Risk Money has tons of options - there are as many ways to lose your money as there are to spend your money. But Safe Money options can be limiting, which is why as a financial professional I make recommendations specific to each investor where Safe Money investments are concerned.
Here is a list of a few types of Safe Money options to choose from:
• Savings, checking, and money market accounts
• Treasuries or government backed bonds
• Fixed annuities
• Fixed indexed annuities
With Safe Money, there may not be a ton of options, but they each merit a short explanation.
First of all, everyone needs to have an amount in savings, checking and money market accounts. Unfortunately, these aren’t paying that much interest these days (and they pay nowhere near enough to live on), but you do need to have money in there for your liquidity. I usually recommend that a retiree keep anywhere from $15,000 to $50,000 in their emergency fund, although there are legitimate reasons why you could need more, or less.
The second Safe Money option are CD’s or certificates of deposit issued by the bank. I consider these to be safe because they are FDIC insured. So, if the bank gets into trouble, you are insured for up to $250,000. As of now, rates on CD’s aren’t even keeping up with the current rate of inflation, so you aren’t able to live on the interest.
The third Safe Money option are treasuries or bonds issued by the United States Government. I’m pretty sure there are plenty of people out there who would say that the U.S. Government could go out of business. Personally, I don’t think it will happen - at least I hope that it doesn’t.
And if it does, then you can go sell anything for as much as you can get and use the cash to go buy guns, ammo, and food because you’re going to need it! The interest rates on treasuries and government-backed bonds are also not high enough to justify investing in them until rates go back up. Until then, I would probably steer clear of them.
The fourth Safe Money option would be a fixed annuity. A fixed annuity is like a bank CD, but it is offered through an insurance company. You might say that a fixed annuity is like a cousin to the CD: you sign up for a pre-determined time frame called a term, you get either a fixed interest rate or one that can fluctuate, and it has no fees and is guaranteed by an entity just like the FDIC called the Guaranty Association Act. Each state has different guarantee amounts, but in Nevada, that amount is $300,000.
I tend to like fixed annuities better than CD’s because they are currently paying a higher interest rate and they are tax deferred. Furthermore, when you pass away, any money left in the annuity will pass on to your beneficiaries.
The fifth Safe Money option and my favorite is the Fixed Indexed Annuity; also known as the FIA. An indexed annuity is like a fixed annuity, but the way it earns interest for you is different. Remember - in a fixed annuity, you earn a guaranteed interest rate every year. It’s the same year after year, no surprises good or bad.
With an indexed annuity, you have the potential of getting a happy surprise. Your interest earned depends upon the performance of the stock market, but you can never lose your principle -meaning your principle is protected from market loss.
The indexed annuity is linked to an index - the most popular being the S&P 500 but it could be the Dow Jones Industrial Average, or any number of indexes. So, for example, if the S&P 500 goes up, you can earn interest above the fixed amount, and if the S&P 500 goes down, then you may not earn anything - but you won’t lose anything either!
For more educational material or to speak with me, please visit toddbauman.com or call 702.897.9997.
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