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Annuities or Municipal Bonds?

Should I keep my annuity or invest in municipal bonds?

I have a matured annuity that is paying 4% fixed interest that compounds daily. I met with a financial advisor who wants to take this money a buy municipal bonds with it - is this a good idea or should I leave it where it is?

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Bill's Answer
(6 Votes) | Find Learn Save
  • Annuities at a glance
  • Municipal bonds & taxes

Your question is difficult to answer without knowing more about your tax situation.

I have a personal bias against annuities for most people in most situations because you can usually earn a higher rate of return elsewhere. However, 4% is not a bad return today. Also, if the insurance company that sold you the annuity is highly rated, then you have a fair but not spectacular return that is virtually guaranteed.

Municipal bonds are usually a good idea for people in higher income brackets who are attracted to the tax-free nature of the interest earned.

My recommendation: Talk with the financial adviser one more time. Ask how he or she is being compensated. If he or she is earning a commission on the sale of the bonds, then you have an understanding of why the adviser is pushing the munis. If you are paying the adviser a flat fee for his or her time, then the adviser is more likely to be responding to your needs and not a monthly sales quota. If your adviser is commission-based, then look elsewhere for investment advice.

I hope this information helps you Find. Learn & Save.



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