Suze Orman puts her money where her mouth is. The personal finance expert has been taking her own advice to save money every month for 40 years.
Specifically, Orman has been putting $700 aside in an American Express annuity since the 1980s. In a recent episode of her “Women and Money” podcast she said the annuity came with a 5% guaranteed minimum interest payment.
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Fast-forward 40 years, and Orman said her annuity is now worth more than $1 million. She’s made $336,000 in payments, meaning her money has earned $705,000 in interest.
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She further broke this down by explaining that she pays $8,400 per year into the annuity, but earns $50,000 per year in interest — highlighting the power of compound interest. Despite reaching an impressive savings level, she said she’s going to continue paying into the annuity.
“That is how truth wealth is built,” she said. “Little by little, month by month, you don’t hit it big overnight.”
Orman said she’s done the same with many of her investments. Here’s a look at how she did it.
An insurance product, an annuity serves as a way to receive future income. They’re purchased in two ways — by paying a single premium or making payments over a certain time period.
The annuity grows on a tax-deferred basis until you start using the money. At this time, you’re able to take the balance out as a lump sum or withdraw it in the form of regular, fixed payments.
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An annuity can be a wise financial move for some people, but it isn’t the right choice for everyone.
People commonly purchase an annuity if they need to save a large amount of money, are looking for an investment that can lower their taxes or want to ensure they’ll have a steady source of income in the future.
While these reasons might sound appealing, it’s important to make sure an annuity is the right fit for you. If you’re in poor health, have a pension — or other solid sources of retirement income, in addition to Social Security — or wouldn’t have enough savings left to cover emergency savings after purchasing the annuity, this probably isn’t the best move.
Carefully weigh your unique financial situation when making your decision. Clearly, purchasing an annuity was a very lucrative choice for Orman, but that doesn’t necessarily mean it’s right for you.
