Reviewing Certificate of Deposits, Mutual Funds, Stocks, Annuties and Secondary Annuities for Retirement Planning
Pros & Cons of CDs, Mutual Funds, Annuities and Secondary Annuities
We all would love to buy new cars. We love the smell and the feeling of accomplishment when we buy a car new off the lot, but for the more financial minded individual a new car is not the best option. Why? As soon as a new car leaves the lot, the value drops by over 10%. Losing 10% in a deal doesn’t make good business sense. The savvy car buyer scours the internet looking for the car they want with very low miles. They let the first purchaser take the depreciation and they get the car at a discount. What does this have to do with retirement?
Some retirement products are like buying new cars. What’s a new retirement product?
CD (Certificate of Deposits): Retirement Investment Option
Here are three of them: first, you have bank who wants to sell you a CD. The CD is like the compact car of the group. The CD is not meant to hold a lot of retirement funds and certainly isn’t fun to own. The rates are terrible, below 1%, but CDs are reliable and will pay the same amount throughout their lives.
Mutual Funds & Stocks: Retirement Investment Option
Another new retirement product is mutual funds and stocks. Mutual funds and stocks are like the sports cars of the group. They grow fast, slow, then fast and can cause an awful accident injuring your retirement account. 2008 saw a lot of mutual fund and stock pileups on the highway to retirement. Sure, over the extra-long hall these funds always grow, but with retirement looming, most don’t want to take a hit after they are done working.
Annuity: Retirement Investment Option
With a large chunk of money, a new off-the-lot retirement product is an annuity. An annuity is like an expensive luxury car. The annuity costs a lot of money, but it’s safe, reliable and comfortable for the long haul. There are no changes in the amount annuities pay out, but they only pay out 1-2% these days. They will continue to pay out this 1-2% until the predetermined time period is up. Pay a lot at the beginning and relax in comfort and watch the small trickle of money come in. These are the big “off the lot” depreciators of the group.
Secondary Annuities: Retirement Investment Option
Secondary annuities are pre-owned annuities. They have been owned by someone else who won the lottery, a lawsuit or a settlement. Secondary annuities are assigned by a court and backed by large reliable insurance companies. The certified pre-owned low mileage luxury sports car of the group. They can be fun to own as there are a myriad of different ones with different payouts and prices and time limits. All kinds of accessories are available: lump sum payouts, monthly payouts, yearly payouts and combinations of all of the above. Secondary annuities are also reliable because they are backed by insurance companies, certified by a court and they won’t change. Whatever payout you purchased is what you are guaranteed to receive.
To get back to the car analogy, the first person that owned the annuity took the big depreciation. Now they want to get the cash for their annuity. They have to sell their rights to all of the future payouts at a discount so that they can get that lump sum of money. To do that, they have to sell it at a used car discount price. That discount price is passed on to the secondary buyer.
How much of a discounted price? Well, secondary annuities can pay out the equivalent of 5-10% interest. That sure beats the CDs and the brand new annuities. The secondary annuity luxury sports retirement investment may even beat the mutual funds and stocks in any given year, with one exception: secondary annuities won’t break down.
Year after year, you’ll get what you paid for backed by the insurance company and the courts. That’s like having all maintenance paid for throughout the life of the annuity. Hey, even if one owns a sports car or two, they usually have a more comfortable and reliable car to get them around town. The secondary annuity will get you to and through retirement with a great rate, reliably and consistently. Sometimes a new-to-you car makes the most financial sense. With retirement, the new-to-you annuity offers the best of all makes, models and styles.