Why Are Annuity Rates Increasing and Will It Continue?
- In late 2017 and into early 2018, there’s been a steady increase in immediate annuity rates
- When looking at a short-term horizon income annuity rate changes are a result of changes in expected investment returns
- One way to mitigate interest rate risk is to purchase income annuities at different rate levels with a Personal Pension
In late 2017 and into early 2018, increasing annuity rates have persisted. And that’s no surprise — the 10 Year Treasury yield as of 1/26/18 was higher than at any point in the prior 12 months.
These increasing annuity rates have caused buyers to question whether the trend will continue and how that affects their plan to purchase an annuity. This question is, of course, difficult to answer as (1) we can’t predict the market and (2) the market isn’t the only factor driving annuity rates. In addition to investment rates, the annuity rates an insurer can offer are driven by longevity assumptions (how long the insurance company expects to pay you) as well as your personal attributes.
When looking at a short-term horizon, most week-to-week or month-to-month income annuity rate changes are a result of changes in expected investment returns, rather than changing longevity expectations. These returns are usually affected by long-term Treasury bonds and investment-grade corporate bond yields.
What Happens from Here?
The Fed increasing interest rates has a big impact on short-term Treasury yields, but not so much on long-term Treasury yields. This is evident in the graph below, which highlights the difference in yields between the 5 year and 30 year Treasury (white line) and the 2 year and 10 year Treasury (blue line).
A flattening yield curve happens in an environment where the Fed is increasing interest rates, but where the market doesn’t believe that those increases are sustainable. In some cases, a flattening yield curve has been a precursor to a recession because it implies that rates will be lower in the future and lower rates usually happen at times of market distress.
What Increasing Annuity Rates Mean for Annuity Buyers
No one knows what’s going to happen with long-term interest rates. Predicting future movements in Treasury yields is very difficult even for the professionals. One way to mitigate interest rate risk is to purchase income annuities at different rate levels. 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, your Personal Pension purchases you 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?
A Personal Pension is a contract between you and more than 15 top rated insurance companies. Blueprint Income offers a Personal Pension account with the lowest minimum, $100. After opening an account, you can make subsequent contributions flexibly of $100 or more, each of which will increase your pension check. Click below to see what contributing to a Personal Pension will guarantee you in retirement income.
If you’re happy with the current interest rate, 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 our team of specialists to help you analyze your retirement finances and walk you through the application process.