2025 Suze Orman’s Take on Fixed Annuities

As we move into 2025, the financial landscape continues to evolve, and it’s essential to stay informed about investment options that can secure your future. One of the financial products that have garnered attention over the years is the fixed annuity. Renowned personal finance expert Suze Orman has shared her insights on fixed annuities, offering a balanced view of their advantages and potential pitfalls. Here’s what you need to know about fixed annuities, based on Suze Orman’s advice.

What Is a Fixed Annuity?

A fixed annuity is an insurance product that provides a guaranteed interest rate on your investment over a specified period. It offers a reliable income stream and can be an attractive option for those seeking stability in their financial planning. According to Suze Orman, there are two main types of fixed annuities: the traditional fixed annuity and the CD-type annuity. Both have their unique benefits, but it’s important to understand the nuances before making a decision.

Why Suze Orman Likes Fixed Annuities (2025 Suze Orman’s Take on Fixed Annuities)

Suze Orman has made it clear that she has no problem with fixed annuities. In fact, she sees them as a viable option for certain investors, particularly those who prioritize security and tax-deferred growth. Here are some of the reasons why Suze Orman appreciates fixed annuities:

Higher Interest Rates: Sometimes, a fixed annuity can offer a higher interest rate than other low-risk investments like certificates of deposit (CDs) or money market accounts. This can make them a more attractive option for conservative investors looking to grow their savings.Tax-Deferred Growth: One of the standout benefits of fixed annuities is that the interest earned is tax-deferred. This means your money stays in the annuity, compounding over time without being eroded by annual taxes. This tax advantage allows your investment to grow faster compared to taxable accounts.Predictable Income: Fixed annuities offer a predictable stream of income, which can be particularly valuable in retirement. Knowing exactly how much you’ll earn over a set period provides peace of mind and helps with financial planning.

The Potential Pitfalls: What to Watch Out For

While Suze Orman acknowledges the benefits of fixed annuities, she also highlights some of the potential drawbacks that investors need to be aware of:

Teaser Rates: Some fixed annuities may lure investors in with a high-interest rate during the first year, only to significantly reduce the rate in subsequent years. For example, you might be offered a 4% interest rate in the first year, but after that, the rate could drop to as low as 0.10%. It’s crucial to ask about the minimum guaranteed interest rate over the entire term before committing.Surrender Periods: Fixed annuities often come with a surrender period, during which you cannot withdraw your money without facing substantial penalties. These surrender charges can be as high as 10%, and the surrender period could last several years. It’s important to understand the surrender period’s length and the penalties involved if you need access to your money sooner.Ordinary Income Tax: When you eventually withdraw your money from a fixed annuity, the interest earned is taxed as ordinary income, which could result in a higher tax bill depending on your tax bracket at the time of withdrawal.

Suze Orman’s Preference: The CD-Type Annuity

Of the two types of fixed annuities, Suze Orman has a particular fondness for the CD-type annuity, also known as the certificate of deposit annuity. Here’s why:

Guaranteed Interest for the Entire Term: Unlike traditional fixed annuities that may have fluctuating interest rates, a CD-type annuity guarantees the same interest rate for the entire length of the surrender period. Whether it’s five years or longer, you know exactly what you’ll earn, eliminating uncertainty.Tax Advantages: Similar to other fixed annuities, the interest earned in a CD-type annuity is tax-deferred. This can be particularly beneficial for those who don’t need immediate income from their investment, allowing the interest to compound more effectively.Simplicity and Security: CD-type annuities offer a straightforward, low-risk investment option for those looking to grow their money without the complexity or volatility of other investments. Suze Orman values the stability and security that these annuities provide, especially for retirees or those nearing retirement.

Income Annuities: A Reliable Option for Lifetime Income

Suze Orman also speaks positively about income annuities, especially for individuals who want the security of a guaranteed monthly income for life. Even though interest rates on income annuities are currently low, they can still be a worthwhile option for those seeking peace of mind and a steady income stream.

Important Considerations

Not FDIC/NCUA Insured: It’s important to note that annuities are not backed by the FDIC or NCUA, which means they are not protected like bank accounts or credit union deposits. Instead, they are guaranteed by the State Guarantee Association, which varies from state to state. Therefore, it’s crucial to choose a highly rated, financially stable insurance company when purchasing an annuity.

Final Thoughts

As 2025 approaches, fixed annuities continue to be a compelling option for those seeking stable, tax-deferred growth. Suze Orman’s advice underscores the importance of understanding the terms, including interest rates, surrender periods, and the financial strength of the insurance company before making a commitment. Whether you’re considering a traditional fixed annuity or a CD-type annuity, the key is to align the product with your financial goals and risk tolerance.

For those looking for a reliable, long-term investment option, fixed annuities, particularly CD-type annuities, offer a balanced combination of stability and growth potential. However, as with any financial decision, it’s essential to do your homework and consult with a trusted financial advisor to ensure that the product meets your specific needs.

For personalized advice and to explore how fixed annuities can fit into your financial plan, contact Mintco Financial Independent Advisors at 813.964.7100. Our team is here to help you make informed decisions tailored to your unique financial goals.