest rates start dropping the lending institution says the term is over, even if it hasn't matured, too bad for you, come back tomorrow and buy a new CD at a lower rate.
Not that I'm up on a soapbox supporting annuities, just pointing out an issue with CDs many overlook.
mathjak107
Well-known Member
- Location
- bayside ,queens , ny
what kind of annuity products are we talking ? life annuities are one thing .
but insurance companies also offer term annuities which are pretty much like a cd but from an insurance company .they tend to offer higher rates
they renew every couple of years or not if you prefer to take your money back .
so without knowing what we are comparing, one really can make a comparison
but insurance companies also offer term annuities which are pretty much like a cd but from an insurance company .they tend to offer higher rates
they renew every couple of years or not if you prefer to take your money back .
so without knowing what we are comparing, one really can make a comparison
mathjak107
Well-known Member
- Location
- bayside ,queens , ny
SCHD is not comparable to fixed income .
it is stocks , regardless if dividends or not .
SCHD lost 22% in 2022
mathjak107
Well-known Member
- Location
- bayside ,queens , ny
if one is looking at an spia today which is a life annuity , the will pay a 65 year old 644 a month on a 100k ….that is 7728 a year .
keep in mind it will take you 13 years to just get back the money you handed them . so you have zero return until age 79
but you will be taxed on a phantom amount of interest each year by the irs , even though your return is still zero all those years and have not received a penny on their dime yet you will be taxed on an implied return
keep in mind it will take you 13 years to just get back the money you handed them . so you have zero return until age 79
but you will be taxed on a phantom amount of interest each year by the irs , even though your return is still zero all those years and have not received a penny on their dime yet you will be taxed on an implied return
Brookswood
Senior Member
Pecos
Well-known Member
- Location
- Washington State
I don't believe that annuities are a good deal for the vast majority of us. In one instance a bank tried to sell me an annuity, but what they were going to do was (sell) transfer me, and the money I had in CD's, to a small company that I had never heard of. It seems to be pretty easy for some of these outfits to declare bankruptcy and just disappear. Think about how many "Long Term Disability" health insurance plans have just gone broke and all of the money that people paid into them was lost.
The other flaw is that while my CD's can be inherited, I doubt that an annuity c.an be passed on to children.
The other flaw is that while my CD's can be inherited, I doubt that an annuity c.an be passed on to children.
mathjak107
Well-known Member
- Location
- bayside ,queens , ny
What insurance company in america failed and people lost their money in modern times ?
Pecos
Well-known Member
- Location
- Washington State
I don't remember the companies that dropped out of that business. It was over 15 years ago if I had to guess.
mathjak107
Well-known Member
- Location
- bayside ,queens , ny
i doubt there were any .
most states either roll the clients over into another company or the state guarantee fund takes over .
i doubt there were any the last 15 years where an insurance companies clients lost their money
if there were they had to be some isolated case.
not even 2008 saw an insurance company fail and clients lose money