A client recently called in frustration. She had over $200,000 in a money market account,earning less than 1/2% interest, or about $1000. This represented money that she held for emergencies, or unexpected expenses. We proposed that she could create a ladder of quality deferred annuities and get a number of advantages.

We used a one year annuity paying 2.0% for one third of the funds, and a two year contract at 2.25% for another third. The final third was placed in a three year contract at 3.15%. The total interest earnings would increase to $4957 per year, an increase of nearly 500%. The one year contract will be free of any surrender charges in one year, the two and the three year policies also have surrender periods that match the interest guarantee.

In addition, all contracts allow for penalty free withdrawals of 10-15%. So, liquidity is not really a factor. There are some other advantages to consider. Annuities and life insurance are considered protected assets.  This means that they cannot be attached in the event of a bankruptcy. Interest earnings from certificates of deposit and money market accounts impact the taxation of payments from social security. The interest earnings inside of these annuities does not impact social security earnings in any way. 

Here is another positive result of utilizing annuities. The insurance companies buy bonds largely from American businesses, providing valuable liquidity for expansion and hiring. Since the banks are still reluctant to make these loans, this is a critical source of hope that the current recovery will grow stronger.  

The chairman of the Federal Reserve indicated last week, that the "Fed" would hold interest rates at the current low level for the foreseeable future. Clearly, until we see improvements in unemployment, home sales and construction and business lending, rates will remain stubbornly low. We owe it to ourselves and our families to do a better job of saving, and we also need to improve the earnings on the funds that we have worked so hard to accumulate. The laddering of short term annuities is a safe and effective way to accomplish this. 

Contact us for specifics on constructing a safe, high yielding ladder of annuities, anadolna@associatesgroupinc.com