Monday, November 24, 2008
WHILE CDs PROTECT YOUR SAVINGS FROM MARKET RISK, THE INTEREST RATES YOU EARN CAN FLUCTUATE DRAMATICALLY OVER TIME. VOLATILITY OF INTEREST RATES CAN CAUSE AS MANY SLEEPLESS NIGHTS AS THE UPS AND DOWNS OF EQUITIES… ESPECIALLY FOR THOSE LIVING ON A FIXED RETIREMENT INCOME.
DURING PERIODS WHEN INTEREST RATES ARE LOW… AFTER TAXES AND INFLATION YOU MAY FACE A LOSS OF PURCHASING POWER WITH CDs.
CONSIDER THE IMPACT OF INFLATION AND TAXES ON INTEREST EARNINGS. EARNINGS FROM CDs ARE CURRENTLY TAXABLE IN THE YEAR EARNED, WHETHER THEY ARE WITHDRAWN OR LEFT TO ACCUMULATE.
AFTER DEDUCTING YOUR INCOME TAXES….
YOU CAN SEE THAT NET EARNINGS ARE ACTUALLY MUCH LOWER.
THEN, BY FACTORING IN A HYPOTHETICAL RATE OF INFLATION….
THESE NET EARNINGS FURTHER ERODE INTO A NEGATIVE REAL RATE OF RETURN.
PERHAPS INFLATION WILL BE HELD IN CHECK OVER THE NEXT 20 OR 30 YEARS. AND, PERHAPS INCOME TAXES WILL NOT TOUCH US AS SEVERELY. BUT… IF INFLATION AND INCOME TAXES ARE A PROBLEM IN THE FUTURE, AS THEY HAVE BEEN IN THE PAST, IT WILL LIKELY HAVE A MOST DRAMATIC EFFECT ON THOSE RETIRED AND LIVING ON A FIXED INCOME.
DURING PERIODS WHEN INTEREST RATES ARE LOW… AFTER TAXES AND INFLATION YOU MAY FACE A LOSS OF PURCHASING POWER WITH CDs.
CONSIDER THE IMPACT OF INFLATION AND TAXES ON INTEREST EARNINGS. EARNINGS FROM CDs ARE CURRENTLY TAXABLE IN THE YEAR EARNED, WHETHER THEY ARE WITHDRAWN OR LEFT TO ACCUMULATE.
AFTER DEDUCTING YOUR INCOME TAXES….
YOU CAN SEE THAT NET EARNINGS ARE ACTUALLY MUCH LOWER.
THEN, BY FACTORING IN A HYPOTHETICAL RATE OF INFLATION….
THESE NET EARNINGS FURTHER ERODE INTO A NEGATIVE REAL RATE OF RETURN.
PERHAPS INFLATION WILL BE HELD IN CHECK OVER THE NEXT 20 OR 30 YEARS. AND, PERHAPS INCOME TAXES WILL NOT TOUCH US AS SEVERELY. BUT… IF INFLATION AND INCOME TAXES ARE A PROBLEM IN THE FUTURE, AS THEY HAVE BEEN IN THE PAST, IT WILL LIKELY HAVE A MOST DRAMATIC EFFECT ON THOSE RETIRED AND LIVING ON A FIXED INCOME.
Labels: www.legacyannuities.com
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