Fixed-Rate Annuities May Be Worth a Look
igh stock prices and low interest rates are creating a dilemma for investors. Should you chase the market and take profits, go into low-yielding CDs or money-market funds, or just stay putÛª One viable option is fixed-rate annuities, which are commonly known as guaranteed return annuities (GRAs).</br></br>A GRA is an investment contract made with an insurance company in which your money accumulates and compounds free from current income taxes. It is this tax-deferred compounding of income that makes a GRA an exceptional investment The investor chooses the length of the interest-rate guarantee period, from one month to 10 years.</br></br>The tax-free compounding enables your savings to grow much more rapidly than say, a certificate of deposit For example, if you are in the 33 percent tax bracket, a CD paying 8 percent will double your money (your after-tax return is 5.4 percent) in 13V4 years, while that same money in a tax-deferred annuity would double in 8'/; years. You pay taxes only when you withdraw your earnings, and if that occurs after you retire, it more than likely will be at a reduced tax rate.</br></br>What is key for the investor is the quality of the insurance company, along with the interest rate being paid and the various features in the annuity plan. There are many different annuity plans with flexible features, and to obtain the proper guidance you would be best served by speaking with a knowledgeable specialist.</br></br>Independent Advantage Financial & Insurance Services Inc. (IAF) is an annuity agent that will provide you with a cassette tape and booklet explaining GRAs, plus its ÛÏAnnuity Honor Roll," a list of the companies IAF considers top quality and their annuity plans. You pay no fees; a commission is paid by the insurance companies. IAFÛªs phone number is 1-800-829-2887. There are 2,400 insurance companies in the United States, and IAF represents only 40 of them. Of these, generally six to eight have plans that IAF deems the "best of the best."