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Rising Interest Rates Mean Annuities Are Hot


Annuities can be a useful part of a retirement plan. They provide guaranteed retirement income, effectively replicating the monthly checks that workers with a defined benefit plan like a traditional pension plan receive. Fewer workers than ever have defined benefit plans, meaning it’s up to each individual worker to create his or her own retirement plan. An annuity is especially useful, because even if your 401(k) or other workplace retirement plan runs dry, you still have income coming in for the life of the annuity. With interest rates rising and the markets especially volatile these days, now is an especially opportune time to buy an annuity — and the annuity market’s first quarter growth shows that Americans are seizing the moment.

If you want help figuring out how an annuity could work into your retirement plan, consider working with a financial advisor.

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Why Now Is a Great Time to Buy Fixed Annuities

interest rates annuities

Rising interest rates are a mixed bag for Americans. On the one hand, for those looking to borrow money, this environment means you’ll have to pay more in interest — homebuyers, for instance, are going to end up paying more on their mortgages over time. On the other hand, if you’re earning money in an instrument impacted by mortgage rates, you end up with more money in your pocket at the end of the day. One of the best ways to take advantage of rising interest rates is to invest in a fixed annuity now, while interest rates are high. With a fixed annuity, you’ll get that rate for the life of the annuity, regardless of any further moves by the Federal Reserve.

Annuities are issued by insurance companies, and the payments are based on the interest earned by the investments the insurance company makes with the reserves of annuity premiums. Higher interest rates result in higher payments during the dispersal phase of an annuity contract. According to Kiplinger, if a 70-year old woman purchased a life-only income annuity with a $1 million premium on Dec. 21, 2021, her annuity payments would have been $67,204. If she bought the same product on March 22, 2022, her payments would grow by 7% to $71,926.

Annuity Market is Growing

American retirement savers clearly saw this opportunity. According to data from the Secure Retirement Institute, fixed annuity sales were $35.2 million in the first quarter of 2022 — up 14% year-over-year. Total annuity sales in that time were $63.6 million, up 4%.

“First quarter annuity sales tend to be a bit slower,” said Todd Giesing, assistant vice president, SRI Annuity Research, in a statement. “While sales in the first two months of 2022 were a bit sluggish, annuity sales in March were at record-high levels. Rising interest rates and increased market volatility shifted the product mix this quarter with fixed annuity products driving the overall growth.”

Interest rates are expected to go up again later this year, so SRI professionals expect to see another jump in sales once that happens — perhaps with a bit of a valley in between.

“We finally are beginning to see payout rate increases for income annuities as interest rates improve,” said Giesing. “However, because the Fed has signaled additional rate hikes later this year, we expect investors to wait to lock in rates so sales will likely remain muted in the second and third quarters.”

The Bottom Line

interest rates annuities

Annuities are an attractive part of an investment portfolio, as they guarantee income in retirement. Rising interest rates are good for annuity buyers, so the first quarter so strong growth after the Federal Reserve raised rates. There are expected to be more rate hikes later in the year, so there could be a decrease in sales now and another spike later in the year.

Retirement Planning Tips

  • To figure out how to use annuities in your own retirement plan, consider working with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Annuities are great, but if you have access to a workplace retirement plan like a 401(k), make sure you use it — and take advantage of any company match that is available.

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