Term Deposit or Insured Income?
How is Insured Income better than just withdrawing money from a Term Deposit?
Insured Income (available from Lifetime Income Fund) is similar to a Term Deposit in some ways and different in others. Both investments have their pros and cons.
Let's start with Term Deposits.
While Term Deposit rates are forecast to be low for some time they remain a good investment. Term Deposits are not without risk however. Unlike in most developed countries, term deposits in New Zealand are not insured or guaranteed. In the event of a bank failure, your investment could be used for the greater good. Click here to read more on the Reserve Bank's site.
Term Deposits also pay out interest infrequently; usually quarterly, semi-annually, or annually. This reduces cash flow and makes it harder to budget on a weekly or monthly basis. Lastly and importantly, once your savings in a term deposit have been fully drawn down, your income stops.
Insured Income (Lifetime)
Lifetime enables you to turn a lump sum into a regular income that's insured for life.
Income payments are paid fortnightly and always remain the same, even if markets fall.To offer an income guarantee, the Reserve Bank requires Lifetime to set aside capital reserves to account for each and every investor. These capital reserves ensure Lifetime can honour its future obligations. Individual investors capital cannot be accessed in the event of a financial crisis.
Lifetime’s income payments are paid after-tax and continue for as long as you live, even if your original capital has been drawn down to zero. Term Deposits and Lifetime are investments that cater to different needs. Term Deposits are designed to help you save and Lifetime is designed to help you live. Lifetime addresses longevity risk (how long will you live?) and market risk (irregular income), term depoists do not.
Try out Lifetime's new comparison calculator to decide what combination is right for you,
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