An annuity can provide you with a steady stream of income, ensuring that you have money when you need it. That’s why many people turn to annuities during retirement, to be sure that they have cash flow when they’re no longer working. If you’re looking to buy an annuity, you’ll want to find the providers that offer the best return on your money, so you get the most bang for your buck.
Here are the best annuity rates based on recently available data and how annuities work.
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Once you’ve determined that you want an annuity, you can follow these steps to buy one:
- Find the types of annuity that you’re interested in. Annuities come in many different forms, with products that offer income over a set period or even over a lifetime, for you alone or a spouse, too. Other annuities have a variety of guaranteed benefits and features.
- Understand your rights and responsibilities with the annuity. Annuities are complex contracts that may require extensive premium payments and tie up your money for years limiting your access to it. Understand the pros and cons of the annuity you’re interested in.
- Find a strong company. Annuities are typically offered by insurance companies, which have credit ratings that measure their creditworthiness. Stick with annuity companies with strong ratings so that they can meet their obligations when you need it most.
- Contact a salesperson. Once you’ve found a strong company, you can reach out to a sales rep there, or work with your own financial advisor to purchase the annuity. Your advisor may be able to recommend features that you should have in an annuity or a company to work with.
- Sign the contract and pay your premium. You’ve found an annuity you like, so now it’s time to sign on the dotted line and begin paying your premium on the annuity contract.
Best annuity rates for October 2024
SteadyPace
- Issuer: Gainbridge Life Insurance
- Rate: 5.50%
- Contract length: 5 years
- Minimum premium: $50,000
- AM Best rating: A-
- Our take: The Gainbridge SteadyPace annuity offers a strong interest rate over a medium-term annuity, with a middle-of-the-road minimum premium.
Secure Term MVA Fixed Annuity II 3
- Issuer: New York Life Insurance
- Rate: 3.90%
- Contract length: 3 years
- Minimum premium: $100,000
- AM Best rating: A++
- Our take: This New York Life annuity requires a heftier minimum premium and pays a lower rate but over a shorter guaranteed term, a potentially better option if prevailing interest rates rise in the future.
Premier Voyage 5
- Issuer: MassMutual
- Rate: 4.40%
- Contract length: 5 years
- Minimum premium: $100,000
- AM Best rating: A++
- Our take: This annuity offers several multi-year rates based on minimum premiums and guarantees the payout over a medium term. But requires a $1 million to $10 million minimum premium to achieve the highest rates (4.45 percent – 4.65 percent). Those with less capital can opt for a lower guaranteed rate (4.15 percent – 4.25 percent) through the same annuity with the lowest minimum premium at $10,000.
Reliance Guarantee 5
- Issuer: Reliance Standard Life Insurance
- Rate: 4.50%
- Contract length: 5 years
- Minimum premium: $20,000
- AM Best rating: A++
- Our take: This Reliance Standard deferred annuity offers a strong guaranteed interest rate over a medium term. It requires a modest minimum premium, allowing clients to access the annuity with a lower minimum.
Protective Secure Saver 5
- Issuer: Protective Life Insurance
- Rate: 4.35%
- Contract length: 5 years
- Minimum premium: $75,000
- AM Best rating: A+
- Our take: This Protective deferred annuity offers a competitive rate of return without requiring an enormous minimum premium. This annuity has a full penalty-free withdrawal after the five-year term and offers other minimum premiums as low as $10,000 with lower rates (3.25 percent – 4 percent).
MNL Guarantee Pro 5
- Issuer: Midland National Life Insurance
- Rate: 4.75%
- Contract length: 5 years
- Minimum premium: $100,000
- AM Best rating: A+
- Our take: This Midland deferred annuity offers a strong interest rate, though it requires a higher minimum premium to get the highest rate on this annuity. With as little as $20,000 you can also open this annuity, though you’ll earn a lower return (4.50 percent).
What is a fixed annuity?
A fixed annuity is one of several types of annuities, and it offers a fixed monthly payout on the account when it comes time to start taking distributions from it. With a fixed annuity, clients can contribute a lump-sum payment or move money into the account over a longer period, such as over a career. Clients can take a payout immediately or defer the payment until later.
How do annuity rates work?
The annuity rate is how much you’ll earn during the accumulation phase of a fixed deferred annuity. Fixed annuities have both a current interest rate (that usually resets periodically) and a minimum guaranteed rate (that remains in-force for the life on the contract). The rates of the annuity will be spelled out in the annuity contract.
What are the pros and cons of fixed annuities?
Pros of fixed annuities
- Secure monthly income: A fixed annuity offers a fixed payment that you know you’ll receive month in and month out, so you may be able to avoid outliving your income. This advantage can give retirees some peace of mind when they’re no longer able to work.
- Tax-deferred gains: A fixed annuity allows you to grow your wealth with the taxes deferred until you withdraw earnings later. If you contribute to the annuity with after-tax money, then these contributions also come out without any tax liability.
- Wide variety of benefits: An annuity can be structured in many different ways to meet your needs, including death benefits, survivor’s benefits, guaranteed minimum payouts and many more. They’ll be factored into the price you pay for the contract.
- Unlimited contributions: Unlike retirement plans such as a 401(k) or IRA, nonqualified annuities can be stuffed with an unlimited amount of contributions. This feature makes them more attractive to higher-income households, letting them increase their tax-deferred savings.
Cons of fixed annuities
- Complexity: Annuity contracts can run to dozens of pages of complex jargon and can be tough to understand. Because of all this complexity, it can be difficult to know exactly what you’re buying and what limitations and drawbacks the contract may have.
- High fees: Many annuities have fees at all stages of the process, beginning with sales commissions that are often built into the fee structure of the annuity. But other annuities may charge annual fees and various investment fees that can seriously hit your returns.
- Exposure to inflation: A fixed annuity guarantees you a certain payout, but the value of that payout in terms of its purchasing power will decline over time as inflation eats away at it. So your fixed payout may be worth a whole lot less after 20 years and more. You’ll want other inflation-adjusted income such as Social Security to help protect you.
- Lack of liquidity: Once you sign, it may become all but impossible to get out of an annuity contract or to get out of it without paying a substantial penalty called a surrender fee.
- Penalties for early withdrawal: If you withdraw your money from the contract before age 59 ½, you may get hit by early withdrawal penalties, lose the annuity’s tax-deferred benefit and get stuck with capital gains taxes on your earnings.
- Counterparty risk: Your annuity depends on the strength of the company you sign with, giving you counterparty risk. You need a strong insurance carrier to be sure that you get the benefits you signed on for.
You’ll want to carefully weigh the advantages and disadvantages to see if the benefits are worth the costs. Savvy financial advisors may be able to earn much higher returns at lower cost.
What are the different types of fixed annuity rates?
Traditional fixed annuity rates
With a traditional fixed annuity, the annuity company sets rates annually. So clients will lock in their rate for the year ahead and will be guaranteed to receive at least that rate, and then each year the company will reset the rate. Some companies may offer a higher sign-on rate for the first year as a bonus incentive.
Traditional fixed annuity rates can adjust higher and lower, depending on the prevailing rates. However, the annuity company is under no obligation to offer clients a higher rate if overall rates are rising. Clients will want to see whether a potential annuity provider has a record of increasing returns to policyholders and whether they’ll be able to capture extra returns if rates rise.
Multi-year guaranteed annuity rates
Some annuities offer what’s called multi-year guaranteed rates. These annuities pay a specified rate of return over multiple years, typically 3 to 10 years. The annuity company is contractually obligated to maintain the interest rate over the period, giving customers the security of a certain return over the life of the guarantee.
At the end of the period, the client can renew the annuity at the then-prevailing interest rate. If that rate is not acceptable, then most companies allow clients to move to a new provider penalty-free and while avoiding taxes. Or you can surrender your contract and withdraw your money.
How to choose the best annuity for you
You’ll want to consider the following things when you’re thinking what kind of annuity is right for you:
- Fixed annuity or variable annuity: A fixed annuity offers a guaranteed payout of some amount, while a variable annuity may allow you to earn a much bigger – or lower – monthly payout. You’ll want to understand the trade-offs.
- Annuity rates: If you’re going with a fixed annuity, you’ll need to understand what kind of returns the annuity is offering. Higher returns ultimately mean a higher monthly payout.
- Fees: Annuities may come with a variety of hefty fees that can ding your overall returns, including various annual fees and implicit or explicit commissions that go to sales people.
- Deferred annuity or immediate annuity: If you want an annuity to pay out years down the road, take a deferred annuity. If you want it to pay out soon, take an immediate annuity.
- Lump-sum payment or periodic payments: If you’re taking an immediate annuity, then you’ll need to fork over a lump-sum payment. But if you’re looking for a deferred annuity, you may opt for a lump-sum payment or periodic payments over time.
- Lifetime income or limited term: Do you want to avoid worrying about income until you pass away? Then you’ll want an annuity with lifetime income. Other annuities may pay out for a specific period of time, say, 20 years.
- Self coverage or self and spouse: You can get an annuity that pays out based on your lifetime or one that continues to pay for a surviving spouse, too.
- Other benefits: Annuities can be created to have a variety of features such as a death benefit that offers an insurance-like payout on the death of the annuitant.
Annuities can be structured in a variety of ways depending on your needs, but one key thing to keep in mind is that an increasing level of features tends to cost you more.
Annuities vs. CDs
Annuities may offer a superior solution to certificates of deposit (CDs) in several ways.
- Annuities offer tax-deferred growth: Money inside an annuity can grow tax-deferred, meaning you won’t pay taxes on any earnings until you take withdrawals. In contrast, interest on CDs is taxable in the year you receive, hurting your long-term returns.
- Annuities may lock in a higher return: You may be able to get a better guaranteed rate with an annuity than you could with a CD. And you’ll have to keep renewing your CDs and hoping the rates don’t fall too much, even if you go with the best CD rates.
- CDs may offer more access to cash: Even if CDs lock in your money for some period, you can get access to it at the end of the term or even break the CD, often for a penalty. With annuities you may have to pay a substantial penalty if you need emergency access to cash and you may not be able to access it at all, in some cases.
Those looking for even higher returns than what fixed annuities can offer should consider building a diversified portfolio of stocks. The stock market, as evidenced by the Standard & Poor’s 500 stock index has delivered 10 percent annual returns over time, and it can be relatively low cost to invest in an S&P 500 index fund and enjoy those same returns.
Still, variable annuities and index annuities may be able to deliver similar returns, though they’ll tend to cost you more in fees and other expenses than investing directly yourself.
Annuities FAQs
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Annuities can offer an advantageous tax structure, making them more popular among those looking to save significant amounts of money. Savers can amass money in qualified annuities on a tax-deferred basis, allowing the money to compound faster. Then when it’s time to take distributions, a payout consists of a mix of taxable earnings and non-taxable contributions. So a monthly payout usually has some amount that arrives as a tax-free distribution and some amount that is taxable.
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Retirement savers have a variety of alternatives to annuities to amass wealth for retirement, including some tax-advantaged choices:
401(k): An employer-sponsored retirement plan such as a 401(k) allows workers to save on a tax-deferred or tax-advantaged basis. Savers can also invest in high-return assets such as stock funds, offering the possibility of strong long-term returns.
IRA: An IRA allows workers to save on a tax-deferred or tax-advantaged basis. Savers can invest in high-return investments such as stock funds and may earn strong returns.
Index funds: Index funds can be an attractive way to invest for retirement, even in a taxable brokerage account. Investors in an S&P 500 index fund have earned about 10 percent over long periods, and they can avoid capital gains taxes until they sell. So they may be able to compound their money for decades and mostly avoid capital gains taxes.
These are some of the strongest alternatives to annuities, though investors should also look at the best long-term investments, too. In general, stocks offer the best long-term returns.
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The longer you’re able to compound your money, the larger your nest egg will be in retirement. So beginning to invest early will yield the best benefits over time, whether you invest in annuities, individual stocks, stock funds or other investments. Time is your biggest ally when it comes to investing, so the best strategy is to invest early and continue to add to your investments.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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