Although rising inflation has created a tense economic environment for many Americans, there may be a silver lining for annuity holders. The meteoric rise of inflation over the past year has been mirrored by a similar increase in 2022 annuity rates.
Here’s a closer look at what it means when annuity rates go up and how timing your investing decisions to take advantage of the best annuity rates can help provide for your future during retirement.
What Do Rising Rates Mean?
Increases in annuity rates directly correlate to bigger payouts for investors. As 2022 annuity rates continue to rise, investors are starting to see bigger returns on their annuities than they were receiving months ago.
Larger monthly payouts can dramatically improve the quality of life for seniors who depend on these payments. According to research by Boston College, more retirees than ever before are in debt, meaning a large portion of their income must go to mortgage and car payments every month. A wider gap between their debt payments and overall income means seniors can spend more money on enjoyable things, such as visiting family and participating in hobbies.
How Has Interest Affected 2022 Annuity Rates?
Along with mortality, interest is one of the major factors determining how large an annuity’s monthly payouts will be. During the earliest months of the COVID-19 pandemic, the Federal Reserve Board dramatically lowered interest rates in an attempt to keep the economy on its feet amid mass shutdowns and closures. This had the unfortunate side effect of decreasing monthly payouts for annuity holders, creating a tenuous situation for investors who rely on those payments to cover their costs of living.
In recent months, as pandemic restrictions have eased and the economy has struggled to recover, inflation has skyrocketed to levels not seen for over a decade. The meteoric rise of inflation has galvanized the Federal Reserve Board into action once again. This time, their strategy is to raise interest rates to slow inflation, with two cuts on the books so far and more expected as the year wears on.
While high inflation poses as many threats to the economic stability of seniors as it does to every other population in the country, the Fed’s decision to increase interest rates has helped offset some of the losses. In fact, mid-to-late 2022 has provided some of the best annuity rates we’ve seen in recent years.
What Are the Best Annuity Rates for Investors?
The return on an annuity depends on many factors, including the expected lifespan of the investor, the investor’s gender, and any fees associated with the contract. In the recent past, a rate of about 5% was considered solid for most 5-year contracts.
The COVID-19 pandemic saw a drastic decrease in this value, with an average of 1.95% being reported at the end of 2021. Things are looking up, however: the average rate increased to 2.9% in mid-May of this year, which indicates an increase of more than 50% in just six months. If current economic trends hold, 2022 annuity rates can be expected to rise into the end of the year.
While there’s still a long way to go before annuity rates are back to where they were before the pandemic, the data looks promising for their continued increase in the months to come. That means the next few months might provide the perfect opportunity for pre-retirees to investigate their options with a licensed annuities agent.
In Conclusion
Rising interest rates don’t benefit everyone, and consumers across the country have felt the burden of colossal inflation reflected in the prices we pay for groceries, gas, and other daily necessities.
However, retirees who depend on annuities for their monthly income may soon see their fortunes rise along with today’s interest rates. For anyone whose loved one uses their annuity payouts to cover essentials like utilities and mortgage payments, this news can hopefully provide some comfort in these turbulent times.