When selling any kind of long-term financial choice, you will come across people who want to talk about their options. This is good for your business, as these potential customers have done their homework, often aren’t afraid of complex financial terms, and are actively looking for a long-term investment strategy. In other words: ideal customers for an annuity as long as they can see how the annuity works for them. One of the most common requests for comparison are Annuities vs CDs. It’s only natural when looking into personal retirement and inheritance plans to compare these two, and you need to be equipped with the ways in which annuities offer clients a more appealing financial experience.
1. Interest Rate
Interest is an important factor for any long-term investment because it determines how much the value of what you deposit increases. The interest rate of a CD is determined by two things: the amount offered by banks based on length of the CD and the current market value. This means as the market fluctuates, so too does the value of their retirement fund and many people get caught up an unpleasant cycle of watching the market and hoping their CD interest rate goes up.
Annuities, on the other hand, don’t rely on market values unless they are set up that way. Fixed annuities, in particular, ensure the owner sees a steady, guaranteed interests rate that is not limited to or controlled by the fickle hand of the market. For clients that want to be sure that their investments will grow predictably over time, seeking a fixed annuity with a higher interest rate is their best way to go.
2. Tax Deferral
When explaining the difference in tax burden between CDs and Annuities, you may want to start with the concept that income taxes will be paid on the money, but the matter is when you’re expected to pay. Income tax has always been a sticky situation when it comes to savings because you pay for the privilege of having the money but are not actually using the portion of the money you pay taxes for. This is why there are tax deferral retirement plans like IRAs and long-term fixed annuities which allow the owners to delay their income taxes until payout. For annuities, the additional funds generated by interest will be taxed when payments are received. However, CD interest must be calculated into the income tax on the year it is earned, creating a huge hassle and unfair taxation of unavailable money.
3. Lifetime Income
Most people don’t want to live out of a savings account. They acknowledge that it’s too easy to see that big number and accidentally overspend, and watching the number dwindle is an unnecessary stress. When discussing CDs as a retirement alternative, remember to point out that on top of their inconvenient taxation structure, CDs also only pay out in lump sums, creating the savings account problem all over again. Emphasize to your customers that annuities will provide a steady, reliable income for the rest of their lives after retirement and then transfer easily as inheritance without the risk of probate.
Annuities are a remarkably flexible and accommodating form of financial planning and there are many people for whom they are the best possible retirement option. CDs are a strong form of investment, but only under specific circumstances and often are better attuned to non-retirement based purposes. Annuities, on the other hand, have reliable interest rates, let you completely defer taxes before payment, and provide the security of a passive income. The next time a potential customer wants to talk CDs versus Annuities, be prepared with all the right answers to help them find the plan that works best for their financial goals.