While there is mixed reaction to the Federal Reserve’s decision to raise interest rates by a record-breaking 75 basis points, the annuity industry is benefiting, and those that offer the products are making sure clients know about them.
Annuities are investments commonly associated with their monthly payouts. Many use these investment vehicles as a regular paycheck after their retirement. The amount of money within those payouts is tied directly to the interest rate.
For a fixed annuity, an investor can lock in the interest rate at the time of purchase, meaning they will enjoy that rate throughout the life of the investment regardless of any changes that the Fed makes in the future.
Variable annuities can also benefit from higher interest rates although they are not as reliable as the fixed versions. There is still an opportunity for an investor to collect on higher payments while the interest rates are at their current levels, although the amount of the payout will decrease if and when the Fed reduces the rates.
The sudden rise in interest rates has been a huge boom to firms that manage annuities and sell them as well.
“Rising rates allow us to produce better consumer value on virtually all types of annuities,” said Mike Morrone, vice-president of Columbus, Ohio-based Nationwide’s Annuity Product Development. “When we get more from the dollars we invest, we can pass that along to our customers in the form of protection and guarantees.”
While the impact can be felt across all annuities, it is the fixed versions that investors can take the most advantage of as they can lock in a high rate for the life of the investment.
Another advantage is the increased flexibility that fixed annuities can enjoy due to the increased interest rates, said Brian Sward, head of product solutions for Franklin, Tenn.-based Jackson National Life Distributors.
With the attractiveness of the products elevated, firms are not wasting time reaching out to financial advisors to talk up the offerings and emphasize the need to get investors into them now.
“We have turned up the number of communications with our financial advisors so that they have all of the information,” said Dylan Tyson, president of retirement strategies at Newark, N.J.-based Prudential. “Once they know that they can then look at their portfolios holistically to figure out the right product that will suit their individual clients.”