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Annuities Combat Low Interest Rates

Dave Kansas of the Wall Street Journal has some advice for dealing with low interest rates in his article “How to Beat Low Interest Rates.”  Many investors, especially those in or nearing retirement, rely on interest payments for their income.  Since rates have been low for awhile now, there are a lot of investors struggling to stretch their lower incomes.  Rates across the board, including annuity rates, have been low due to the worry about the economy, deflation, and a fear of too much risk.  There are some solutions to this, but it is wise to speak with an advisor about the best one for you and your situation.

While there is low inflation to go along with these low interest rates, that doesn’t really help investors trying to live off of interest income.  Some good quality stocks are paying dividends higher than Treasurys or municipal bonds, including McDonalds, Home Depot, and Merck.  Putting a portfolio together of strong companies offering high dividends could be a great way to get higher dividend payouts in this time of low interest rates.  It is always risky though because companies that we thought would always be around as recently as 2007 have seen their demise.

Financial advisors have seen an increase in the purchases of annuities to hedge the dilemma of low interest rates.  While their fees tend to be higher than some other investments, they also are paying interest rates between 4.5% and 6% right now.  As investors show more concern about guaranteed returns, the benefits of annuities are making them increasingly popular.  Some investors are using mutual funds to increase their yield and diversify their risk.  They can increase the risk in some portfolios though, so advisors tend to recommend intermediate or long term bonds over short term.  The author believes that we will be talking about ways to combat low interest rates for quite awhile still.

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