Are You Using CDs for Income?
If you seek a low-risk haven from the market volatility, Certificates of Deposit are not your only option.
Most retirees are intolerant of wild market swings and the detrimental effect a severe downturn could have on their
life savings. For risk-averse investors interested in protecting their principal while generating an interest income,Certificates of Deposit (CDs) may present an attractive option .
|
1 Federal and state income tax rate is 28%.
2 Average 1 year CD yield as of 3/25/2009. Source: bankrate.com
|
A 65-year old couple1 invest $100,000 in a 1-year CD earning 2.02%2 interest. Using the interest as income, at maturity, they reinvest the $100,000
in another 1-year CD again earning 2.02%. They must repeat this cycle to continue generating $2,020 in annual interest income.
Though CDs are a low-risk way to protect principal, they are not competitive as income generators. In fact, investors who use the interest from CDs as income may actually experience
negative returns if the rate of return fails to keep pace with inflation.
There is another option, safe from market fluctuations, which can generate significantly more annual income.
|
A Lifetime Income Annuity, with cash refund option,** can increase your after-tax income, and
enable you to potentially leave an inheritance for your heirs.
The same couple could take their $100,000 and purchase a Lifetime Income Annuity Joint Life
with Cash Refund payout option. This would provide an annual pre-tax income of $7,100.
** For the lifetime of both spouses, the annual Lifetime Income Annuity payments are guaranteed, regardless of the volatility of the market. At the time of the second spouse’s death, the Cash Refund option returns to beneficiaries any differencebetween the initial premium ($100,000) and the total amount already paid out.
At the end of the maturity term, the full investment amount of the CD, plus interest, becomes available again, whereas with a Lifetime Income Annuity, the annual payment each year includes both interest and principal.
Clearly, if guaranteed, life-long income is what you are after, consider a Lifetime Income Annuity.
Note: CDs are accumulation vehicles and are FDIC insured up to $250,000 until December 31, 2009, while fixed income annuities are payout vehicles and the guarantee is backed by the financial strength of New York
Life Insurance and Annuity Corporation (a Delaware Corporation). Illustration based on a husband and wife, both age 65, rates as of 2/9/2009. Rates are subject to change, and payout will vary with age and life expectancy
Actual amounts are dependent upon interest rates in effect at time of policy issue. This hypothetical example is for illustrative purposes only. Illustration assumes a 2/9/1944 date of birth, monthly payments, and an
annuity payout start date of 2/9/2010. Example assumes non-qualified assets and a 28% tax bracket. Some figures have been rounded for presentation purposes.
Guarantee of a Lifetime Income Annuity is based on the claims paying ability of the issuer.
(3/09) SMRU 390415CV (Exp. 12/23/11)
|
