Right now, annuity payouts are higher than they’ve been in a long time. More specifically, the returns on annuities are based on market interest rates. And, since rates were just at their highest level since 2001, now may be a very good time to purchase an annuity. Certain products and policyholders benefit better than others from these higher interest rates, however. Today, we’ll get into the specifics.
What is an Annuity?
An annuity is an agreement between an insurance provider and you, the policyholder. An annuity may provide set or variable returns, opportunities for tax-deferred growth, flexible withdrawals, and other benefits, such as the ability to leave a legacy for a successor, depending on the type you choose. The kind of annuity, the specific contract, and the issuing insurance company will all affect the fees and costs, including sales commissions. You deposit a portion of your savings (the premium) to the annuity, and the insurance company pays you monthly benefits that, based on the features you choose, may be able to last the remainder of your life (provided the insurer stays solvent).
What Makes Annuities Unique?
An annuity is not a savings account, nor is it an investment. Making this distinction is vital. Annuities may yield larger returns* than some other income sources, since the payout from an annuity combines your principal with an additional return.* With a fixed indexed annuity (FIA), a market index is used to calculate your returns. But they also protect your funds (backed by the claims-paying ability of the carrier).
What makes annuities special is, the insurer usually agrees to pay these benefits for a set period of time. For instance, twenty years, or even the rest of your life and, potentially, the life of your spouse. If you have already retired or are soon to retire, we recommend that you categorize your costs as “discretionary” or “essential.” Then, we would think it prudent to employ dependable or even guaranteed income sources, such Social Security, pensions, or even an annuity, to cover at least some of your essential expenses. It could be beneficial to seek advice from an expert to assist you in weighing the benefits and drawbacks, related costs, and accessible solutions. We might be able to help with this: Contact us to find out more.
Higher Interest Rates
The opportunity to lock in higher interest rates for a longer length of time is one important advantage of these higher interest rates. This could provide people a sense of security and protection against future interest rate drops (which we’ll discuss). If you depend on an annuity for your income, rising interest rates may result in higher income potential, which could help you maintain your same standard of living. It’s critical to weigh these benefits against any potential downsides and take your unique financial goals and needs into account.
Something to Consider
High interest rates on annuity products may allow you to receive higher retirement income, depending on your age. If you are in your 50s, these larger returns could help you ensure a better lifetime income. Therefore, the earlier you do this, the more significant it is. If you’re 80 years old, high interest rates don’t really matter that much, though: “It matters much more the younger you are,” said David Blanchett, the head of retirement research for PGIM DC Solutions, “At this point, payouts are mainly based on life expectancy.”*
It’s also important to keep in mind that even while the Fed may decide to defer rate reductions due to higher-than-expected inflation earlier this year, interest rates may still fall later this year. Another good reason to buy an annuity as soon as possible is the possibility of rates dropping once more. However, make sure the annuity type is appropriate for your long-term financial goals. There are several options at your disposal. Get in contact with a qualified expert to learn more.
Fixed Indexed Annuity Bonuses
In order to keep up with market conditions, fixed indexed annuities (FIAs) currently come with higher interest rates. Additionally, fixed index annuities have lately improved in value. Since insurers are making more money these days, many now provide higher potential caps for your returns.*
On the other hand, since variable annuities have a different method of calculating return, the current state of interest rates has less bearing on them. Generally speaking, we would advise getting an FIA because of the added safety feature (backed by the claims-paying ability of the carrier).
There are currently higher-than-ever bonuses available on certain fixed indexed annuity products. One product, for instance, promises a 32% boost in bonus income. Another promises a bonus income boost of up to 42%. There are several ways to increase the value of your annuity, earn interest, and leave a legacy with these time-limited options. Whether you’ve never even thought about purchasing an annuity, or if you already own one, we’d recommend getting in touch with us to learn about these offers going on right now.
Contact us or attend one of our events to find out more information about these extremely limited-time benefits and higher interest rates.
*Sources: Kiplinger, Charles Schwab, Annuity Watch USA