Are Annuity Rates Going Up?

Before asking whether annuity rates are going up, you first have to define which type of annuity rate you mean.

There are two very different categories.

One is the payout rate used for lifetime income.

The other is the guaranteed interest rate available from products such as Multi-Year Guarantee Annuities.

Those rates are priced differently and can move for different reasons.

Key Takeaways

• Lifetime income payout rates and MYGA interest rates are different.
• Lifetime income payouts are primarily priced using life expectancy.
• Interest rates play a secondary role in lifetime income pricing.
• MYGA rates are guaranteed for a specific contract term.
• Broader interest rates influence MYGAs, but they are not the only pricing factor.
• Trying to perfectly time annuity guarantees is difficult.

What Is an Annuity Payout Rate?

A payout rate applies to annuities designed to provide lifetime income.

Those can include:

• Single Premium Immediate Annuities
• Deferred Income Annuities
• QLACs
• Income Riders

A payout rate is not simply an interest rate.

It reflects how much income the insurance company contractually agrees to pay based largely on the covered person's life expectancy.

Life Expectancy Drives Lifetime Income

The primary pricing factor for lifetime income is life expectancy.

The insurance company is estimating how long payments may need to continue.

The longer the projected payment period, the lower the initial payment may be.

That makes age and life expectancy critical when evaluating lifetime income quotes.

Why Longer Life Expectancy Can Lower Payouts

If life expectancy increases, the insurance company may expect to make more payments over the lifetime of the contract.

That can result in lower initial lifetime income guarantees.

This is why changes to mortality and life expectancy assumptions can matter more than short-term interest-rate moves for lifetime income products.

What Role Do Interest Rates Play?

Interest rates still matter.

But for lifetime income, they are a secondary pricing factor.

The Federal Reserve, Treasury yields, and broader rates can influence annuity pricing, but they do not completely determine the lifetime payout.

That is why lifetime income guarantees do not always move in the direction people expect after a Fed decision.

What About MYGA Rates?

MYGA rates work differently.

A Multi-Year Guarantee Annuity provides a guaranteed interest rate for a specific period.

Common terms can range from one year through ten years.

If you purchase a five-year MYGA, for example, the interest rate is contractually guaranteed for that five-year term.

Will MYGA Rates Go Up When the Fed Raises Rates?

Not necessarily.

Life insurance companies have several pricing and profitability factors available to them.

Broader interest rates are only one piece of that calculation.

A carrier can sometimes lower a MYGA rate while broader rates rise.

Another carrier may move in the opposite direction.

That is why comparing multiple insurers is important.

Why Life Insurance Companies Price Differently

Life insurance companies do more than issue MYGAs.

They also manage:

• life insurance
• lifetime income products
• investment portfolios
• mortality risk
• other insurance liabilities

Those factors can influence the rate a company is willing to guarantee.

That makes MYGA pricing different from simply watching the Federal Reserve.

Can You Predict Where Annuity Rates Are Going?

You can have an opinion.

You cannot know with certainty.

That is important.

Trying to wait for the absolute highest lifetime income payout or MYGA rate can lead to endlessly trying to time the market for guarantees.

There is no bell that rings at the top.

Should You Wait for Better Rates?

The better question is whether the contractual guarantee available now solves your financial need.

If it does, you can consider locking it in.

If it does not, continue comparing.

The decision should come from your retirement objective rather than a prediction about the next Federal Reserve meeting.

Annuities Solve Contractual Goals

Annuities generally solve four objectives using the PILL framework:

• Principal Protection
• Income for Life
• Legacy
• Long-Term Care

There is no need to speculate on market growth to determine whether one of those guarantees fits your plan.

Do Not Buy an Annuity for Growth

Annuities are contracts.

They are not designed to replace direct market investments.

If growth is the primary goal, use investments designed for market growth.

If you need contractual guarantees, compare annuities based on what the policy actually promises.

Compare Current Rates Instead of Predictions

Annuity rates change.

Lifetime income quotes can change frequently.

MYGA rates can also move.

That makes current comparisons more useful than predictions.

Run the numbers when you are actually considering the purchase.

Where to Compare Annuity Rates

Use our annuity calculators to compare current contractual guarantees from multiple insurance companies.

For lifetime income, compare current payout guarantees. For fixed-rate accumulation, compare live MYGA rates by state and term.

The Bottom Line

Whether annuity rates are going up depends on which rates you mean.

Lifetime income payout rates are primarily driven by life expectancy, with interest rates playing a secondary role.

MYGA rates are guaranteed interest rates, but even those do not move perfectly with the Federal Reserve.

Rather than trying to predict the exact top or bottom, compare the contractual guarantees available when you actually need them.

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