CD Alternative
By Neighbor Insurance, Linn County LIVING WELL Magazine
• Are you looking for guaranteed principal?
• Are you looking for tax deferral?
• Are you looking for a guaranteed income stream?
• Are you looking for potentially higher interest returns than what you are currently getting with your bank CDs?
If you answered “Yes” to any of these questions, you may be a prospect for one of our deferred annuities. While both a CD and an annuity can offer you a guarantee of principal, annuities offer other benefits that CDs do not, including tax-deferred growth, a guaranteed income stream in the future, and a higher potential interest rate.
As an example, let’s meet Bill Jones, a 65-year-old retiree. He’s got a $300,000 CD paying 2.25% annually, which generates $7,500 annually in interest. After taxes, he’s left with $4,875 of spendable income. When Bill passes away, he wants to leave the $300,000 CD to his two grandchildren.
The CD Max concept comes into play as the current CD matures. It actually gives Bill two alternatives as to how he can accomplish his goal.
Under the first alternative, Bill uses the $300,000 in the CD to purchase a Single Premium Immediate Annuity (SPIA). The SPIA will provide Bill a guaranteed income of $20, 673 annually for the rest of his life. Based on an exclusion ratio of 72.6%, just $5,664 of that figure would be taxable. Bill’s new net spendable income would be $18,690 annually.
But that’s only step one. Bill now uses part of his SPIA payout to purchase a $300,000 Preferred Whole Life policy with an annual premium of $10,137 in order to guarantee the eventual legacy gift to his grandchildren. That leaves Bill with a net spendable income of $8,553 per year, an increase of $3,678 each year over what he is currently getting from the CD. That’s a 75% increase in his net spendable income, and all he’s really doing is repositioning an asset!
The second alternative would be to use part of the CD money to purchase a paid-up Single Premium Preferred Whole Life contract for $140,151 and use the remaining balance of $159,849 to purchase the SPIA. If he does that, his gross payout from the SPIA would be $10,992. Based on an exclusion ratio of 72.7%, just $3,000 of that figure would be taxable. Bill’s net spendable income would be $9,942 annually, more than doubling what he is now receiving!
Neighbor Insurance can help you do the same!
*information reprinted from The PIN.
