Lifetime income annuities are an even better deal now, and fixed-rate annuity yields are up a lot.
United States, 25th Sep 2023 – Income annuities pay more than they have in years, according to expert Ken Nuss, CEO of AnnuityAdvantage, an online annuity marketplace. Lifetime income annuities produce about 20% more income than they did a few years ago when prevailing interest rates were low, he estimates. While it’s easy to find rates on certificates of deposit and money-market accounts, income annuities don’t carry an interest rate.
“But they do yield significantly more guaranteed income now than they did back in the era of very low interest rates,” Nuss says.
Annuity buyers today have a great opportunity to lock in more guaranteed lifetime income. Eventually, inflation will lessen, and interest rates and annuity payouts will decline, he predicts.
Lifetime income annuities = longevity insurance
Fixed-rate annuities help savers increase their wealth. Income annuities are different because they normally have no cash surrender value.
Instead, you’re buying a contract that guarantees current or future income. While you can buy an income annuity that pays income for a set period (such as ten years), lifetime annuities are by far more popular. They pay a set income for your lifetime (and the life of your spouse if you like).
The buyer deposits a single payment (premium) and, in turn, gets a guaranteed lifetime income. With an immediate income annuity, income payments will start anywhere from one month to a year after purchase. You also can choose monthly, quarterly or annual payouts. With a deferred income annuity, you get to choose when future payments begin, starting at least one year or longer after purchase.
“Both immediate and deferred lifetime annuities offer longevity insurance. They let you convert some of your savings into your own private pension,” Nuss says.
Most people choose a level payout, but you can choose to have income that will increase in the future — an option that has both pros and cons. Lifetime annuities aren’t suited for everyone, but most people planning for a long retirement should take a close look at them.
“CD-Type” Annuities Pay as Much as 6%
Income annuities aren’t the only type that’s attractive today.
Fixed-rate annuities (multi-year guarantee annuities) act much like a tax-deferred version of bank certificates of deposit (CDs) because they pay a set rate for a certain term. Today, one insurer offers a 10-year annuity, locking in a 6.00% annual rate for anyone with at least $10,000 to deposit.
If you’re willing to tie up your money for five years, you can earn up to 5.60%. A three-year product can pay as much as 5.40%. Here’s a table of top fixed annuity rates by term.
Fixed-rate annuities can be a great choice for standard IRAs and Roth IRAs, as well as non-qualified accounts, where they offer tax deferral.
How to select the right annuity
Whether you’re going for an income or fixed-rate annuity, choose an insurance company that’s financially solid and able to meet its long-term obligations. Annuities aren’t guaranteed by Federal Deposit Insurance (FDIC), but state annuity guaranty associations are required by law to protect fixed annuity buyers, up to certain limits. Furthermore, life insurers, strictly regulated by the states, have an excellent track record of financial stability.
“All annuities, especially income annuities, have special features, tax considerations, and various pros and cons,” Nuss says. “An annuity agent should fully answer all your questions, be transparent, and never subject you to sales pressure. If you ever feel you’re being pressured, take your business elsewhere.”
About AnnuityAdvantage
We’re a premier online site and service for people seeking help with selecting the best annuity for their individual needs. Our team sorts through the array of annuity options to provide each client with product offerings custom-tailored to their specific situation. Every annuity offered is filtered, screened, and analyzed for client suitability.
We strive to make the annuity buying process as easy as possible while providing complete information and disclosure on our entire annuity selection so that you can make informed decisions. Our experienced annuity specialists will answer all your questions so that you can make the best decisions for your money.
About Ken Nuss
Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. He’s a nationally recognized annuity expert and prolific writer on retirement income. A free rate comparison service with interest rates from dozens of insurers is available at https://www.annuityadvantage.com or by calling (800) 239-0356.
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