How Annuity Rates Can Dramatically Alter Your Retirement

Annuities can be a great addition to any retirement plan, and many people decide to invest in annuities because they can offer higher payouts than other investments and typically have less risk. One thing to consider before buying an annuity is how annuity rates will affect your investment and, ultimately, your retirement income. Annuity rates change regularly, and these varying rates can have a big impact, both positive and negative, on your retirement investing.

Don’t wait until retirement to educate yourself about annuity rates.

Below, we take a look at how annuity rates affect different types of annuities and what this ultimately means for your retirement nest egg.

Annuity Rates and Fixed Annuities

The interest rate for a fixed annuity is fixed for a pre-defined period. After this, the insurance company that backs the annuity can increase, decrease, or hold the interest rate on a yearly or multi-yearly basis. The rates depend on market conditions, but rates do not usually go below a guaranteed minimum.

One risk that investors take when they purchase a fixed annuity is that they lose spending power if the annuity interest rate drops below the rate of inflation. This means that the money that the investor is not able to purchase products with higher yields. Though the fixed income with a fixed annuity provides a safety net against some losses, the investor can miss the opportunity to make money elsewhere.

Annuity Rates and Variable Annuities

As the name implies, variable annuities have varying values that depend on the performance of the underlying subaccounts, which contain investments that the premiums are funding. With variable annuities, interest rates impact the sub accounts that the annuity owner is invested in. This means that interest rates have a direct impact on how well the value of the variable annuity.

Just because annuity rates can have a negative impact on variable annuity values, does not mean that they should not still be considered part of an individual’s investment portfolio. Some variable annuities will offer riders, or optional living benefit features that provide protection for payouts, withdrawals, and account values against the possibility of investment losses.

Annuity rates can have a drastic impact on your retirement nest egg.

Use an Annuity Retirement Calculator

Annuity calculators can help to show you how current annuity rates can impact your investment. Before you buy an annuity, consider using a retirement calculator to help you determine how much to invest in order to provide yourself with an adequate retirement income. First, gather some information about your monthly expenses and the amount of income that you will receive from other sources like a part-time job or Social Security funds.  You might want to use one of the best retirement calculators to help you make these calculations.

Next, look at the difference between your retirement income and your expenses to determine how much money you will need in order to give yourself some security in retirement. Then use the lifetime annuity calculator to help you calculate what it will cost to buy an annuity that will help close the gap between your other retirement income and your expenses.

Annuity rates can have a drastic impact on your retirement nest egg.

Though annuity rates can greatly impact your investments, and thus increase or decrease your retirement nest egg, they still help to provide you some security in retirement.

According to Matthew Sadowsky, Director of Annuities and Retirement at TD Ameritrade, “Many people purchase annuities because they can offer tax deferral, principal protection, and guaranteed growth. But a key goal for many annuity owners is to help provide a steady stream of income in retirement to help cover not only your need to haves, but also your nice to haves.”

Sounds like an annuity can be a big part of the best retirement plans.

NewRetirement Planner

Do it yourself retirement planning: easy, comprehensive, reliable

NewRetirement Planner

Take financial wellness into your own hands and do it yourself retirement planning: easy, comprehensive, reliable.

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