Retirement investment strategies | Exploring the Role of Annuities and CDs

In this episode of “Retiring Today,” experienced retirement planners Loren Merkle and Chawn Honkomp dive deep into making sense of annuities. With the backdrop of a volatile stock market and record-high interest rates, annuities have become a hot topic for those nearing retirement. This blog post will unravel the intricate details, benefits, and considerations surrounding annuities and explore the role of CDs in retirement investment planning.

–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

What Are Annuities?

Annuity 101

To start, an annuity is a product offered by an insurance company that provides some level of guaranteed income. Loren explains that these guarantees can either span over the lifetime of an individual or a specific period, such as ten or fifteen years. The full faith and credit of the insurance company back these promises, providing a safety net for retirees looking to secure their financial future. 

Types of Annuities: Fixed vs Variable

Breaking Down the Basics

Chawn delves into the two main types of annuities: fixed and variable. A fixed annuity works similarly to a CD (Certificate of Deposit), offering a set interest rate, which can either be a flat rate like 3% or one that tracks an index, ensuring more stable returns. Variable annuities, on the other hand, have more moving parts. They include investment options like mutual funds, with returns that can fluctuate based on market conditions. 

The Role of Indexing

Loren expands on fixed indexed annuities, explaining how they use indexes like the S&P 500 to determine performance. This allows the principal investment to remain secure while potentially benefiting from market upswings without suffering from market downturns. 

Annuities vs CDs: Which Should You Choose?

Comparing Guarantees and Returns

Both CDs and annuities have their place in financial planning, particularly in the current environment where interest rates are at 15-year highs. Loren highlights that while CDs are FDIC insured and backed by banks, annuities are backed by insurance companies. CD rates can fluctuate upon maturity, whereas fixed indexed annuities can lock in higher rates for longer periods. 

Tax Implications

One significant consideration that Loren brings up is the tax treatment of gains from CDs versus annuities. With a CD, interest earned is taxable in the year it is received. Conversely, a fixed indexed annuity offers tax deferral, enabling the interest to compound over time and potentially leading to better long-term growth. 

The Importance of Purpose and Fit in Investments

Loren and Chawn stress the crucial importance of understanding the purpose behind each investment. Decisions should be based on your specific financial phase and goals. Both CDs and annuities have their roles, but it’s essential to know why you are choosing one over the other. 

Avoiding Pitfalls

Chawn warns against automatic renewals of “old annuities” once their contracts expire. It’s essential to look at the broader portfolio to determine if the same investment strategy still fits. This ensures that your financial plan evolves with your life stages and goals. 

Key Questions to Ask About Annuities

Before investing in an annuity, Loren suggests asking several key questions: 

– What is the purpose of this annuity in my retirement plan? 

– What are the surrender charges and periods? 

– Are there withdrawal options if I need access to the funds? 

By understanding these aspects, you can make informed decisions tailored to your needs. 

The Comprehensive Retirement Plan

One of the primary takeaways from this episode is the importance of having a comprehensive retirement plan. Loren explains that their retirement planning includes multiple pillars like income, tax, health care, and investments, ensuring that all aspects of financial health are covered. 

Conclusion

Annuities can be a valuable tool in securing financial stability during retirement, especially in a fluctuating market. Understanding the different types available, their tax implications, and the purpose they serve in your overall retirement plan is vital. By asking the right questions and staying informed, you can navigate your retirement journey with confidence and ease.

–––

We are an independent financial services firm helping individuals create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives. The content and examples shared are for informational purposes only and should not be construed as investment advice or serve as the sole basis for making financial decisions. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal financial situation. Our firm is not permitted to offer legal advice. Investment Advisory Services offered through Elite Retirement Planning, LLC. Insurance Services offered through MRP Insurance, LLC. 

FOLLOW US ON SOCIAL

Visual-Insights-Newsletter-Ad_v2

Sign-up for our Visual Insights Newsletter for the latest retirement information and strategies – straight to your inbox.

  • This field is for validation purposes and should be left unchanged.

Discover more strategies you could be missing out on
Man smiling next to an image that says "Top 10 Retirement Wake-Up Calls".

The Top 10 Retirement Wake-Up Calls 

Retirement may bring dreams of sandy beaches, golf outings, and more time with family—but it also comes with surprises that can catch many off guard. In a recent episode of Retiring Today, Loren Merkle and Chawn Honkomp counted down the top 10 retirement wake-up calls. These “uh-oh moments” highlight the realities retirees face and the…

Read More...
Man smiling next to the four types of investors.

Are You Making These Investor Mistakes? 

Market volatility is unsettling, and it’s easy to make mistakes when emotions take over. Retirement Planners Chawn Honkomp and Loren Merkle tackle the most common investor missteps—and how to avoid them. From panic selling during downturns to sitting on the sidelines waiting for the “perfect time,” and even holding on to investments too long, they…

Read More...
Woman holding two cards that say "Fact" and "Fiction respectively. A headline stating "The market is too risky?" sits above her head.

Retirement Fact or Fiction: Investments 

When it comes to retirement, some of the most common beliefs about investing sound true—but in reality, they can lead you down the wrong path. Misconceptions about the stock market, savings accounts, bonds, or even the 4% rule can cause retirees to make costly mistakes.  To help separate truth from fiction, Retirement Planners Loren Merkle…

Read More...
Man mid-sentence standing next to a visual example with the words "Same Couple 200K Difference" above it.

7 Essential Questions Your Financial Advisor Should Be Asking

Retirement planning isn’t just about saving money. It’s about making sure your plan supports the life you want to live once you stop working. Asking the right questions can uncover your goals, anticipate challenges, and create a plan that gives you and your loved ones peace of mind. Retirement Planners Loren Merkle and Clint Huntrods…

Read More...
Man smiling with townhomes in the background.

How Do I Stack Up? Understanding Where You Stand with Your Retirement Savings 

That comparison—how you “measure up” to your peers, your neighbors, or even a number you once read in an article—is normal. But it’s not always helpful without context. Retirement Planners Loren Merkle and Chawn Honkomp discussed what those averages really mean and, more importantly, how to start focusing on what matters: your own retirement goals…

Read More...
Man smiling standing next to a chart that says 'Stay Invested".

Market Volatility: Why Staying Invested Matters 

Market volatility. The phrase alone is enough to make some people uneasy — especially those approaching retirement. After all, when headlines scream about the “biggest drop in decades,” the instinct to hit the brakes is strong. But is that the right move?  In this blog, we’ll explore how volatility works, why emotional reactions can quietly…

Read More...

Ready to take your retirement to the next level?

Let's chat! Schedule a RetireReady Call to talk with a retirement planner about your retirement vision.

Ready to take your retirement to the next level?

Let's chat! Schedule a RetireReady Call to talk with a retirement planner about your retirement vision.

Call Now Button