Annuity vs CD: Fixed Income Options

Are you looking for the best places to put your money for your retirement? For some investors, the debate will be between putting their money in a CD (certificate of deposit) versus a fixed annuity. The debate of the annuity vs CD is best determined with a thorough analysis of your individual financial situation and what your objectives are. There are a number of advantages in an annuity vs CD financial strategies and choosing the one that’s best for you requires understanding the benefits and drawbacks of both.

Both a CD and a fixed annuity will offer excellent benefits for retirees looking for ways to ensure they have substantial cash flow throughout the time after retirement. However, both investment strategies are quite different. While both are considered low-risk investments, CD’s are issued by banks and are therefore guaranteed by the FDIC (Federal Deposit Insurance Corporation). Since annuities are distributed by insurance companies, they are not ensured by the U.S. government, but they can still be incredibly sound investments if the issuing insurance company is financially secure.

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Investing in CDs

If you are planning for a short-term financial goal, a CD can be a good choice. Since a CD’s benefits will end after an agreed-upon date, a CD can be a good way to save money for a new car or for a down payment on a new home. However, since most retirees need a more long-term approach to their financial strategies, the long-term annuity can be a better choice.

Investing in Annuities

Annuities can offer a guaranteed amount of money to the investor (and spouse) for the remainder of his or her lifetime. The annuity is specifically designed to help the retiree budget on a set amount of monthly cash and help to protect the investment funds that have been accumulated before retirement. In addition, the annuity can be set up to continue after your death to provide cash for heirs.

In addition, taxes can be more beneficial with a fixed annuity than with a CD. The CD’s earnings are taxable within the year – even if you don’t access the money. However, the annuity’s earning are tax-deferred, allowing the investment to grow each year and will not be treated as taxable income until the money is withdrawn. The benefits of tax deferral can have a big impact on the overall investment for the retiree, enabling them to have a larger investment over time to ensure a stronger financial future. For a retiree looking for a smart way to extend their investment over time, an annuity can be a great choice.

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