We’ve been in a declining interest rate environment for about the last 10 years, with historic low rates the last few years. These low rates are driven by the Federal Reserve in hopes of jumpstarting the economy by allowing consumers to borrow money cheaply. While lower rates may sound good, they also mean very low returns for products such as CDs and money market accounts.
Even in this low-interest-rate environment, it’s estimated that there’s still nearly $10 trillion on the sidelines in the form of CDs and money market accounts. Many of these investors are concerned that committing their money to an annuity at current rates won’t allow them to take advantage of higher rates in the future. What they may not be considering is that waiting could cause them to lose earnings that may require years to make up, even if they do get a higher rate of return in the future.
For example, if you put $100,000 into an annuity paying 2.25 percent for five years, you would be guaranteed $111,768. If you waited two years before buying that annuity and were earning 0.50 percent in a CD, you would have to earn 3.78 percent over three years in order to get to the same $111,768 you would have been guaranteed with the five-year annuity.
Regardless of interest rates, annuities are really designed for investors’ long-term goals. Annuities offer tax deferral, principal protection, liquidity, lifetime income options and death benefits that are paid directly to the beneficiaries.
The Bottom Line: With $10 trillion on the sidelines, now’s a great time to reach out to investors about the benefits of tax-deferred annuities.
© 2018 Ash Brokerage LLC.