Annuity Vs Long Term CD

Hippie | Dec 8, 2022 | 48 posts since 2022

Have been following DA for quite awhile and found the comments from many of you very beneficial. My question is regarding a 6 or 10 year annuity through Fidelity USAA which is A++ rated and 4.5% vs a longer term CD. I am very blessed to have some extra $$$ and looking to put funds that I will 100% not need for the next 10 years to work. There is also an option for lifetime income which also will pay in that 4.5 range - maybe a tad more.So what am I missing? What would be the downside short of not having access to those funds (which again I DO NOT NEED). Also want to add I am 62 and stocks in general I have no interest in. Just looking for income.

Thinking of pulling the trigger soon and curious what others think.

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Answers

Choice | Dec 8, 2022 | 937 posts since 2020

Welcome Newbie! There is much that can be said pro/con on annuities...I first looked years ago at 403b annuities...and then the "wisdom" was to make sure the company was qualified in NY...apparently b/c stricter standards. I bought one and the company was most misleading, e.g. the cover letter changed the terms and conditions in the policy! But that was resolved most favorably! Sooooooooooooo, what can one say...depends on use (buy down for Medicaid qualification or...) or a viable way to.... I did like those that have qualified benefit plans buying a life annuity for retirement funds in conjunction with term life...but too broad of a topic for here...good luck...but research!!!

PS Insurance companies are regulated at state level...buying a policy from a carrier from another state may be a non-starter...the fed govt regulates CDs...Insurance companies rarely fail but when they do....

NFO | Dec 10, 2022 | 66 posts since 2022

CDs are a relatively simple and straightforward investment. You get a return of "X" for the term of the CD contract, and then you get the principal back. Within the limits of FDIC insurance, your investment is fully protected. ALL CDs have this in common, and that allows simpletons like me to sleep at night. Annuities are more complex; there are different types, variations of those types, and they may not be protected. Annuities may work for some people, but it's hard to give a general opinion on something with so many choices. However, if you aren't careful, you can easily end up with something you didn't want. You might want to ask a fee-for-service financial advisor who isn't trying to sell you anything.

gkwpnut | Dec 23, 2022 | 13 posts since 2022

If you absolutely don't need the money invested and the rates paid by fixed annuities are better than CDs I see no reason not to do it. Also defers income tax until withdrawn. Although not FDIC insured an A rated insurance company should be relatively safe place for your money. Shop around and compare rates and details.

chill08 | Dec 8, 2022 | 96 posts since 2022

I had my annual meeting today with my Financial Advisor. After I told him I was staying out of Stock Market, Fixed Income Annuity were next words out of his mouth. Yes, I would like not paying taxes on CD income, but I also did not want to think about annuities. and feel they are complicated. Any one with a fixed income annuity? If they are as great as he claimed why doesn't everyone have several?

nored | Dec 10, 2022 | 32 posts since 2018

I don't have an answer however, I am in the same boat, I am really trying to figure it out. Discover has long term 10 year cd's 4.25 and I talked to a broker who as of yesterday has a 10 year at 5.05 non callable cd but dosen't compound interest. The word annuity came up and I dont think I want to go there due to the reputation of annuities. He mentioned that he thought rates would be up on wed. Terms, rates.taxes, ewp's and short time to pull the trigger. Its a lot. I appreciate any thoughts.

NFO | Dec 10, 2022 | 66 posts since 2022

A 10-year non-callable at 5% isn't bad at all...I'd like to know where that exists. If that meets your income needs, you might go for that. That's what I use as the decision point. Yes, rates may tick up a bit more from here, but they probably aren't going significantly higher than 5% at the extreme long end (10 years). Depending on the yield you're currently getting on that money, there may be an opportunity cost to waiting for that extra quarter point that just isn't worth it. If you're drawing interest periodically, compounding isn't doing much for you.

Janicefr48 | Dec 23, 2022 | 40 posts since 2022

I am looking at the same choice. Annuities are very complicated and hard to understand. I am leaning against it at this time. We got an indexed variable annuity in 2002 and it did fantastic but another one we got in 2013 didn't. We cashed the 2013 one which is the main money I am looking for a place to reinvest. The option of lifetime income is very tricky. I would never consider it personally. The surrender penalties are substantial.....much worse than the EWP's on CD's! Fees can also be substantial and not disclosed where they are fully understood most of the time. .

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