Annuity Rates For December 2022

Multiyear guaranteed annuities are a fixed annuity that locks in a stable interest rate for a specified time period. Surrender periods last three to 10 years.

Below are examples of the best annuity rates as of December 2022.

The average return on annuities varies based on several factors, including whether they are fixed annuities, variable annuities or equity-indexed annuities.

For fixed annuities, the average return depends on the annuity’s term. Typically, the longer the term, the higher the rate of return.

The return on a variable annuity depends on the performance of the investment options you choose, and it may be similar to the rates you’d see with an index fund. The average return for a variable annuity can be around 8% to 10% annually. But it can also fall below that if the investments perform poorly in a market downturn.

Equity-indexed annuities provide benefits of both fixed and variable annuities. They are tied to the performance of a specific index — such as the S&P 500 or Dow Jones Industrial Average. So the average return can be higher than the average fixed annuity return.

But equity-indexed annuities also provide a guaranteed minimum return — even if the stock market falters. Unlike a variable annuity, though, you don’t necessarily get the full effect of a stock market boom. The maximum return is also capped at a certain percentage. This helps pay for the guaranteed return during downturns.

Does Life Expectancy Affect Returns?

Life expectancy plays a role — along with interest rates — in your rate of return on an annuity. In short, the higher the interest rates are and the older you are when you buy an annuity — the larger the payout you’ll receive.

But it can be tricky coordinating your annuity purchase between rising interest rates and the right age.

Life expectancy plays a part in the payout you — and your beneficiaries — will receive from an annuity, depending on the type of annuity you buy.

An annuity rate plays a direct role in your annuity payout, or how much money you receive from the insurance company. But other factors also contribute.

Annuity rates are set by the insurance company that issues the contract.

The calculations some companies use to determine rates of return can be complex, so it’s important to ask questions along the way.

Make sure the broker or agent clearly explains the annuity rate formula. Check to confirm the rate will not fluctuate over time.

Rates on variable annuities, for example, can increase or decrease depending on the performance of underlying investments. Most variable annuities will offer a minimum guaranteed rate, but this protection may come at an additional cost.

It’s always important to buy annuities from financially strong insurance companies.

While a CD is purchased at a bank or credit union and insured by the Federal Deposit Insurance Corp., an annuity is backed only by the private insurer that issues it.

If that company goes broke or bust, you could lose money.

You can check a company’s financial strength by consulting nationally recognized impartial rating agencies. The most popular is A.M. Best, and the highest rating awarded by the agency is A++.

Most experts recommend vetting insurers with a rating of A- or above for long-term annuities.

Other rating agencies include Standard & Poor’s, Moody’s and Fitch.

A.M. Best and other agencies rate a company based on its ability to pay financial obligations and make good on claims down the road.

There is often a tradeoff between high grades from independent agencies and competitive rates. A company may offer a very attractive annuity rate — but the insurer’s financial history may not be as strong as its competitors.

If you’re in the market for an annuity, first determine how much money you want to invest. Then, shop around to explore various rates from dependable companies.

Get quotes from several potential providers — the same way you would for any major purchase.

Annuity rates have already been rising in 2022 as a result of the U.S. Federal Reserve announcing that it plans seven interest rate hikes during the year.

Insurance companies typically invest heavily in high-quality bonds. When interest rates rise, the returns on these bonds go up. And insurance companies are able to pass on the increase through annuities with higher rates as well.

The Federal Reserve announced that interest rates would come in 0.25% increases at each of its seven meetings in 2022 — with one potential 0.5% increase.

For every quarter percent increase, annuity income has the potential to increase 1.5% in 2022.

Annuity rates are just one factor to consider when buying an annuity. Ideally, you want to look for a high rate but also for low minimum investment amounts, low fees and annuities that are backed by a company with a history of financial stability.

Fixed annuities generally offer a guaranteed static interest rate for a specific time period.

Current annuity rates can mirror bond interest rates. When bond rates increase, annuity rates also tend to rise.

That’s because insurance companies invest most of their client’s capital in fixed income securities, such as conservative bonds.

However, interest rates continue to fall. In 1982, for example, a 30-year Treasury bond yield was almost 15 percent. By October 2020, that yield had dropped to just 1.65 percent.

“Interest rates are at all-time lows and not likely to increase anytime soon,” said Mark Cavalieri, associate director of multiyear guaranteed annuity sales at Nebraska-based SMS Financial Solutions.

To combat this challenge, Cavalieri said top-rated insurance companies are focusing attention on a specific type of annuity.

“They’ve decided to go after more fixed annuity business during the [COVID-19] pandemic crisis,” he said. “Insurance companies are stimulating new business by offering higher rates on their multiyear guaranteed annuity products than they usually do.”

Now, the best fixed annuity rates yield more than either Treasury bonds or high-performing certificates of deposit, Cavalieri noted.

Most annuities feature a surrender period, a time during which you cannot withdraw funds from your account without facing a charge or fee.

Some annuity contracts are more flexible than others and may allow you to withdraw your money more easily. Others don’t allow any withdrawals during the surrender period.

Annuities with tight restrictions on withdrawals tend to pay higher rates.

The best annuity rates today may be different tomorrow. It’s important to check with insurance companies to confirm their specific rates.