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The State of Fixed Annuities

According to a recent Forbes article, most major asset classes had negative returns in 2018, and the world’s largest asset manager is warning of a 30-40% chance of a recession by 2020. Additionally, after a couple of years of consistent rate increases, the Fed has put a hiatus on any others. The combination of these factors make guaranteed returns, found in short-term CDs or longer-term fixed annuities (MYGAs), much more attractive.

For those who aren’t familiar, CDs are offered for durations of typically less than 3 years and are offered by financial institutions. Fixed annuities, on the other hand, are offered by insurance companies with a duration of 3-10 years. These products are not covered under FDIC insurance and are only as strong as the financial strength of the insurer. Fixed annuities also benefit from tax deferral, as interest is only taxed when the money is withdrawn, not as interest is earned. They also offer higher rates for longer terms, but liquidity is limited You can’t start using the money until 59 ½ without paying an IRS penalty, a fact that is true of all annuity products. At the end of the term, you are able to renew for another term, take all your money out, or turn it into guaranteed lifetime income.

In 2018, the rates for most fixed annuities increased, however they have recently started to decline. Many financial experts blame the decrease in bond yields which caused pricing pressure in the annuity markets. Still, it has never been easier to secure a fixed annuity as insurers have begun to make technological improvements in the buying process.

There are many available annuity products on the market, and financial advisors everywhere agree that it is essential to do your homework before signing on the dotted line of the contract. The link below will take you to a review of several multi-year guaranteed annuities, or MYGAs, that are currently available. The author of the article used the following criteria to determine which he included in his top picks:

  • Terms are fully-guaranteed and knowable on day 1 (no uncertainty around what you’ll get)
  • Issued by an insurer A.M. Best rated B or better (our company’s rating cut-off for income annuities is more stringent at A or better, but fixed annuities have a much shorter duration.
  • Offers the best, 2nd best, or 3rd best value in its category (weighing both the price and the credit rating of the insurer)

All rates were obtained through the Blueprint Income platform, which sources directly from the insurance companies. A full database of rates filterable by investment amount, state, term, access to funds and rating is available at https://www.blueprintincome.com/fixed-annuities.

Written by Rachel Summit

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