Low Interest Rates can be a mixed blessing for retirees
Interest rates are historically low. That’s great news when you are buying a house or car but what if you’re trying to build up your retirement fund? The results can be a little lackluster.
According to a recent article in U.S. News and World Report, a 10-year Treasury bills pay less than 3 percent interest. If you invested $1 million in a secure 10-year Treasury note you will earn maybe $20,000 a year. Plus you have to pay income tax on that $20,000. If you invest in a bank CD or even stocks you will make even less.
It is pretty safe to say that times are tough for seniors who want to buy annuities, hoping to ensure they don’t outlive their money. Since interest rates from annuities are tied to current interest rates, they are locking into a significantly lower rate compared to annuitants that bought their annuities 10 years ago.
Interestingly, if you’re looking to cash out an older annuity, your future payments could be worth more than you think. Remember, today’s lower interest rates mean better discount rates when you sell your future payments. You could use some of the cash to pay off high interest debt before you retire and keep the remaining payments to fund your future retirement.
There is also some good news for retirees. The reason the interest rates are so low is because of LOW INFLATION. For those still in the workforce, low inflation means lower wages and less jobs. For retirees, low inflation means that everything costs less while their income stays the same. Their cost of living decreases while their buying power increases.
If you’re looking for information on how much your annuity is worth, give CBC Settlement Funding a call. We can help you determine if selling your future payments is right for you.
Sources:
http://news.yahoo.com/why-higher-interest-rates-could-hurt-retirees-145112974.html
