How to Sleep Soundly During a Volatile Market
It’s a great time for worried investors to consider short-term, fixed annuities.
It’s a great time for worried investors to consider short-term, fixed annuities. A simpler, easier way to buy them means you won’t face hidden fees and high-pressure sales tactics.
Many investors, especially those a few years away from retirement, are stressing out over recent market gyrations. Some bad news: The instability could continue for a while.
A record-long bull market, now in its 11th year, likely still has room to run. But stock prices are just as likely to continue swinging wildly at any hint that a recession is on the horizon. And updates on the off-again, on-again negotiations in the trade war between the United States and China would worsen volatility.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
U.S. Treasuries have often been a refuge in stormy markets, as well as certificates of deposit that guarantee a rate of interest and a return of principal when the CD matures. However, a new way of buying short-term fixed annuities promises to turn these investments into a “go-to” choice for worried investors.
A SAFE HAVEN FROM THE STORM
With a fixed annuity, investors know that their principal is guaranteed and will steadily grow – even if the rest of their portfolio is being battered. That knowledge can give investors the peace of mind they need to maintain their stock position in a volatile market, instead of bailing at the wrong time and suffering losses.
In the past, however, many investors have shied away from annuities (which are contracts between investors and insurance companies) because of a reputation for complexity. But annuities come in all types of flavors, and it’s the more intricate variety – such as variable annuities – that cause the most confusion.
Basic fixed annuities are far less complex. A deferred fixed annuity, for example, guarantees investors an annual rate of interest and the return of principal ¬– with the added benefit of tax-deferred growth. Like a CD, you invest a lump sum that grows and compounds over a certain period. But unlike a CD, you won’t have to pay taxes on the earnings until you withdraw the money. Also, unlike a CD, some deferred fixed annuities let you access a portion of your money without penalty during the contract if needed.
And now, technological innovations have made them as easy to buy as bank CDs and government bonds.
→ See also “What Are Safe Places for High-Yield Savings Growth?”
BUY A FIXED ANNUITY ONLINE WITHIN MINUTES
Today’s investors can take advantage of an innovative website that makes buying basic annuities ideal for do-it-yourselfers. Introduced by online annuity and life insurance agency Gainbridge, the platform streamlines purchasing and makes fees transparent.
How simple is it to buy a deferred fixed annuity through Gainbridge? So simple, it only takes a few steps:
- Go to www.gainbridge.life
- Enter how much you want to invest and for how long (Gainbridge offers products with terms of three to 10 years)
- Enter your state of residence and date of birth
You’ll get an instant quote that will tell you what your guaranteed interest rate will be and the projected account value at the end of the term (assuming you don’t take any early withdrawals). You can download a brief product summary, and if you decide to buy, it only takes a few more steps to open an account, designate beneficiaries, and provide your bank information. Then you’re ready to review and sign your annuity contract.
There’s no old-school paperwork. And while Gainbridge has a licensed customer support team to assist, they aren’t commission-based, and there are no product management fees. This streamlining makes it possible for Gainbridge – which sees annuities as an alternative to CDs – to offer annuities with higher interest rates than bank CDs and many other deferred fixed annuities.
HIGHER INTEREST RATES THAN MOST CDs
Take a 55-year-old who invests $50,000 in a five-year deferred fixed annuity with Gainbridge (annuities sold by Gainbridge are issued by Guggenheim Life and Annuity Company.) Currently, the annuity pays an annual percentage yield of 3.60%.1 At that rate, the initial investment would grow to $59,672 in five years – no matter what is happening in the stock market.
The best 5-year CD rates offered by top banks for September ranged from 2.30% to 2.63% annual percentage yield,1 according to Bankrate.com. At those rates, a $50,000 investment would grow to only $56,021 to $56,930 in five years.
What’s more, with a CD, you’ll pay taxes on the interest earned annually, unless the CD is held in an IRA or other tax-deferred retirement account. Regular income taxes on the deferred annuity won’t be due until the money is withdrawn, which boosts earnings through higher interest compounding.
DECIDE IF AN ANNUITY IS RIGHT FOR YOU
Diverting a portion of your profits from stocks and moving the money into a more stable investment like a fixed deferred annuity can be a wise strategy in a volatile market. If nothing else, it can help you stay focused on your long-term goals instead of reacting to daily spikes or drops.
Gainbridge offers deferred fixed annuities for periods ranging from three to 10 years. Once the term is reached, you can take the money out in a lump sum or renew the contract but with a new, guaranteed interest rate.
But a deferred annuity is not for everyone. For instance, it’s not a place to park your money if you’re going to need the cash before the annuity’s term is up. Although, if you do invest in the annuity and find out you need to tap the money, you’ll still have some flexibility. Deferred annuities often allow you to withdraw up to 10% of your account value each year after the first contract year without penalty.
Withdraw more, however, and you’ll pay a penalty – often called a surrender charge – on the excess amount. Surrender charges can be steep, often starting at 7% to 10% of your account value and dropping a percentage point each year that you own the annuity until the charge disappears. Annuities sold through Gainbridge carry a surrender charge of only 3%, decreasing to 1% over time.
Be aware, too, if you are younger than 59½ when you withdraw money out of the annuity, you may owe the IRS an additional 10% tax on the earnings.
Deferred fixed annuities work best when you are able to commit your investment for the entire term of the contract. If you will need the money sooner, consider a money market account or a CD.
→ How much interest could you earn? Use this tool to get an instant quote.
ANNUITIES FOR THE DIGITAL AGE
Market volatility isn’t expected to calm down anytime soon. Deferred fixed annuities can be a steady, guaranteed way to grow savings and Gainbridge makes them as easy to buy as CDs and government bonds. They offer products that are simple, intuitive, and backed by smart technology. There’s no complexity and no hidden fees. Discover more at www.Gainbridge.life.
Gainbridge is a member of Group 1001, an insurance holding company with $38 billion in combined managed assets as of June 30, 2019, and a mission to help investors grow and protect their savings. Gainbridge annuities are issued by Guggenheim Life and Annuity Company (d/b/a Guggenheim Life and Annuity Insurance Company in California; NAIC#83607).
1 As of November 2019
This content was provided by Gainbridge. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here