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Are you using CDs for retirement?

These days, everyone is looking for a safe place to invest their savings, especially retirees. Certificates of Deposit (CDs) are a popular tool since they are federally insured, making them virtually risk free up to a certain dollar level. However, with CDs providing record low interest rates averaging .23%1, retirees hit by record market losses need more than a safe place to store their money. They need a way to generate income they can count on. A New York Life Guaranteed Lifetime Income Annuity2 is a low-risk option that might surprise you.

CDs 101

CDs are investments generally offered by banks, credit unions and savings and loan institutions that offer a guaranteed rate of return for a specified period of time. Their terms usually vary between one month and five years and they are meant to be held to maturity. CDs generally offer a higher interest rate than a regular bank account since the funds will be locked in for a specified term. At maturity, CD owners may withdraw their principal and interest or roll it over into another CD.

A look at the numbers

To illustrate how a CD works, let’s use this straightforward example: A 65-year old couple3 invests $100,000 in a one-year CD earning .23% interest. At the end of the one-year period, they use the earned interest as income, and reinvest their $100,000 original principal into another CD at the same rate. Following this strategy, they generate $230 in annual interest income after taxes.

Generating income with a Guaranteed Lifetime Income Annuity

Now, let’s see what that same $100,000 can do when put into a New York Life Guaranteed Lifetime Income Annuity. Designed to generate guaranteed income regardless of market fluctuations, the New York Life Guaranteed Lifetime Income Annuity can be held jointly and will provide a payout each year for the lifetime of both spouses.

The same 65-year old couple takes their $100,000 and buys a New York Life Guaranteed Lifetime Income Annuity, which generates in $5,110 in after-tax income. That is 2,978%4 more than they would earn through their CD strategy. And, once they purchase the annuity, they never have to worry about maturity dates or reinvesting the funds at the end of a term.

Throughout the lifetime of both spouses, the Guaranteed Lifetime Income Annuity pays the same annual amount, regardless of the volatility of the market. At the time of the second spouse’s death, if they elected the Cash Refund option, the beneficiaries will receive the difference between the initial premium and what has been already paid out.

Side–by–side comparison chart: CDs vs. Guaranteed Lifetime Income Annuity

Certificate of Deposit Lifetime Income Annuity
Initial Amount $100,000 $100,000
CD Rate of Return/Annuity Payout Rate .23% annually 5.6%
Annual Taxable Interest/Annual Taxable Income $230 $1,870
Tax-Free Income $0 $3,764
Taxes Owed $64 $524
After-Tax Income $166 $5,110
2,978% More Income!

At the end of the maturity term, the full initial 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.

At the end of the maturity term, the full initial 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.

A better choice

CDs are useful as a way to protect capital for the short term, but they are not competitive income generators. In fact, as inflation rises, CD holders may even experience negative returns if their money is locked into rates that don’t out pace the rate of inflation.

In volatile times, finding a safe place to put retirement savings is important. But, finding a safe place that also maximizes annual income is just plain smart. If guaranteed, life-long income is of interest, a Guaranteed New York Life Lifetime Income Annuity may be worth considering.

1 CD rate of .23% is the average one-year yield for CDs as of 12/24/2013 according to

2 Issued by New York Life and Annuity Corporation, a wholly owned subsidiary of New York Life Insurance Company.

3 Federal and state income tax rate is 28%.

4 These figures are effective as of 12/24/2013 for non-qualified policies only. Based on a joint life with cash refund income annuity with income beginning one month after issue. 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. 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 Lifetime Income annuity includes both interest and a return of premium. This hypothetical example is for illustrative purposes only.


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