Guest Column by Steve Zenk

Do you have a rainy day fund? I believe it’s a good idea. It’s just smart to have some money in a safe place that is readily available. Life is unpredictable. In today’s low interest rate environment, these types of accounts typically offer a very low return, sometimes none at all. That’s OK. The purpose of the account is safety and availability, not necessarily growth.

Do you have a significant amount of money in conservative accounts? Often times, conservative savers are willing to accept very low returns in exchange for avoiding the volatility of the markets. Saving money is great and one of the best things you can do for yourself and your family. However, you may be missing out on other, possibly more efficient ways to reach your goals.

Times have changed. We need to think differently and explore new solutions. Many of the old strategies just don’t work anymore. Here’s a classic example:

It wasn’t long ago, that after raising a family and many years of hard work, a couple (we’ll call them Dick and Jane) decided it was time to sell the farm and move to town. Let’s say they sold the farm for $1 million. Dick and Jane could have bought certificates of deposit (CDs) that paid 10 percent interest. By using just the interest on the million dollars, Dick and Jane created an annual income of $100,000! This strategy was simple, did not touch the principal and was even guaranteed by the FDIC!

What a sharp contrast to today. As I’m writing this, the yield on a 12 month CD is around 1 percent. This means that if Dick and Jane had continued with this plan, instead of $100,000 per year, they’d now be trying to live on only $10,000 per year! (and that’s before taxes)

Here are some ideas that can help you make the most of what you have, without market risk.

1. Need income? Consider an annuity. Annuities are specifically created to provide guaranteed income. They can begin payments immediately or can be deferred to pay out later. Distributions can be for a certain dollar amount, for a specific number of years or even a lifetime. For many, an annuity will produce a larger, longer-lasting income than traditional conservative accounts.  These guarantees are backed by the financial strength and claims paying ability of the company or organization you’re working with.

2. Looking to keep the money in the family? Think life insurance. Life insurance is a very efficient way to transfer wealth to a spouse or family members. Only life insurance allows you to leverage a sum of money (premium) into a larger, generally tax-free death benefit. While you’re living, you retain complete control of the cash value of the policy, which usually grows tax-deferred. Life insurance can be funded by a one-time single premium, or scheduled premiums over time.

Never before have there been more products and strategies available. Talk to a qualified financial professional. They have the knowledge and experience to help you with a personalized plan, and to determine if these ideas may be right for you.

Yes, times have certainly changed. Now is a great time to take a fresh look at the alternatives, and make the most of what you have.

 

Steve Zenk is a financial consultant for Thrivent Financial for Lutherans.