bank for roth IRA
My name is Virginia Ilie
I would like to ask you a question. Regarding projecting return in several years. MR Alan you said that you divided your expected yields into 72 with return of 8% then 72/8=9 But in the same time you said that there is no guarantee that anyone will get that amount 8 % . Iam totally confused. Before on 6/2012 I explained to you my situation. I put my retirement money in a savings bank with CD. I went there to give up CD,and i asked about 8% anual return, and the rep of the bank said that the saving over time without CD is only 0.3 %. Now I wanted to bust the CD and I want to put money in a bank to get that 8% return that you were talking about on6/2012. Can you tell me which bank is good to put money Roth iRA and get 8 % return ?. It is good idea to invest in bond , security treasurres to get those return. Can you give some sugestions about such banks. Also I want to ask about annuities. If Iput Roth IRA money with annuities this means that I have to purchase those annuities, so I have to give extra money just for annuities. It is good idea to buy an annuity with your Roth that guarantees payout for a set time period like 10, 20 years.
Thank you
Virginia Ilie
Permalink Submitted by Alan Spross on Sat, 2012-12-08 17:29
The “rule of 72” is just a simple way to determine how long it would take for your money to double. As I explained before, if you were able to secure a yield of 8%, dividing 8 into 72 tells you that your money would double in 9 years.
But you will not be able to get anywhere close to 8% or even 5% in today’s record low interest rate environment using a safe investment such as CDs or short term bonds. Junk bonds yield more, but they are risky like stocks. Stocks could return 8% over a period of time, but they are risky and you could lose a large part of your investment.
I would be very careful investing now with anyone that promises you 8% even if you can find them. Some annuities might offer bonuses or other incentives that include 8%, but these are not like CDs and have severe surrender charges. Their terms and conditions are often very difficult to understand, so you should not give your money to any insuror until you totally understand the terms.
It might be worthwhile to annuitize your Roth IRA, but you need to understand what happens if you do not live past various periods, either for a life annuity or a period certain like 10 years.
From a practical standpoint there are no “good banks” or “bad banks”. CDs are guaranteed up to a certain limit by the FDIC, but the FDIC does NOT cover annuities. Your state might provide a guarantee fund for annuities, but many states are in dire financial straits now. Most banks sell annuities using insurance companies and these annuity funds are not guaranteed by the bank in any way. They are only safe up to the funds held in reserve by the insurance company. Many large insurors needed govt bailouts just 4 years ago, and that proves they could become insolvent if financial conditions go bad like they did in 2008.
Getting any decent yield that is safe is pretty much impossible at this time and probably for at least the next 2-3 years because of the cheap money policy of the Federal Reserve. It is a major problem for all seniors used to depending on interest income. But you should not take on too much risk and higher yields always come with either added risks or tieing up your principal for a long period.