Without question, the best time to buy annuities is during periods of high interest rates, especially when all economic and market indicators point to rates dropping in the mid- to long-term future. The reason why high rates make annuities attractive is that their annual payouts are determined based on today’s interest rates. The problem for many, however, becomes “when” is the best time to invest in an annuity. And since rates remain at historic lows, or close to them, waiting too long might make a potential annuity investor unqualified for the product. So, realistically, buying an annuity even at today’s low rates might make a good deal of sense, even with rates as they are and especially when looking at a 10 or 15 year term.
For suspicious investors, however, there are some ways to get around the fear and uncertainty surrounding annuities. One of them involves telling oneself that the annuity payments represent just one part of the overall income that the investor is bringing home. But more importantly that looking at is as a “fractional” part of one’s income, the investor needs to realize that this income stream is virtually guaranteed. This makes annuities a lot more attractive than interest paid on large term deposits offered by banks that could easily come under FDIC control, interest paid on bonds that many companies cannot afford to pay or dividends paid on stocks that could be cut by the companies that know it is in their best interest to pay bond holders ahead of their shareholders. With an annuity, the income is guaranteed but because of the extremely low risk associated with the product, that income is understandably low.
Another fact with annuities, particularly right now, is that they offer proper income and investment diversification. This not only provides financial reassurances in terms of one’s total, overall portfolio, but emotional and psychological peace of mind as well. For investors who are already retired, simply looking at one’s friends and how they are stressing over their cut in income and the state of their overall portfolio is evidence enough that an annuity will provide the peace of mind needed to actually enjoy those retirement years. Yes, when the annuity matures the income will need to be replaced by “spending” another asset, which can cause some stress for some investors, but many market-only investors have lost that paper value anyway… at least an annuity investor has the income to show for it!
These are just a couple of convincing reasons that investors need to consider when evaluating their overall investment portfolio and, in particular the sources of income they want to see during their retirement years. Of course, there are many different types of annuities, but there is virtually one to meet any investor’s needs, even those who enjoy the added risk of markets.