federal reserve

6 ways the Federal Reserve and its low interest rates are hurting retirees

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No. 2: Low rates on fixed annuities
No. 2: Low rates on fixed annuities

No. 2: Low rates on fixed annuities

Many retirees buy an annuity in hopes of getting a safe stream of income. But low rates undercut that strategy, Moore says.

"The monthly income a client receives from their fixed annuity is based on interest rates at the time they purchase the annuity," he explains. "With interest rates at all-time lows, annuity payouts are also at all-time lows."

Nathan Kubik, a certified investment management analyst at Carnick & Kubik in Denver, agrees that now is among the worst times to buy an annuity.

"Locking in these historically low rates right now through fixed-rate annuities is the height of folly," Kubik says.

Kubik suggests talking to a fee-only adviser who is an expert in fixed-income investments, to learn about alternatives.

Meanwhile, Moore urges investors to avoid annuities until rates climb.

"Another option is to buy a smaller annuity today, such as 25 percent of what (investors) would normally buy," he says.

Doing this several times from different companies over a few years allows you to buy at various interest rates, he says. Plus, buying from separate companies protects you if one of the companies goes bankrupt.

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