Advice on which account is better option for my $125,000 CD coming due

[Al18]

Your making stuff up. Please stop.

 

[Carol1862]

I brought up the annuities to my DH who stated exactly what you did.
We have no plans or need at this time for the money. Thank you for the treasury bond info. I know we have some I-Bonds.

To give some background, we retired a little over 10 years ago. We are on SS, no pensions. Our portfolio has increased. We are comfortable, own our home (newer so large improvements, appliances and repairs shouldn’t affect us for a while) our car (recently purchased) ) and vacation throughout the year. We leave soon for 2 weeks and another trip planned for Europe this summer. We take smaller trips to see family and friends. So, as for this money, it’s just another form of long term investment/income preservation.

Thank you everyone for your replies.

None of these assumptions you’re making fit the use case for the poster above. In fact, they never provided the answer to their horizons or needs.

I did post my answer to what our needs are. And I do appreciate all the replies.

 

[target2019]

I did post my answer to what our needs are. And I do appreciate all the replies.

The Marcus offer gives you immediate access after a certain period during which you earn the bonus.

CD choice is a decision to lock in a rate for a certain period. Early withdrawal penalty.

Other choices abound. But the question you must answer for an optimum choice is, "When do I use this money?"

 

[mrfeh]

I brought up the annuities to my DH who stated exactly what you did.
We have no plans or need at this time for the money. Thank you for the treasury bond info. I know we have some I-Bonds.

To give some background, we retired a little over 10 years ago. We are on SS, no pensions. Our portfolio has increased. We are comfortable, own our home (newer so large improvements, appliances and repairs shouldn’t affect us for a while) our car (recently purchased) ) and vacation throughout the year. We leave soon for 2 weeks and another trip planned for Europe this summer. We take smaller trips to see family and friends. So, as for this money, it’s just another form of long term investment/income preservation.

Thank you everyone for your replies.

Then invest the money according to your target asset allocation.

 

[Koolau]

I too kinda like MYGAs but recognize their limitations - especially tying up money for a significant period of time AND if you leave the money in, you can end up with a tax bomb (or IRMAA/NIIT bomb). I actually got caught in the IRMAA trap recently due to not properly managing a MYGA. SO, they have their place but also their "issues."

 

[GoBirds]

If you don’t need the money, which I think I read along the way, throw 75k in VOO or VTI or your brokerage version of those. Keep the 50k liquid.

Not sure why you would want to tie up the money in anything with higher fees and rules to access it

 

[erkevin]

BIG caveat regarding the Marcus 90-day bonus money. I just went to enroll in this "deal" and read the fine print. It's not just the new money that you have to keep deposited; it is ALL money across ALL accounts from the day you deposit the funds. None of it can be touched for that 90-day period. " Maintain those new funds, in addition to your enrolled account starting balance and your starting balance across all Marcus accounts, for 90 days."

I have six accounts with Marcus; they would all be essentially frozen for three months.

This is a big bunch of BS from a bank that I have used since their inception.

 

[GenXguy]

I too kinda like MYGAs but recognize their limitations - especially tying up money for a significant period of time AND if you leave the money in, you can end up with a tax bomb (or IRMAA/NIIT bomb). I actually got caught in the IRMAA trap recently due to not properly managing a MYGA. SO, they have their place but also their "issues."

Interesting. I'm using MYGA for the exact opposite - to keep my MAGI and taxes lower for several years. It's working.

 

[Koolau]

Interesting. I'm using MYGA for the exact opposite - to keep my MAGI and taxes lower for several years. It's working.

Yeah, I just did it wrong!

 

[momoney]

Here’s a think outside the box option.
Invest in HOSAX. The NAV remains remarkably steady and it pays over 6%
It has a Sharpe ratio, a measure of risk adjusted return, of almost 3 which is unbelievable high. Well above any other similar investment,

View attachment 61620

How does this compare with JAAA and PYLD? Does HOSAX benefit from falling rates?

 

[COcheesehead]

How does this compare with JAAA and PYLD? Does HOSAX benefit from falling rates?

HOSAX yield = 6.07%
JAAA yield = 4.83%
PYLD yield = 4.68%

3 year Sharpe on HOSAX is almost 3, which is spectacular.

 

[erkevin]

HOSAX is kinda pricey; a 1.66% expense ratio

 

[momoney]

HOSAX is kinda pricey; a 1.66% expense ratio

I presume it would only be pricey if the yield dropped? as the 6.07% above is after ER?

 

[COcheesehead]

HOSAX is kinda pricey; a 1.66% expense ratio

Expenses are taken out prior to the yield reporting. For proprietary strategies like HOSAX results are the bottom line. Expenses only matter when there are likely similar outcomes like an index.

 

[pb4uski]

... The recommendations of buying an annuity frankly puzzle me unless you are seeking dependable income over a period of time. In general, their excessive fees are a non-starter for me. ...

You obviously are not well informed on MYGAs. MYGAs are simply a CD issued by an insurance company but with some important differences like credit risk backed by the insurer and state guaranty associations rather than the issuing bank and the FDIA, surrender penalties for ealy withdrawal rather than early withdrawal penalties, tax-deferral until money is withdrawn, etc.

There are NO fees (other than for early withdrawal) in an MYGA. They pay x% for a y year term but allow 10% free withdrawals annually (and CDs don't).

You're likely thinking of variable annuities, which I and many here would agree are bad.

And nobody here is beating a drum for MYGAs because they sell them... just based on their experience... so get off your high horse.

 

[pb4uski]

... And what happens if you want to terminate early? Fees.

What happens if your terminate a CD early? Fees.

....I have a personal disdain for anything that locks me into any direction.

Don't CDs lock you in as well? If you buy a 3 year CD you are locked in unless you are willing to pay an early withdrawal penalty.

 

[Tommyboy]

I too kinda like MYGAs but recognize their limitations - especially tying up money for a significant period of time AND if you leave the money in, you can end up with a tax bomb (or IRMAA/NIIT bomb). I actually got caught in the IRMAA trap recently due to not properly managing a MYGA. SO, they have their place but also their "issues."

I have a MYGA coming due soon and my thought is to explore rolling into a SPIA 10 year period certain. This way, If I understand correctly the tax bomb is divvied out in small chunks per year. My purpose is an income bridge. Keeps me from needing to pull any from the equity portion, letting that grow.

 

[Henry Lili]

Or you could investigate if it's possible/preferable to roll it into laddered MYGAs (via a 1055 I believe) avoiding a big tax hit in any one year and spread it out over several as each one matures. You keep your principal and interest vs. the SPIA approach I believe.

 

[erkevin]

Here’s a think outside the box option.
Invest in HOSAX. The NAV remains remarkably steady and it pays over 6%
It has a Sharpe ratio, a measure of risk adjusted return, of almost 3 which is unbelievable high. Well above any other similar investment,

View attachment 61620

I jumped in this morning. Thank you for the suggestion. I have six $50k CDs maturing in 2026 with a couple coming due this spring. New investment choices have become narrower and narrower particularly if you want any duration without Calls (yes, I have quite a bit in US Treasuries already).

Edit: no fees at Schwab.

 

[Henry Lili]

I jumped in this morning. Thank you for the suggestion. I have six $50k CDs maturing in 2026 with a couple coming due this spring. New investment choices have become narrower and narrower particularly if you want any duration without Calls (yes, I have quite a bit in US Treasuries already).

Edit: no fees at Schwab.

Take a look at the NAV over the past few years as well.

 

[lakehawk]

I have $125k CD due this week. I was going to transfer it into my Capitol One account and put it into a 3.8 12 month CD. The only account I have with them is a very small savings because the cashback on my CC goes into that account. However, Marcus if offering $1500 bonus if I open a savings account and leave money there for 90 days. Savings interest as of now is 3.65. I know it can drop in 90 days but doubtful it’ll be drastic. After 90 days I’d withdraw the money and close the account. Might then put it into a CD at Capitol if they are offering a good rate. If not I’ll put it into my Vanguard MM and most likely decide on one of their CD’s.

Before you ask why a CD, we currently have our money mostly with Vanguard in a few of their accounts (60/40) and want some in cash as well.

Marcus offers competitive CD rates. Currently 4.00% for 12 months and they are FDIC insured.

 

[Twinbrow]

I have a MYGA with Gainbridge at 5.6%. Put 150k it in last May. Already gained almost 7k. Some cautions. Gains are taxable(same as CD's), deferred or otherwise. Also, there is a 30 day window on maturity to get your money out or it rolls back into another plan. Make sure you will NOT need the money. Steep penalty If pulled early or too much is pulled out. I don't need the money right now and I am not taking any out for taxes until maturity. Already checked, it will not raise my tax bracket on payout.

 

[Joylush]

I have had an account with Marcus for years. They typically have good CD rates as well. I’ve only had good experiences with them. I also just took advantage of their $1500 bonus. And they also have a $750 bonus for adding 50k and maintaining it for 90 days too.

 

[audreyh1]

BIG caveat regarding the Marcus 90-day bonus money. I just went to enroll in this "deal" and read the fine print. It's not just the new money that you have to keep deposited; it is ALL money across ALL accounts from the day you deposit the funds. None of it can be touched for that 90-day period. " Maintain those new funds, in addition to your enrolled account starting balance and your starting balance across all Marcus accounts, for 90 days."

I have six accounts with Marcus; they would all be essentially frozen for three months.

That is correct. I was a bit surprised that I couldn’t buy a no penalty CD with my new deposit but apparently it has to remain in the savings account. Generous bonus so I’ll wait.

 

[Theophrastus Bombastus]

It's never an all or none rule. I am in a similar situation and like to have some freely available cash at all times.

That said, I am exploring putting 25% into EACH of the following products: a HYSA/MMF for any emergencies that come up, a 2-3 year annuity, a 4-5 year annuity and a 6-7 year annuity with enhanced death benefits. I can then do a full exchange at maturity to another product with the same company or not. I can partially withdraw $XXXXX and rollover the rest knowing that I will get the IRS reaching into my pocket that year - OR I can just take my entire amount and choose something else - like wine, women and song.

At my age anything can happen at anytime and the 'enhanced' part protects my heirs in full for a token reduction to the amount I am earning.

I've spoken with a handful of different annuity salespeople. It's like going to a car dealership and dealing with them. They all have their select product line and pressure you to make a decision right then and there.

The products are NOT all the same, neither are the salespeople. Some pretend to be 'Aw shucks' good ol' boys or country bumpkins who want to be your friend while others are pushy and others are quite dry and nerdy, like CPA's.

Some do not listen and use their pitch to steer and 'upsell' you to an unsuitable product - those I ignore and do not contact again, sometimes bluntly telling them 'It's my money, not your's. Do NOT tell me what to do when I have already chosen a product I investigated and like.'

I listen, learn, gather information and leave. I will make my decisions dispassionately at my convenience.