Fixed annuities vs. CDs: Which is better for your retirement savings?

Core Insights - A recent AARP study indicates that over half of adults aged 50 and older are concerned about insufficient retirement savings [1] Group 1: Annuities - A fixed annuity is a contract with an insurance company that guarantees a minimum interest rate and periodic payments [5] - Annuities can be immediate or deferred, with deferred annuities being popular for retirement planning [6] - The money in an annuity grows tax-deferred until withdrawals begin, and they offer customization options for payment duration and beneficiary designations [8] Group 2: Certificates of Deposit (CDs) - A CD is a deposit account requiring a lump sum deposit for a fixed term, typically offering higher annual percentage yields (APY) than traditional savings accounts [3][4] - CDs are less expensive than annuities, generally lacking monthly fees and commissions, but incur penalties for early withdrawals [12] - The minimum deposit for CDs is usually lower than for annuities, often under $1,000, making them more accessible [14] Group 3: Comparison of Annuities and CDs - Both options are considered "safe" investments, appealing to those wary of market fluctuations [9] - CDs are federally insured up to $250,000, while annuities are regulated by state insurance commissioners and offer similar protections through state guaranty associations [10][11] - Annuities typically involve higher fees due to commissions and administrative costs, while CDs have minimal fees [12][13] Group 4: Investment Considerations - For individuals nearing retirement, CDs may be more suitable due to lower fees, while annuities may not provide sufficient value [17] - For those with a longer time horizon before retirement, investing in the stock market may yield better returns compared to the lower interest rates of annuities and CDs [18]