Whether it’s a fixed indexed annuity, a plain vanilla fixed annuity, a deferred annuity, an immediate annuity or even a buffered annuity, compelling deals are all over the place.
By late last year, it became increasingly apparent that payouts or potential payouts for income annuities and others were far more generous than they have been for many years, even decades in some instances.. These opportunities rose in tandem with rising interest rates. And they appeared to peak because the same could be said for the breathtaking climb in interest rates. They, too, had reached their apex.
In short, the die was cast, and a tiny handful of annuities began cutting their payout rates.
Fast forward to today, and it’s clear that this observation was spot-on. Far more insurance companies have since trimmed annuity payouts, albeit very modestly so far, and the Federal Reserve has flatly announced that there will be no more interest rate hikes and also signaled that it expects to start cutting rates in coming months. For those considering the purchase of an annuity or two, this is the time to act, while payout rates are still near their decade-plus highs.
“These are the best times I have ever seen in the annuity industry,” says one annuity broker who aggressively keeps track of the offerings of a broad array of annuities.
Whether it’s a fixed indexed annuity, a plain vanilla fixed annuity (MYGA), a fixed index annuity (FIA), an immediate annuity or even a buffered annuity (which traverses in the stock market, not the interest rate world), compelling deals are all over the place. Unfortunately, this super-bright backdrop will fade in tandem with declining interest rates. By the end of the year – and perhaps earlier — the shine almost certainly will be gone.
Just how attractive are annuities at this juncture?
Consider, for example, a 60-year-old male Floridian who is single and invests $100,000 in a plain vanilla five – year fixed annuity. A number of annuity purveyors are still offering annual returns between 5.8% and 5.5%. Three years ago, by contrast, they were generally paying 2.5% to 3.5%. Or let’s say our Floridian is interested in an income-oriented fixed indexed annuity. He could receive a 7.00% lifetime income payout beginning immediately, and if he is willing to defer payouts for three to five years, the annual payout rates are 9% to 11%. Three years ago, these figures were 5.0% to 6.5%. Even better; these payments are locked in and guaranteed for as long as you live, and there’s even one company that will pay you a 15% premium bonus to invest!
Also worth noting are popular immediate annuities, especially popular among the advanced senior set, which start regular payouts within a year at most. Our Floridian could readily purchase one paying 6.7% annually, compared to 4.5% to 5% annually three years ago.
The list goes on, but you get the picture. And, again, it’s not limited to income-oriented annuities.
For example, buffered annuities, which seek robust gains in the stock market but also eradicate or at least mitigate losses via so-called buffers, are also especially attractive today, giving investors more options than usual to win in the market. A case in point is Equitable’s Structured Capital Strategies PLUS. Among other things, in a minimum $25,000 investment in a six year product, investors can reap a 300% return in the S&P 500 while protected against a market decline of up to 20%. An Equitable investor can also sign up for a so-called dual direction option, which provides less upside potential but also pays an investor a positive return even if the stock market declines as much as 20% over six years.
Buffered annuities, like income annuities, also offer much better financial terms when interest rates are high. That’s because they purchase options to provide the deals they offer. These tend to cost more and provide more when interest rates have risen and cost less and provide less when they are falling. Buffered annuities are also more generous when rates are high because other types of annuities are also offering better deals, pressuring them to enhance their competitiveness.
As attractive as annuities are today, annuities are not for everyone, even for those who have a comfortable financial cushion. While annuity prospects have access to customizable features and riders, they often have to pay relatively high fees and may also end up taking home less than they would by investing their money elsewhere. In addition, annuities may subject owners to surrender charges. These come about if they need to withdraw money from their annuity before several years have passed.
Of course, there are upsides to annuities as well. First and foremost, highly popular income annuities guarantee income for life. Even in the event of a market downturn, the insurance company must pay the amount agreed upon in the contract, making annuity a very stable investment. Annuities also come with customizable money management features. In addition to the benefit of a guaranteed minimum income, you can also add a spousal provision that allows payments to continue upon your death as long as your spouse is still living.
An annuity may also be a compelling idea if you come into a large sum of money. In this case, an annuity can help you avoid the mistake of spending it too quickly, by, for instance, buying an annuity that offers lifetime guaranteed income.
If this sounds good, here is a brief listing of the best deals available today on the market across a diverse array of annuities. These take into account that the investor is our aforementioned male Floridian who invests at least $100,000. The deals may differ depending on the state in which you invest, your sex, and if you’re married, but in most cases only by a modest amount.
Top MYGAs (Multi-Year Guaranteed Annuities), also known as plain vanilla income annuities
Three-Year MYGAs
- Natural Security Insurance’s National Security MYGA. It pays 5.75% annually. It’s rated B++ by AM Best.
- Aspida Life Insurance’s WealthLock MYGA plus. It pays 5.5% annually. It’s rated A- by AM Best.
Five Year MYGAs
- EquiTrust Life’s Certainty Select MYGA. It pays 5.75% annually. It’s rated B++ by AM Best.
- The five-year version of the aforementioned Aspida MYGA. It pays 5.6% annually.
Deferred Income FIAs (fixed indexed annuities)
- Aspida’s Synergy Choice Income annuity. After a five year deferral, it pays $11,040 annually, or 11%. It charges an income rider fee of 1.5% annually. This comes out of the account value of the annuity, not the income base, which determines your monthly payout.
- Fidelity Guaranty Life’s Safe Income Advantage annuity. Like the Aspida FIA, it pays 11% annually after a five year deferral. It has an AM Best rating of A-. It charges an income rider fee of 1.15%. Like the Aspiga product, this comes out of the account value of the annuity, not the income base.
Buffered Annuities
- Athene Amplify. A six-year contract on the S&P 500 index accommodates a return of up to 125%. This includes a 20% protection buffer. Its annual fee is just under 1% annually, taken out of the annuity’s account value. Athene has an A rating with AM Best.
- Equitable Structured Strategy PlUS. See above. This annuity doesn’t charge a fee. Equitable has an A+ rating with AM Best.
Immediate Annuities
- Jackson National Life Insurance’s offering. The payout rate is 6.7% annually, or $559 monthly. Jackson’s AM Best rating is A+.
- Nationwide Life Insurance’s offering. The payout rate is 6.55% annually, or $546 annually. Nationwide also has an A+ AM Best rating.
