We guarantee 100% privacy. Your information will not be shared.

PLEASE NOTE: We do not answer tax or legal questions, nor do we give tax, legal or  investment advice. Please consult with a financial advisor before making any financial decisions. 

View ​Previous Questions From Your fellow Retirement Researchers

Q: Should I put my $450k into an annuity? I'm getting some money, what should I do with it? Our mutual funds and other investments have dropped 20%, please advise.

I can't answer "should I" or "which" questions. To a large extent the correct answer depends on a person's goals, risk tolerance, personality and total assets. This is why you need to sit down with someone you trust - or preferably 2 or 3 different people - and ask for their suggestions and reasons why. And second, we don't give investment advice.

I can offer two generalities that usually hold true:
Diversify: Don't put all your money into one place or one type of place. It's A Circle: Times are bad now, they could definitely get worse, but if you believe the long-term outlook for the economy is positive then you should not react to short-term spookiness, provided you have the wherewithal to ride out the bad times.

Q: Is my money market FDIC insured?

We are getting quite a few questions along these lines about individual money market issuers. In general, money market accounts are issued by banks and are covered by FDIC insurance limits, money market funds or notes are securities and are not covered by FDIC insurance. The same holds true for mutual funds, annuities, and U.S government bonds - these are not FDIC insured because they are not issued by commercial banks.

Q: Can I cash in a savings bond where my Dad's the owner and I'm the beneficiary, but Dad's still alive?

Nope 


Q: Can I cash in a savings bond where my Dad's the owner and I'm the beneficiary, but Dad's still alive?

No

Q: Are index annuities safe - what should we look for in a good company - are local investing groups usually okay to use?

I consider index annuities to be a safe money place because both principal and earned interest are protected from market risk, and to date no one has lost a dime because an index annuity carrier went bust. I would look for a company that was financially strong and there are a list of companies that rate insurers linked here.

I would also ask the insurer for a record of how previous index annuity owners have been treated - what interest have owners actually earned since they've owned the annuity. Good financial counselors may be found everywhere. Ask friends for referrals (and ask the counselor for the names of a few clients you can talk with).

Please scroll down to continue reading more questions >>>

---

View MORE Questions From Other retirement Researchers 

Q: How safe is my bank, what is it rated, and are all my CDs covered by FDIC?

We are getting some questions about bank safety. The last question should really be asked at your bank. FDIC covers bank deposits up to $250,000 for one owner at one bank, but husband, wife, and joint account would be covered for $250,000 for each name or $750,000. You should talk to your bank folks about how to maximize FDIC coverage.

Although the FDIC does not rate the financial strength of banks there are rating agencies that do. A link to these rating agencies web site is in the How Safe Are They section. This agency provides ratings on individual banks if you fill in the name and state.

There have been some bank failures in 2008 and there well may be more - the mortgage debacle was painful. It is important to know your bank is financially strong.

It is also important to remember that in the 70 plus years that it has been around that no FDIC insured account owner has lost a dime because the bank failed. The banking system is still safe.

Q: I heard FDIC can take 90 years to return your money...If I am over FDIC limits is there one place 100% safe?

First, everybody needs to take a deep breath. It is a lousy financial market, within the last year 7 banks have failed - more than failed in the preceding 3 years, IndyMac will cost the FDIC fund $4 to $8 billion dollars, and I believe more banks will fail. But there are 8534 banks that have not failed, after IndyMac there should still be over $45 billion in the fund, and FDIC has the right to borrow unlimited funds from the U.S. Treasury. 

Although there is no time limit on how long it can take FDIC to reimburse insured depositors of a failed bank, the insured deposits are typically available the next business day at a new bank FDIC has arranged to handle the accounts and even the dead bank’s ATM cards will still work the next day at the new bank. 

If you are over FDIC limits you are treated as a creditor of the bank. In the last decade uninsured depositors have received back 50% to 100% of the uninsured deposits - but they always got 100% of insured deposits. One way to be safe is to ensure all of your bank deposits are fully FDIC insured, even if it takes accounts at multiple banks.

Another alternative is to use a single bank that offers CDARS. CDARS can essentially provide up to $50 million of FDIC insurance on ONE account. For more information check out the CDARS web site at http://www.cdars.com/index.php

Q: Where can I get a good safe rate?

The problem is interest rates are down and pockets are getting pinched. You could always try risk money places to get a higher yield, but higher returns often mean greater risk of loss. And altho interest rates have trended down over the last 20 years, if the cycle repeats rates could start going back at some point in the future so one may want to preserve some flexibility.

Building Yield Ladders using certificates of deposit takes the guesswork out of predicting rates. If inflation becomes a problem I Bonds might be considered because the yield is directly linked to changes in the Consumer Price Index, but if inflation retreats I Bonds yields would also go down. Series EE Savings Bond lock in a low 1.3% interest rate for 20 years and can be beaten by almost anyone. Or you could find a bank money market account and try to ride out the storm.

There are multiyear fixed annuities that will lock in an interest rate for 2 to 10 years and many of these are competitive with bank rates - the penalty periods tend to match the length of the guarantee. There are also fixed index annuities that provide the potential for significantly higher yields than current bank rates - if the index cooperates - but if the index goes down you could earn zero for the period. You need to be sure the liquidity provisions of the annuity meet your liquidity needs.

The real answer is you may not be able to get what you might consider a "good" safe rate today because rates are lower. However, this is probably a good time to evaluate what you want your safe money to do for you and then find the combination of places that best meets your needs..

Q: If I have 5 $100,000 deferred annuities with 5 different insurers, do I really have an aggregate of $500,000 insurance through my Maryland Guaranty Association?

Effective 1 October 2010 the annuity present value maximum goes to $250,000 on one life. So, the answer to the question above is you'd only have $250,000 in guaranty fund on your $500,000 in annuities (and really bad picking if they all failed).

Q: I have a 5-year CD valued at 1,000,000 with an Annual Percentage Yield of 4.3% over 5 years. I have had it for 2.5 years and would like to withdraw all the money, would I be penalized for this withdrawal?

Probably, but only the bank knows how much. Altho the typical penalty for getting out of a CD early is the loss of 6 months interest - which could be 2.15% or $21,500 in your instance - the penalty may be as low as 7 days interest or as a long as a year's worth. The bank can tell you what the exact penalty is. 

Unless you have a "brokered CD". These are often purchased thru stockbrokers and often cannot be cashed in early but must be sold, in which case you would receive the market value.

Q: What penalties will I incur if I withdraw $10,000 from my annuity?

Your annuity contract will tell you. If you are past the early withdrawal penalty period no withdrawals would be subject to charges (this does not include two-tier annuities which can have withdrawal conditions for the life of the contract). Most annuities permit you to take out 10% per year of the total value without charges, so if the annuity value was over $100,000 the $10,000 withdrawal would be penalty-free. Some annuities allow unused annual penalty free-withdrawal periods to add up (if you don't withdraw 10% this year you may withdraw 20% next year). 

Your annuity agreement will tell you how much you may withdraw and what any penalties may be. You could also call the insurance company and ask them. You should be aware we are only talking about insurance carrier penalties, tax considerations are another matter and you should talk to your tax advisor about your personal situation.

Q: Would I get a higher return if I took out the balance of a fixed annuity as a lump sum or annuitized it and received monthly payments over a period of years?

Assuming you do not have a need for the entire balance today it would depend on which was higher - the yield you would earn on the annuitized payments or what you could earn on the lump sum. Another factor is taxes. Interest earned in an annuity is taxed when received. In a lump sum all the interest would be taxable at once, but if it is annuitized the taxable interest is spread over the periods. If the annuity is properly exchanged for a new one and no money is withdrawn, taxes are not due at that time.

Often the effective interest rate today on period certain payouts - which is what you are taking about - ranges from 2% to 4%. To determine the yield you would earn you need to know the monthly payment (PMT), the principal amount (PV), and the number of months (n). And then use a financial calculator to find the interest (i).

Q: If a certificate of deposit is listed with both mother and daughter on it how is it treated if one passes away?

Wikipedia says a joint tenancy with right of survivorship or JTWROS is where the joint owners have a right of survivorship, meaning that if one owner dies, that owner's interest in the property will automatically pass to the remaining owner or owners. http://en.wikipedia.org/wiki/Joint_tenancy 

The bank can set up ownership of the account to meet your wishes. And since we do not give legal advice your attorney can provide the right answers.

Q: What is a surrender period?

A surrender period is a deferred annuity term for the time in which a penalty is imposed if you withdraw your money. A very few annuities have no surrender period - you may withdraw all of your money at anytime without charge. A very few annuities have a surrender penalty that lasts forever - the only way to avoid penalties to is to take the value out over time (annuitize the annuity). The vast majority of annuities have a surrender period lasting 5 to 10 years. 

The vast majority of deferred annuities permit you to take out 10% of the value each year without penalty (altho the IRS gets involved with the interest received). Other safe money places with surrender periods are Savings Bonds - 5 years, and certificates of deposit - where it is known as a penalty for early withdrawal).

Q: If I have an FDIC insured account and the bank goes bust when can I expect to receive my money?

In every situation I looked at your money was immediately available in the new bank that the FDIC had persuaded to take over the accounts of the failed bank. 

This was only true if your account was fully covered by FDIC. If your account was over FDIC limits the excess money is treated as if it were a debt to the bank, and you will receive money as bank assets are sold. This process can take years and often results in getting back less than 100 cents on the dollar (but only on the uninsured deposits).

Q: I have $220,000 to put into an index annuity, would this yield $1,200 a month?

Receiving $1,200 and leaving the $220,000 intact would require an annual yield of 6.55%. If you earned 6% the money would last for 43 years, if you earned 5% the money would last 30 years, and if you earned 4% the money would last 25 years.

Could an index annuity earn 4%, 5%, or even 6.55% over time? For that matter, could any financial instrument earn these rates over an unpredictable future? Maybe, maybe not.

Because of this uncertainty more and more index annuities are offering something called Guaranteed Lifetime Withdrawal Benefits or GLWBs. What a GLWB does is the insurance carrier guarantees that you will receive at least a specific percentage payout for as long as you live even if the money runs, but unlike annuitization, it still gives you access to your money.

For example, an index annuity with a GLWB might guarantee a withdrawal rate of 6% a year. Say the index annuity did poorly and your account ran out of money - the annuity company would continue to pay 6% a year until death. Say the index annuity did well and earned over 6% a year - either you or your heirs would benefit.

Q: Is an IRA multi-account rule better than a trust? What do you think is the true rate of US inflation? I am 58, does using some IRA money to buy an immediate annuity make sense?

We get a lot of questions like the ones above, but we don't feel comfortable answering them. The first question is asking legal advice, and we're not lawyers. I'm not sure if the second question is asking what is the inflation rate - which is available at http://www.bls.gov/cpi - or a philosophical question on inflation, but we don't do philosophy. We consider that the third question is asking for investment advice, and we don't give that out either. 

We try to answer "how", "what" and "why" questions, as in "how does it work, what does it do and why might someone do it". The reason why someone might purchase a fixed immediate annuity for life is to establish a regular income that will not run out due to market losses or how long you live. This income could be a baseline to help ensure that basic needs are always covered. The major negatives in selecting an income annuity are usually that the income stays the same and does not increase with inflation and that when you die the income stops and the money is gone. However, there are types of immediate annuities that can increase future income and ensure that you get back at least what you put in.

Do they make sense for your particular situation? We don't know, which is why you need to talk with someone that can look at your whole picture.

Q: Does the company holding my annuity keep any that is left in it upon my death?

In a deferred annuity, no. The insurance company pays the annuity balance to the named beneficiary. If the annuity is an immediate annuity (also known as an income annuity) where a person has annuitized and is receiving regular payments the payments usually stop upon death; the two exceptions are a period certain annuity that will continue to make payments until the period is over, and an installment refund immediate annuity that promises that if the payments already made do not equal the original premium the insurer will cut a check for the balance and effectively ensure that 100% of the premium is paid out. 

I'll repeat that. In a regular deferred annuity the annuity balance is paid out in full to the beneficiary. The only exceptions are the handful - and I mean a very few - annuity companies that will charge a surrender charge upon a death.

The California Insurance Department released an annuity report that says "in a fixed annuity the amount remaining in the annuity at the annuitant ’s death stays with the insurance company." This is WRONG - it would only be true if you chose the most restrictive annuitization payout option. The insurance company DOES NOT KEEP YOUR MONEY IF YOU DIE when you own a deferred fixed annuity. We hope California fixes this incredible misstatement soon.

Q: Is it true that a "fixed index annuity" is protected and guaranteed through a state guaranty association?

Yes, to fund limits.

Q: How may a death in a family affect FDIC insurance coverage of bank accounts for which the deceased was a co-owner or beneficiary?

The FDIC Guide Your Insured Deposits says FDIC insures a deceased person’s accounts as if they were still alive for another six months. So, a regular joint account that was insured for $500,000 would drop to $250,000 in insurance six months after the death of one of the joint owners.

There is no grace period if a beneficiary (or all beneficiaries) of a POD account or most revocable trusts passes away. If you have specific questions, you should talk with the people at your local bank.

Q: I have $300,000 in a qualified IRA, 2 years remaining before no penalty. With $12,000 penalty if withdrawn now, and a 10% bonus on remaining $'s, is it advantageous to choose a fixed index annuity that requires 17 yr commitment. I'm 68.

The real question is, in connection with your other resources do you feel you would have enough liquidity to meet your needs? Although most annuities allow penalty-free withdrawals of 10% of the value each year and many waive liquidity penalties upon a death or if long-term nursing care is required, only you can decide the degree of liquidity that is needed.

One should remember that an upfront bonus is essentially prepaid interest and is not "extra" money. If you have two identical annuities and one offers a 10% upfront bonus and the other doesn't, the non-bonus annuity should pay higher interest in future years than the bonus annuity until the money from the bonus is recaptured.

Q: If I were to put $80,000 into a short term, three month CD, how much interest would I earn on that? Assuming the APR was 5.25%.

You'd earn $2,073.26 in interest (if the interest is compounded quarterly). 

An "APR" rate is the same as a compounded rate. A nominal rate is the simple interest or not-compounded rate. A nominal rate of 5.15% becomes an APR rate of 5.25% if it's compounded quarterly.

To calculate this you divide the nominal rate by 4 (since we're using quarterly compounding) so 5.15%/4 = 1.2875%. In 3 months you'd earn 1.2875% interest you'd earn 2.5916% (1.012875 x 1.012875) and in a year you'd earn 5.25% in interest (1.012875 x 1.012875 x 1.012875 x 1.012875)

Q: It is my understanding fixed annuities are not covered by the SEC, does any agency have oversight over the insurance companies?

The insurance departments of 50 states, 3 territories, 1 commonwealth and 1 district regulate the insurance companies selling annuities in their neck of the woods. They look at the policies, the customer materials, the financials of the company and decide whether they will permit the company to do business with their citizens. 

In addition to reviewing forms and product filings, insurance departments regularly visit insurance companies and spend days looking over what the insurers do and how they treat consumers. If you'd like to learn more the web site www.naic.org provides information on insurance regulation.

Q: Is a deferred annuity practical for applicants over 65 years of age?

Of course! A good question is what are your goals? A fixed deferred annuity allows interest to grow on a tax-advantaged basis. Unlike bank interest, the interest compounding in the annuity is not subject to current income taxes and will not contribute to Social Security Benefit taxation. Although income taxes will ultimately be paid when the annuity interest is withdrawn, any taxes not paid on your Social Security benefits may never be repaid.

Annuities have withdrawal penalties that vary in length and severity, although most annuities let you access at least the annual interest penalty-free. This means you should make sure your liquidity needs match the liquidity offered by the annuity.

Annuities are a safe money place paying competitive interest rates, guaranteeing a minimum return, and offer a wide range of liquidity choices. Why wouldn't one be practical for those age 65?

Q: The website called "CD InterestRate Scorecard" shows banks CD's with interest rates at above 5%. Are these CD's safe and if yes, for what period of years would it be "good" to purchase these CD's?

If by safe you mean are they FDIC insured you can go to http://www2.fdic.gov/idasp/main_bankfind.asp type in the information about a bank, and FDIC will tell you whether it is insured. If you're asking whether uninsured deposits should be safe you'd need to check out the bank ratings section and get the independent ratings on the banks.

Selecting a "good" CD term means gazing into the future. If rates will continue to rise in coming years short-term maturities let you roll the CDs into higher yielding ones, but if today's rates are the high point in this cycle then it might make sense to lock in rates for as long as one can.

Unfortunately, I'm not very good at predicting the future so I suggest a concept we write about called yield ladders. This technique means you don't have to guess which direction rates will move.

Q: Two of the EE bonds purchased were stolen. How do I file a claim for this loss.

Bonds that are lost, stolen, mutilated, or destroyed can be replaced free of charge as long as the Bureau of the Public Debt can establish that the bonds haven't been cashed.

To assure that the bonds can be traced, owners should keep records of bond serial numbers, issue dates, registration, and social security or taxpayer identification numbers in a safe place separate from the bonds.

To get your bond replaced, complete Form 1048. On this form, provide the approximate issue date along with the complete names, addresses, social security number that appeared on the bond, and the bond serial number. If you don't know the serial number or denomination, just write "unknown" in the space provided. If the bond owner is a minor, the form should be signed by both parents and the minor's age and social security number should be included. Mail the completed form to: Bureau of the Public Debt, Parkersburg, WV 26106-7012. Replacement bonds will still show the original issue date

Q: I'm 57 years old and already retired. I have $500,000 cash. How can I generate $4000/month from this money?.

If you put $500,000 in a shoe box and withdraw $4,000 a month the money runs out when you're 67 and a half. Alternatively, if you could net 9.6% a year you could receive $4,000 a month forever and pass on the $500,000 to your heirs.
If you can't average a 9.6% or higher return you're going to need to make some choices with the understanding that higher potential returns typically mean greater risk of loss.

If you earn 5% your $4000 monthly income lasts until you are age 73, 6% will get you to age 74, and 7% will get you to age 77 - all of which may present a problem because the current life expectancy for an age 57 male is 81 and 83 for a female. The most honest answer is if you take out $4000 a month you could easily run out of money before you die.

You either need more money or a smaller income. What's the best blend of investments to accomplish this? Sorry, we don't offer investment advice.

Q: If I have more than $250,000 in a passbook saving account am I only insured to $250,000 limit? How about if it is a joint account? $250,000 per person for a total of $500,000?

Yes! The FDIC covers up to $250,000 in deposits for one owner at one insured bank, but there are different categories of owners that may allow one to increase coverage.

Q: Are CD's paying interest based on a market index a better choice than an indexed annuity from a strong insurance company?

Both index-linked certificates of deposit and fixed annuities offer the potential for more interest than you might earn in a fixed rate CD or annuity. It really comes down to which place gives you the better upside potential - which gives you better index participation.
Both the CD and fixed annuity are safe money places with the edge going to the CD because of FDIC. However, in every index CD I've seen the index floats until the end of the term - if you have a 5 year CD the index level is not locked in until the end of the 4th year. Many index annuities reset and calculate interest earned annually.

I agree with Sam, and I have couple of other points to think about. Interest growth within the annuity is not taxed as current income. Interest growth in the CD - unless the money is in a qualified account like an IRA - is taxed. In addition, there are index annuities that guarantee to pay more than the original principal at the end of the term even if the index declines.

Although FDIC is very safe it is good to know that no one owning an index annuity has ever lost money because the insurance company failed.

Q: How much does an index annuity pay?

Whatever it is, it could always be a little more, couldn't it. I've seen index annuity returns back in the '90s over 40%! And there were some that credited double digit interest rates last year.

Although index annuities have once in a while produced a very high rate of interest for one year, you need to remember that if the index goes down you may not earn any interest for the next year. Index annuities have averaged returns that are competitive with CD rates over the longer term, but this is not a guarantee they will do so in the future. They will not produce double digit interest rates every year, but if they earn 1%-2% more than another safe money place the index annuity will be worth much more over time.