If you have a bank certificate of deposit (CD), odds are good you aren't making a lot of money on it about now. If you are lucky, you may have found one in the last few years that offers 2%, with 1.5% being a more common rate. Sure, it's safe and you won't lose money. Or will you?
The problem is inflation. With inflation running at around 3%, your money is eroding. It's losing value as you read this. The fed has promised to raise rates which should eventually trickle down to your CD, but it won't happen any time soon. So what are your options?
- An annuity. Annuities have gotten a bad rap over the years and I lay most of this squarely at the feet of agents selling them. Of course, not all insurance agents and advisors are bad. As a matter of fact, most are doing their best to find the most appropriate product for their clients. Annuities can be an awesome deal for some people, but not for all. Unfortunately, some will maintain that annuities are for everyone and fail to discuss the downside. When I'm with a client I make sure to discuss the low liquidity and built in surrender charges, but for the person who is sitting on a lot of money in a CD losing to inflation, the solution may be an annuity. And most importantly, I never suggest anyone put more than half of their money into an annuity.
- A single premium life insurance policy. If you have money sitting in a CD and you don't need it for retirement, why not? For most people, the death benefit will double their one-time premium and it can pay for final expenses, estate taxes, or fund a grandchild's education.
- Long-term care insurance. Here again, if you are at an age where you may be considering retirement, you may as well consider the health expenses that go along with it. A recent survey revealed that over 40% of respondents said they underestimated the healthcare costs in the retirement years. As mentioned in an earlier post, insurance companies now offer life insurance (see #2 above) with LTC built in.
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