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 1.61%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 Lifetime Income Annuity2 is a low-risk option that might surprise you.
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 1.61% 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 $1,160 in annual interest income after taxes.
Side–by–Side Comparison Chart: CDs vs. Lifetime Income Annuity
|Certificate of Deposit||Lifetime Income Annuity|
|CD Rate of Return/Annuity Payout Rate||1.61% annually||7.10%|
|Annual Taxable Interest/Annual Taxable Income||$1,610||$3,103|
|Tax-Free Income||$0||$3,997||Taxes Owed||$450||$868|
|After-Tax Income||$1,160||$6,231||437% 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.
Lifetime Income Annuity
Now, let’s see what that same $100,000 can do when put into a New York Life Lifetime Income Annuity. Designed to generate guaranteed income regardless of market fluctuations, the New York Life Lifetime Income Annuity can be held jointly and will provide a payout each year for the lifetime of both spouses.
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