Annuities Explained
Traditional Fixed Annuities/CD Annuities
Immediate Annuity/Income Annuity
Fixed-Indexed Annuity
Long-Term Care Annuities
 Stock Market Realities
 Fixed Indexed Annuities with Income Riders
CDs versus Annuities
Who can benefit from annuities?
 Annuity Advantages
 Investing vs. Saving
 Common Sense
Retirement Planning
 Myths & Reality
 Variable Annuities - Dangerous times for retirees
 Managing money in retirement
 Reduce Taxation of Social Security
 How much will I need to Retire?
Never Outlive Your Income
 Recover Your Market Losses
 Income without using Principal
 Grow retirement saving with no market risk
 A Reverse Mortage
 IRA Rollover Opportunities
 Income Planning

CDs versus Annuities


Learn about the CD alternative that your banker or stock broker may not have discussed with you!

In order to assure a safe and secure retirement, money set aside for retirement must be protected. With the guarantees offered by annuities, there may be no better savings vehicle to assure that safety. With an annuity, you can never lose any principle as long as you stay in the contract for the agreed time.

Please read this educational material and learn about the government afforded advantages of tax-deferred annuities.

Section #1 – Why Should I Consider an Annuity?

Consumers, who look to CDs or Bonds for competitive interest rates over a fixed period of time, should consider annuities with rate guarantees.

Tax-deferred annuities are SPECIAL!

Under the IRS code, ANNUITIES are afforded certain privileges not given to other types of investments!

Annuities are corporate obligations of an insurance company and as such, the policy owner is guaranteed a return of principal and interest as long as the annuity is held for an agreed upon period of time, usually between 3 to 10 years.

When you place your savings in a tax-deferred annuity, the United States Government, in an effort to give each and every one of us an opportunity to fund our own retirement, allows our money to grow tax-deferred until we need to draw this money in our retirement years.

Tax-deferred growth is one of the chief reasons why millions of people around the world are attracted to annuities. Since taxation is deferred until you begin taking income from your annuity, annuity owners do not pay federal, or state tax while the annuity is growing. Not only is tax deferral significant in itself, but annuity owners may stop or reduce the taxation of their social security benefits.

Here is the underlying principle driving millions of people to purchase Tax-Deferred Annuities.

You will get triple compounding!
  • Earn interest on your money $
  • Earn interest on your interest $$
  • Earn interest on the money you would have lost to taxes $$$

Tax-Deferral will protect your retirement savings from erosion due to taxes and inflation, and it will build your purchasing power for the future. Take a look at the picture below.

Section #2 –Does Tax-Deferral Mean That Much to Me?

The previous picture shows us the effect of tax-deferral over 20 years, but we think things will become clearer, when we take another example, and break down the effects of taxation one year at a time. This next example will take into consideration; federal tax, state tax, inflation, and the increase in taxation one may have on their social security benefits. When we stop to consider the effect that annual taxation and inflation may have on our nest egg, it becomes apparent that there is a big difference in the growth of our savings, tax-deferred or taxed annually. It is the individual investment or savings decisions which we make over the course of our lifetime, that enable us to live comfortably in retirement, or not. Take the time to examine the following series of pictures carefully, as your nest egg depends on you to make good retirement planning decisions.

How much is your CD interest affected by federal tax, state tax, and inflation?

Please take a look at the picture below.

How does CD interest cause increased taxation of your social security benefits?

CD interest increases your "provisional income" as stipulated by congress, and tax-deferred growth inside an annuity does not. Therefore CD interest may increase the taxation of your social security benefits, while annuities in the deferral or accumulation phase do not. This allows the consumer to keep more of their social security benefits. How is your CD interest affected by federal tax, state tax, and inflation? Finally, how would your social security benefits be affected? You will be surprised by how much money you could lose by utilizing CDs when it comes to your social security benefits!

After federal and state tax, inflation, and taxation of Social Security benefits, your CD interest of $5,000 has been reduced to a net result of $2,175.

Section #3 – Will Tax-Deferral Ultimately Enable Me to Accumulate More Money?

Let’s take a look at how annuities help us deal with taxes and inflation during the accumulation phase of our retirement nest egg.  Please take a look at the picture below.

Quite simply, if you had $1,000 of interest earnings, and you lost 36% of that interest due to taxes, that's $360 which is gone forever. When you place your savings into a tax-deferred savings product, you experience much greater growth, when compared with a CD which is taxed annually. If you allow your savings to grow inside a tax-deferred investment, your growth in this example is 96% greater in 20 years.

To see how your savings or investment decisions may affect your income in retirement, please take a look at the example below.

By allowing your principal to compound without deducting taxes along the way, you have a greater sum of money ($320,714 vs. $219,957) from which you can generate interest payments, or a lifetime immediate annuity. In this example, the larger sum generates an income stream for life that is approximately 45% greater than the sum where taxes were deducted along the way. Imagine yourself going out to your mailbox, once a month for the rest of your life. Do you want to open an envelope and see a check that reads $1580.91, or would you rather have a check that reads $2,305.09?

The example clearly shows that the monthly income you receive between the taxed-annually, versus the tax-deferred product is vastly different.

Section #4 – Will I Ever Run Out of Money?

You know that life insurance protects against dying too soon. Annuities protect against living too long. We all have a greater chance of living longer, due to healthier lifestyles and advances in healthcare. The following slide illustrates the likelihood of 65 year old couples, one of whom will live to various ages.

Annuities will help ensure that you will not outlive your money. According to a survey conducted in 2001, the American Council of Life Insurers found that 88% of Americans agree that, for their retirement, receiving at least some of their savings as regular income payments that they cannot outlive is important.

Only insurance companies have the financial strength and the cash reserves to offer the guarantees found in an annuity. Mandated reserve requirements mean that when a tax-deferred annuity is purchased, the insurance company, by law, must set aside dollar for dollar reserves to cover all anticipated payouts.

The investment risk is assumed by the insurance company rather than by the owner. Always remember that tax-deferred fixed annuities guarantee your principal and interest. When you purchase stocks or mutual funds, you, not your stock broker or the firm for whom they work, assume the risk of the stock market.

Section #5 – How Do I Save Tax Dollars on My Social Security

You can reduce the taxes you pay on Social Security benefits. This is made possible by the repositioning of bonds, CDs, and mutual funds, into tax-deferred annuities.

Why pay taxes on income you may not need to take? Once again, remember your investment objectives: Build, Preserve and Protect. A very important point to remember is that tax deferred growth, within an annuity, does not count toward provisional income, and therefore can reduce the taxes you pay on social security benefits.