Annuities can be a great investment product to supplement retirement income. It is important, however, to understand how income annuity rates vary and what impact rates have on any product that is used. Annuity rates are impacted by a number of factors, including current interest rates, the term of an annuity, and the type of annuity product.
Maximizing spending power
Purchasing an annuity can help increase spending power, especially for those who are retired. When purchasing an income annuity, there are a number of factors that have to be taken into consideration. For example, annuity rates for women are different than they are for men, primarily because women tend to outlive men. When men and women get a quote for an immediate annuity, the same investment will likely have different annuity rates as well as different payouts.
Immediate annuity versus deferred annuity
Chances are, the closer a person is to retirement, the more likely they are to prefer an investment in an immediate annuity. In Florida, all annuity rates are based on the ability of an immediate annuity contract to begin paying out 12 months after the contract is obtained. Annuity contracts can be based on one person’s lifetime or may be spread out over the lifetime of the annuitant and the spouse. Deferred annuity contracts are most beneficial for long-term planning, typically being used by investors younger than age 50. It is important to note that income annuity rates are often tied to current market interest rates, and the lower the current rates, the less an annuity will guarantee in future earnings.
Liquidity and annuity rates
One of the sacrifices made when investing in an annuity is giving up liquidity. Unlike stocks, bonds, and mutual funds, an investment in an annuity will tie up a substantial amount of capital in return for future returns. It is worth noting that the longer the term of the annuity, the better the annuity rates can be for the investor. In some cases, annuity rates may be chained to the Consumer Price Index (CPI) which allows for more growth over time. Unfortunately, if the need arises to liquidate an annuity because financial conditions have changed, there is often a steep penalty which may have the impact of negating a good annuity rate.
Annuity rates and long-term income
Future income payments are based on the annuity purchase rates at the time the investment is made. The younger the annuitant, the better the rate and the more income is likely to be generated by the contract. For example, if a 45-year-old woman made an investment of $50,000 their estimated monthly income at age 70 would be in excess of $1,000 per month. The same investment at age 60 would mean an estimated income of less than $600. Of course, the challenge is whether or not a 45-year-old wants to lock this much capital into a contract that has little liquidity since financial circumstances change.
Annuity investments must be carefully evaluated before making an investment. Over the long-term, retirees may benefit from annuity rates that are fixed, especially given the risks associated with other investments. Annuity investments can be one way to increase your spending power after retirement and provide additional income. Making sure you understand how income annuity rates impact you over time is critical.
Advanced Capital Management, Inc. can show you how to get better returns on your retirement dollars and provide you with the income you need. Why not find out more about how a lifetime income annuity rider works? It costs you nothing to find out if a Fixed Index Annuity or Life Insurance is the right option for you. Just click on the orange “Get Annuity Quote” button to the right and see how you can generate more income, safely, for your retirement.