Options in a Low Interest Rate Environment

If you want to avoid stocks, a charitable gift annuity is an alternative.

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The Lancaster Sunday News recently printed an article about the perils of low interest rates. In the article a retiree used rental income as an alternative to the low interest rates he was finding. Are there other alternatives?

Today’s savers face a real dilemma: How do they earn enough from their nest egg in a low-rate environment? For those who don’t want to increase their exposure to the stock market, it could be time to investigate a charitable gift annuity. This may especially make sense for retirees who are charitable minded or who already have a charity named in their will.

A charitable gift annuity allows you to give money to a charity and receive a lifetime income stream in return. Note that at the end of your lifetime, any remaining money will go to the chosen charity and not to your heirs. There are several reasons this may be interesting and beneficial to you.

  • The interest on single-life charitable gift annuities is currently 5.3% if you are age 65, 5.8% if you are age 70, and 6.5% if you are age 75. This information is available from the American Council on Charitable Gift Annuities. The organization retains an actuarial firm to determine the rates which are used by most charities. By having uniform rates for all charities, there is no benefit, from a rate perspective, which charity one uses. The rates offered can change and are typically set for a two-year period of time starting July 1. Those quoted here are valid until June 30, 2012. Once you begin the income stream, the rate does not change.
  • In addition to the higher income stream, you may also be eligible for a charitable deduction on your income taxes if you itemize.
  • The income stream received is often only partially taxable.

If you are interested in exploring this option, you should seek council from your financial advisor.

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