“To ensure a comfortable retirement, protecting your cash reserves both now and in the future is crucial.”
Traditional savings vehicles like Certificates of Deposit (CDs) and savings accounts often offer low interest rates and can be affected by economic volatility.
When the economy weakens, the Federal Reserve may lower interest rates. Conversely, to control inflation, they may increase them. These fluctuations can negatively impact returns for those with significant cash parked in CDs or savings accounts, sometimes leading them to pursue higher-risk investments.
Additionally, even during interest rate volatility, banks tend to tighten lending standards, making borrowing more difficult for individuals and small businesses.
Prioritizing Safety in Uncertain Economic Times
In times of economic uncertainty, especially for those approaching retirement, prioritizing financial safety becomes paramount. Many retirees, despite understanding the impact of inflation, fear losing their savings and the difficulty of recouping those losses.
Consequently, individuals nearing retirement often seek to move their vulnerable assets into safer options like annuity products or bank CDs.
Annuities vs. CDs: Making the Right Choice
If you have cash reserves in a low-interest account and want to explore ways to make your money work harder, you might consider “safe money” products like annuities or CDs to balance your portfolio.
While CDs are a traditional safe option, annuities offer unique advantages. To help decide between an annuity and a CD, consider these questions:
- Is government backing of my investment essential, or do I trust the insurance industry?
- Do I want a guaranteed, predictable income stream?
- How long do I want to invest my money?
- What will I do with the money once saved?
- How important is portfolio diversification?
- How will taxes affect my investment?
- Do I fully understand the pros and cons of both annuities and CDs?
- What are my long-term and short-term financial goals?
- Am I aiming to create a financial legacy?
- Do I need a customizable product to meet specific needs?
- How critical is liquidity?
Key Takeaway
In uncertain economic times, especially for those nearing or in retirement, safeguarding wealth is vital. Both annuities and CDs provide wealth protection. However, annuities may better align with specific long-term financial goals for some individuals.
Many people have learned about the power of the Safe Money approach to reducing volatility. Our Safe Money Guide, now in its 20th edition, is available for free.
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