Are annuities better than CDs when planning for retirement?

The retirement planning landscape has shifted dramatically over the past decade. With traditional pensions becoming increasingly rare and Social Security facing long-term funding challenges, Americans are shouldering more responsibility for their golden years than before. This has led many, especially those who are approaching retirement age, to search for reliable, low-risk ways to preserve their hard-earned retirement savings while generating steady income.

And, two financial products that consistently emerge during these searches are certificates of deposit (CDs) and annuities. Both options promise safety and predictability, which are qualities that tend to become increasingly attractive as retirement approaches. Yet despite their shared reputation for stability, these instruments work in fundamentally different ways and serve distinct purposes in a well-rounded retirement strategy.

So, which option — CDs or annuities — is better when planning for retirement? The answer might surprise you, and it’s probably more nuanced than you think.

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Are annuities better than CDs when planning for retirement?

Unlike many other retirement planning tools, the choice between CDs and annuities isn’t simply about which offers better returns. That’s because neither annuities nor CDs are universally “better” for retirement planning. Each option serves different needs, making the comparison less about superiority and more about suitability. 

CDs, in particular, excel in terms of simplicity and predictability. When you open a CD, you’re essentially lending money to a bank for a predetermined period, earning a fixed interest rate in return. Your principal is protected by FDIC insurance up to $250,000, making CDs among the safest investments available. They’re particularly appealing for short-term goals or as a conservative anchor in a diversified portfolio.

However, CDs face significant limitations when it comes to retirement planning. The returns on these interest-bearing accounts typically struggle to keep pace with inflation over long periods, potentially eroding your purchasing power over time. And, CDs don’t provide the lifetime income guarantee that many retirees desperately need. They simply return your principal plus interest when they mature.

Annuities, on the other hand, are specifically…