There are other options available that have the potential to yield more income than bonds or market investments right now.* Payouts from annuities are also more than they have been in a long time. More precisely, annuities don’t invest your money in the market; instead, they base their returns on market interest rates. In general, the time is right to buy an annuity, given rates were just at their highest point since 2001. These higher interest rates, however, are advantageous for some products and policyholders more than for others. We’ll be going into the details today.
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 type of annuity, the specific contract, and the issuing insurance company will all affect the fees and costs, including sales commissions. Basically, you deposit a portion of your savings (the premium) into the annuity, and the insurance company pays you monthly benefits that, based on the features you choose, may be able to last you the rest of your life (provided the insurer stays solvent).
What Makes Annuities Unique?
Annuities are not savings accounts, nor are they investments like stocks. This is a crucial distinction to make. Because an annuity payout combines your investment with an additional return, as opposed to those other income sources that do not, returns on annuities are frequently higher.* Your returns from a fixed indexed annuity (FIA) are determined using a market index. However, they also safeguard your money (backed by the claims-paying ability of the carrier).
Annuities are special because the insurer typically commits to paying these benefits for a predetermined amount of time. For example, 20 years, or even for the rest of your life and, in some cases, the life of a spouse. If you are approaching retirement (or have already retired), you might want to classify your expenses as “essential” or “discretionary.” Then, it would make sense (in our opinion) to use reliable or guaranteed income sources, such as Social Security, pensions, and even an annuity, to pay some, if not all, of your basic needs. You may want to consult with an expert to help you weigh the advantages and disadvantages, associated expenses, and available benefit options. We may be able to help with this: Reach out to us to learn more.
Higher Interest Rates
One important advantage of these higher interest rates is the opportunity to lock in rates for a longer length of time. This might give people a sense of security despite the concern of future interest rate drops (we’ll get to that). If you depend on an annuity for your income, rising interest rates may result in increased annuity income potential, which could help you maintain your level of life. It’s critical to weigh these benefits against any potential downsides and take your unique financial demands and aspirations into account.
What effects will higher annuity interest rates have on your retirement finances? For those thinking about an annuity, knowing how higher interest rates will affect things is essential, since it will enable them to make well-informed selections based on their particular goals and risk tolerance. Speaking with experts on the subject can help you get specialized guidance and info.
Something to Consider
Depending on your age, high interest rates on annuity products may enable you to have a higher retirement income. This is more important the younger you are; if you are in your 50s, these higher returns may help you secure a higher lifetime income. High interest rates don’t really matter as much if you’re 80 years old. “It matters much more the younger you are,” says David Blanchett, head of retirement research for PGIM DC Solutions, “At this point, payouts are mainly based on life expectancy.”*
It’s also crucial to remember that interest rates may drop later this year, even if the Fed’s decision to reduce rates may be delayed by higher-than-expected inflation earlier this year. The potential for rates to decrease again is another incentive to purchase an annuity sooner rather than later. Make sure the type of annuity is suitable for your long-term financial objectives, though. There are multiple options available. To find out more, get in touch with an experienced professional. That’s where we can help.
Annuity Bonuses
Fixed-indexed annuities currently come with higher interest rates. Additionally, they’ve recently begun offering higher potential caps* on your returns. On the other hand, since variable annuities have a different method of calculating returns, the current state of interest rates has less bearing on them. Generally speaking, we would advise purchasing an FIA because of the added aspect of safety (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, offers a 32% income bonus. Another offers a bonus of up to 42%. There are multiple ways to increase the value of your annuity, earn interest, and leave a legacy with these time-limited annuity options. Please get in touch with us if you have never thought about an annuity. And if you already own one, you might want to think about upgrading it. Is it the right choice for you? Contact us to learn more about these extremely limited-time benefits and higher interest rates. Get in touch with us or come to our event.
*Sources: Kiplinger, Charles Schwab, Annuity Watch USA
