There are over three trillion dollars currently sitting in money market accounts, saving and checking accounts and similar deposit vehicles.  Another several billion is in brokerage firm money market accounts, because the customers are afraid of the stock market and transferred to cash.  All of this money is earning less than one percent interest, in many cases, it is earning less than one-half of one percent.  

This is a relatively safe option, but it is profitable only for the institution that is holding the funds. They can earn more by buying treasuries or loaning the money to its best customers at much higher rates. Recent developments in the fixed annuity marketplace have created a great opportunity for those holding significant amounts of cash.

The development of "walkaway" annuities with maturities of one, two, three and four years, allows for the creation of laddered portfolios of annuities.  A ladder is a series of annuities, each maturing at a different time. For example, putting 25% of retirement saving cash into each of four annuities, one year, two year, three year and four year, creates the ladder. One advantage is that it doesn't tie up funds.  Each year 25% of your cash will mature, enabling you to reinvest at, most likely, higher rates.

Another advantage is that the rates on these annuities are much more attractive than those on money market and savings accounts. Right now, there are one year annuities paying 3% interest, a two year rate is 3.15, three years for 3.3 and four years at 3.35%.  This is more than three times the interest on money market accounts, savings accounts and even certificates of deposit.

All annuities are supported by the assets of the issuing insurance company and subject to the stringent reserve requirements of the state insurance department. It is important that you select a strong carrier.

Earnings on the annuities, unlike the savings accounts, are tax deferred.  So, rather than paying taxes on all earnings, you only pay taxes on any contracts from which you have withdrawn interest. The ladder provides enough flexibility that you can reinvest 25% of your total back into the stock market each year as contracts mature, or they can be reinvested at current rates -- probably higher.

For details on creating an annuity ladder, contact us at anadolna@associatesgroupinc.com