Impact of the Fed’s Interest Rate Increase on Annuity Rates

Published March 29, 2018
The Federal Reserve recently raised short term interest rates by 0.25%, but how does this impact annuity payouts? Learn what factors, in addition to changes in interest rates, can affect your annuity payout.
  • Annuity payouts are determined by long-term bond yields (think the 10 year and 30 year)
  • The Fed raising rates was already “priced in” to annuity payouts
  • One way to mitigate interest rate risk is to purchase income annuities at different rate levels with a Personal Pension

On March 21, the Federal Reserve, our country’s central bank, raised short-term interest rates by 0.25%. It was the first time this year and the 5th time since 2015. At least two more interest rate increases are expected before the end of the year.

So, does that means higher annuity payouts are around the corner? Not exactly. Fed rate increase announcements don’t usually equate to higher annuity payouts. And there are a couple reasons for that.

1. There’s a Difference Between Short-Term and Long-Term Interest Rates

Annuity payouts are determined by long-term bond yields (think the 10 year and 30 year), and this is something that the Federal Reserve has less control over via their monetary policy. Short-term Treasuries (those maturing in 3 months, 12 months or even 2 years) are most responsive to the Fed’s actual or expected actions. What’s happened over the last year is that short-term Treasury yields have increased dramatically (in response to the Fed’s actions), but the 30 Year Treasury yield has barely budged.

2. The Fact That the Fed Committed to Raising Short-Term Interest Rates Wasn’t a Surprise — It Was Already “Priced in”

What this means is that the market had expected the rate increase in March and also had already come to expect two more rate increases this year. The Fed seeks to telegraph its moves very carefully — if you’re a central banker, it’s good to not be in the business of surprises.

From a monetary policy perspective, what might move annuity payout rates is more rate increases than previously expected, especially if those rate increases are assumed to be sustainable over the long-run. Although monetary policy (i.e. the Fed) is important in determining what future annuity payouts will be, it’s just one factor.

What Else Affects the Long-Term Bond Yield That Impacts Annuity Payouts?

Other key variables are fiscal policy (e.g. the government’s spending levels), macroeconomic data (e.g. unemployment and inflation), and market conditions (e.g. the relative attractiveness of riskier stocks to lower risk bonds).

We don’t have a crystal ball to tell you what will happen with rates from here and are skeptical of anyone who says they have that crystal ball. What we do believe is that diversifying across interest rate environments is the right approach.

So, what bearing should all of this have on your decision to purchase an annuity? The prudent approach is usually to think about an annuity purchase the same way you invest in the market — do it in small amounts over time and avoid trying to “time” anything. By purchasing income annuities in small increments over time, you can benefit from higher rates starting at a younger age and still have the ability to capture increasing annuity rates in the future.

At Blueprint Income, we’ve made it easy for you to capitalize on ongoing and increasing income annuity rates with the Personal Pension. For every contribution you make, you get a small income annuity at the best rates available. With this strategy, your Personal Pension provides you a diversified portfolio of income annuities with the best rates that will generate guaranteed, lifelong income.

How Can I Start a Personal Pension?

You can start a Personal Pension with $5,000 or more. After opening an account, you can make subsequent contributions of as little as $100, each of which will increase your pension check.

Here you can see what contributing to a Personal Pension will guarantee you in annuity retirement income.

You can continue with the enrollment process on your own or fill out the information to have one of our specialists follow up with you by starting with the Personal Pension Builder, where you’ll be able to set a goal for how to grow your pension over time. Note that all future contributions are optional, but it’s always great to have a goal.

Income Annuities

If you have enough saved up, don’t want to buy over time, or are happy with current rates, you can purchase an income annuity on a one-off basis. At Blueprint Income, we offer annuities from more than 15 top rated insurance companies. Click below to get real-time personalized quotes.


From there, you’ll get access to our annuity guides and team of specialists to help you analyze your retirement finances and walk you through the application process.

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Matt Carey

Matt Carey

Financial Planning Professional

Matt Carey is the co-founder and CEO of Blueprint Income. He believes in the power of technology to make retirement simpler. Matt is a regular contributor to and has been quoted in both the New York Times and Morningstar.