Will Fed Rate Cuts Make Fixed Annuities Less Desirable?
October 8, 2024 by Ben Mattlin
Even though a cut in the Fed’s benchmark interest rate hasn’t happened yet, the anticipation is already having an effect on some annuities, advisors say. Fixed annuities, rather than variable annuities, will feel the most direct impact, they predict.
“When the Federal Reserve lowers interest rates, the effective rates on fixed annuities will also decrease,” says Janet Fox, president of ACH Investment Group in Raleigh, N.C., and an LPL financial advisor. “As a matter of fact, we have seen some fixed annuity rates start to decrease with the anticipation of a decrease by the Federal Reserve.”
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Wink’s Moore on the Market: Yes, if rates decline, it will affect annuity sales.
However, fixed annuities still offer competitive rates, relative to Certificates of Deposit. So, I expect multi-year guaranteed annuity sales to do well.
Indexed annuities have better rates than they had up until 2022. I mean- there is a pretty linear increase in indexed annuity sales from 1998 to 2019. Rates weren’t awesome for most of that period, and yet the products continuously hit sales records. I am anticipating a record $125 billion for 2024, but I don’t think things are slowing-down thereafter.
I also like what my buddy David Blanchett had to say about annuities in this piece:
“Another possible source of growth for annuities, he says, is 401(k)s. The SECURE Act made it easier for employer-sponsored retirement accounts to offer annuities to members by essentially extending legal protections against annuity providers that go bankrupt. For all these reasons, says Blanchett, annuity demand might keep rising ‘even if payouts and rates do decline.’”
I couldn’t agree more- demand for annuities will keep going up, even if rates do decline. -sjm
