There is no discounting the real financial problems facing Americans today. Low interest rates and longevity risk are two big issues, both of which can be solved through the purchase of an annuity. Everyone is talking about interest rates right now, especially with the 10-year treasury rate under 2%. Consumers are unsure of where they should put their money and where they should invest right now. The recent Brexit issue overseas has just added to the financial insecurity of Americans who are worried that our government bonds could follow the foreign bonds and have a negative return. This is where the use of annuities comes into play. In LifeHealthPro’s “Annuities: Your go-to financial vehicle in a low-interest-rate environment,” Rich Lane explains how fixed annuities can be beneficial when interest rates are low.
It might seem unusual to think of a fixed rate product being a good choice during a time of low interest rates, but there are some benefits inherent with fixed annuity products that make them a good fit in a low interest rate environment. One of the most important benefits is the safety provided by a fixed annuity. Your principal is protected from market fluctuations, especially those drastic down markets that we’ve seen over the past few decades. In addition to that, you are still earning interest on your savings even if it is a lower rate. The second fixed annuity benefit you’ll receive is tax deferral. You won’t pay any taxes on your annuity product until you start receiving distributions or take your money out. The same cannot be said for other investments, which will tax you even in a down market.
Annuitization is another important benefit of buying an annuity. This allows you to turn your savings into a stream of income at some point in the future of your choosing. There are different options to choose from when annuitizing your fixed annuity, but some products will pay your monthly income payments for the rest of your life. Finally, you have a guaranteed rate of return when you buy a fixed annuity product. You will earn interest on your principal as well as earning interest on that earned interest. In addition to that, it’s important to note that you are also earning interest on your tax savings. The author says that this a good way to maximize your earnings and get the most potential out of your initial investment.
Don’t discount the idea of buying a fixed annuity product just because interest rates are low. These annuity products still pay you a guaranteed interest rate and offer many other benefits as well. Fixed annuities provide safety, tax deferral, annuitization opportunities, and a guaranteed rate of return that makes them beneficial even in a low interest rate environment.
Written by Rachel Summit