lock in longer-term rates

Why Lock in Longer-Term Rates?

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It’s good to be a saver right now. For the first time in years, investors are being paid a competitive rate to hold cash and other short term fixed rate investments. Many investors are starting to question why they should lock in longer-term rates at all with short term rates being higher. There are several reasons you may consider to lock in a lower yield on longer dated CDs, bonds and fixed income funds.

 

  • Stability and predictability: By locking in a longer-term rate, investors can have a clearer understanding of their future cash flows and interest earnings.

 

  • Preservation against rate decreases: If an investor believes that interest rates may decline in the future, locking in a longer-term rate can shield them from potential rate cuts.

 

  • Potential hedge against inflation: Longer term rates are still higher than inflation has historically been. Inflation can erode the purchasing power of money over time. By locking in a longer-term rate, investors can help preserve their capital against the negative impact of inflation on their returns, as the interest rate remains fixed over the entire term.

 

  • Pursuing long-term financial goals: Some investors may have specific long-term financial goals, such as funding retirement, education expenses, or major purchases. Locking in longer-term rates can align better with such objectives, providing a steady and predictable income stream to support these goals.

 

  • Diversification: A well-balanced investment portfolio includes a mix of short-term and long-term investments. By incorporating longer-term rates, investors can diversify their portfolio and spread risk across various maturities.

 

Ultimately, the decision to lock in longer-term rates should align with an investor’s specific financial goals, risk tolerance, and liquidity needs. Reach out if you need help figuring out where different fixed income investments fit into your own investment plan.

 

The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

 

All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. CDs are FDIC insured to specific limits and offer a fixed rate of return if held to maturity, whereas investing in securities is subject to market risk including loss of principal.​ Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

 

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inheriting an annuity

What To Do If You Inherit An Annuity

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Inheriting an annuity can be a blessing but it’s important to understand what your options are. An annuity is a financial product that provides a regular stream of income over a specified period or for the lifetime of the annuitant. If you have recently inherited an annuity, it’s important to be informed and take appropriate steps to make the most of this asset. Let’s discuss what you should do if you are in this situation.

 

  • Read the fine print: The first step is to thoroughly review the terms and conditions of the inherited annuity. Understand the type of annuity it is, such as a fixed annuity, variable annuity, or indexed annuity. Take note of the annuitant’s original investment, any guarantees, payout options, and any applicable fees or penalties. This information will help you make informed decisions going forward.

 

  • Determine Your Relationship to the Annuitant: Your relationship to the annuitant will determine the options available to you. If you are the spouse of the annuitant, you may have different choices than a non-spouse beneficiary. Spousal beneficiaries may have the option to assume the annuity contract, continue receiving payments, or transfer the annuity to their name. Non-spouse beneficiaries often have the option to receive a lump sum, payment over a certain number of years, or establish a new annuity.

 

  • Consult with Professionals: Inheriting an annuity can have tax implications and complex financial considerations. Consult with professionals such as financial advisors, tax advisors, or estate planning attorneys. They can help you navigate the intricacies of the inherited annuity, understand the tax implications, and provide guidance on the most suitable course of action based on your individual circumstances.

 

  • Consider Your Financial Goals and Needs: Consider your financial goals and needs when deciding what to do with the inherited annuity. Assess whether the annuity aligns with your long-term financial objectives. Evaluate other financial resources and assets you have and determine how the annuity fits into your overall financial plan. Consider factors such as your age, risk tolerance, and the current economic environment.

 

  • Evaluate Payout Options: Depending on the type of annuity and the options available, you may have choices regarding how you receive payments. Common options include taking a lump sum distribution, receiving regular payments over a specified period, or setting up a new annuity in your name. Carefully evaluate each option, considering factors such as your income needs, tax implications, and future financial goals.

 

  • Understand the Tax Implications: Inherited annuities may have tax consequences, so it’s important to understand the tax rules that apply. The tax treatment varies depending on various factors, including the relationship to the annuitant, the age of the annuitant at the time of their passing, and the payout option chosen. Consulting with a tax advisor can help you navigate the tax implications and minimize potential tax liabilities.

 

  • Review Beneficiary Designations: If you decide to keep the inherited annuity, review and update the beneficiary designations if necessary. Ensure that the designated beneficiaries align with your current wishes and any changes in your life circumstances. Regularly reviewing and updating beneficiary designations is essential to ensure that your assets pass according to your wishes.

 

Inheriting an annuity can be a significant financial event. Taking the time to understand your options, consult with professionals, and evaluate your financial goals will help you make informed decisions regarding the inherited annuity. By considering your unique circumstances and seeking expert advice, you can effectively manage this asset and make choices that align with your financial objectives.

 

The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Stratos Wealth Partners and LPL Financial do not offer tax advice or services.

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