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Are you using CDs for retirement?

There may be some alternatives worth considering.

In this continued environment of low interest rates, many retirees are searching for ways to help generate income during retirement. For those who are interested in generating interest income and protecting their principal, Certificates of Deposit (CDs) can be a viable alternative. When you place a lump sum into a federally chartered bank CD, your principal is guaranteed by the FDIC up to $250,000. While the remaining interest amount and principal are available at the end of any applicable maturity period, if your primary goal is to generate income stream for a lifetime, you may want to consider purchasing a New York Life Guaranteed Lifetime Income Annuity.1 Here’s why.

Let’s illustrate how a CD works by using this simple example: A 65-year-old couple2 seeking income invests $100,000 in a one-year CD earning 0.28%3 interest. At the end of one year, they use the interest as income, and reinvest their $100,000 original principal into a second CD paying the same rate. When that CD matures, the full initial investment of the CD, plus interest, becomes available again. Using this strategy, they generate $202 in annual interest income after taxes.

How a Guaranteed Lifetime Income Annuity works.

Now, if that same 65-year-old couple invests their $100,000 in a New York Life Guaranteed Lifetime Income Annuity, it will generate $4,6502 annually (includes interest and return of premium) in after-tax income. The New York Life income annuity with joint annuitants will provide a payout each and every year for the lifetime of both spouses. And, since the payments are fixed, they are not subject to market volatility. What’s more, when the second spouse dies, if they elected the Cash Refund payout option, their beneficiaries will receive the difference between the initial premium and what has been already paid out.

Income comparison: CD vs. Guaranteed Lifetime Income Annuity.

Certificate of Deposit Guaranteed Lifetime Income Annuity4
Initial amount $100,000 $100,000
Legacy potential $100,000 $100,000 less income received
CD interest rate/annuity payout rate 0.28% annually 5.05% (includes interest and return of premium; payout rate is not an interest rate)
Annual taxable interest/annual taxable income $280 $1,413
Tax-free incomee $0 $3,689*
Taxes owed $78 $394
After-tax income $202 $4,650
Over 2,800% more income!4
*First year income shown. Over time the premium will be returned and 100% of income will be taxable.

When a CD matures, you receive your full initial investment plus earned interest. In contrast, when you purchase a Guaranteed Lifetime Income Annuity, the annual payment each year includes both interest and principal.

While CDs are a safe short-term savings vehicle, they generally are not effective income generators. But, if guaranteed, lifelong income is a priority, a Guaranteed Lifetime Income Annuity from New York Life may be a better alternative.

1 Issued by New York Life and Annuity Corporation, a wholly owned subsidiary of New York Life Insurance Company. All guarantees are backed by the claims-paying ability of issuer.
2 Federal and state income tax rate is 28%. Consult your tax advisor regarding your specific situation.
3 CD rate of 0.22% is the average one-year yield for CDs as of 1/30/15, according to
4 Based on a husband and wife, both age 65; payout rates effective as of 1/30/15. Based on a joint life with cash refund income annuity with income beginning one month after issue. Payout rates are subject to change and payout will vary with age, gender, premium amount, income option selected, and interest rates in effect at policy issue. CDs are accumulation vehicles, are FDIC-insured up to $250,000, and have immediate liquidity. New York Life income annuities are payout vehicles, are backed by the claims-paying ability of New York Life Insurance and Annuity Corporation, and may not be surrendered. The payout from New York Life’s Guaranteed Lifetime Income annuity includes both interest and a return of premium, payout rates are not an interest rate. This hypothetical example is for illustrative purposes only.

In most jurisdictions, the policy form number for the New York Life Guaranteed Lifetime Income Annuity is ICC11-P102; it may be 211-P102 and state variations may apply.