Is Buying An Annuity In A Zero Interest Rate Environment A Good Idea?
April 15, 2020 by Wade Pfau
The Federal Reserve’s decision to cut its benchmark federal funds rate from 1% to a range of 0% raises significant questions for those reassessing their retirement nest egg—a common occurrence following a dramatic selloff in equities according to research conducted by Indiana University’s Alessandro Previtero —and the value of annuities in providing guaranteed lifetime income.
Historically low interest rates are often used as a reason to avoid annuitizing at the present and forever locking in current interest rates. The logic is that interest rates could increase in the future, which would help support a higher subsequent payout rate from annuities if one waits. This idea is worth a discussion, as it is not correct in the context of a full retirement plan.
In addition, deferred annuities that use lifetime income protections without immediately annuitizing the assets do not have this problem. Even for the income annuity, which does lock in the current environment at purchase, the case for its use becomes stronger in a low interest rate environment for someone who is already retired and spending from assets.
Click HERE to read the full story via Forbes
