Why Are Annuity Rates Increasing and Will It Continue?

Published February 3, 2018
Increasing annuity rates, usually driven by long-term Treasury bonds and investment-grade corporate bond yields, have caused buyers to question whether the trend will continue and how that affects their plan to purchase an annuity. While it's challenging to predict future long-term interest rates, there are strategies to mitigate interest rate risk.
  • 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.

Increasing Annuity Rates

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).

Increasing Annuity Rates

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, $5,000. 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 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’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.

get-a-free-online-quote-nowFrom 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. 

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Nimish Shukla

Nimish Shukla

Financial Planning Professional

Nimish has spoken with thousands of customers about retirement spending. As a CFA Charterholder and licensed fixed annuity producer he values the importance of building an income stream for retirement. In addition to his work at Blueprint Income he is also a regular contributor to Nerdwallet.