When was the last time you reviewed your annuity? If you’re like many annuity holders, it might have been a while. With interest rates at all-time highs and significant economic changes on the horizon, now is a crucial time to take a closer look at your annuity. In this blog, we delve into why reevaluating your annuity is essential and the key reasons it might be time for a change.
The Current Economic Landscape
Interest rates have experienced a dramatic increase recently, benefiting not just banks but also insurance companies and, by extension, your annuities. The economic environment is dynamic, and keeping your financial products up to date with these changes is crucial. Here’s why a review of your annuity is more important now than ever.
- Interest Rate Changes
The primary reason to reevaluate your annuity is the significant shift in interest rates. Just a few years ago, interest rates were incredibly low which made any fixed-income investment, (including annuities) less attractive. Fast forward to today, and the Federal Reserve has implemented 11 interest rate hikes between 2022 and 2023. This increase has opened new opportunities for better returns on annuities.
If your annuity was purchased in a low-interest-rate environment, its growth potential might be limited compared to newer products available now. For example, an annuity purchased in 2017 when bank rates were near zero might not be performing optimally in today’s environment where banks offer around 4% interest.
Reevaluating your annuity could reveal opportunities to switch to a product that leverages current higher interest rates, potentially earning you significantly more in the long run. Even if there’s a surrender charge for early withdrawal, the long-term benefits might outweigh the costs.
- Inflation Rates
Higher inflation rates impact everything from food costs to the purchasing power of your retirement income. If your annuity includes a lifetime income rider, now is the time to assess whether it will meet your future income needs, given the current economic climate.
Inflation can erode the real value of your fixed income. By evaluating your annuity, you might discover that switching to a newer product with better terms could substantially increase your guaranteed income, helping you keep pace with inflation. We’ve seen cases where clients were able to boost their guaranteed lifetime income by 20% just by moving to a new annuity with better terms.
- Unnecessary Riders
Riders can add valuable features to your annuity, such as guaranteed lifetime withdrawal benefits. However, they often come with additional costs. Over time, your financial situation might change, making some of these riders unnecessary.
For instance, if you’ve significantly increased your savings or received an inheritance, you might no longer need a guaranteed lifetime income rider. Removing unnecessary riders can reduce your costs and potentially increase your annuity’s growth potential.
Consider whether the features you initially paid for are still relevant. If not, eliminating them can streamline your annuity and enhance its efficiency.
- Life Event Changes
Major life events, such as changes in marital status, employment, or health, can significantly impact your financial needs. These changes might mean that the annuity you purchased years ago no longer aligns with your current situation.
For example, a change in health might alter your retirement income needs, or a shift in employment status could affect your overall financial strategy. Reevaluating your annuity considering these life changes ensures it remains a suitable part of your financial plan.
Understanding Surrender Charges and Bonuses
One common concern when considering an annuity change is surrender charges. These are fees for withdrawing from an annuity before a specified period. While surrender charges can be significant, it’s essential to consider the overall financial picture.
Insurance companies often offer bonuses to entice you to move your annuity to them. These bonuses can offset surrender charges, making the switch more financially feasible. For instance, if your current annuity is worth $100,000 but has an 8% surrender charge, you might hesitate to move it. However, if the new annuity offers a 10% bonus, your new balance could be $101,200, more than covering the surrender charge.
It’s crucial to work with a financial advisor to crunch the numbers and determine whether moving your annuity is beneficial. The goal is to ensure that any move makes sense financially and aligns with your long-term goals.
The Importance of a Personalized Review
Everyone’s financial situation is unique, and there’s no one-size-fits-all answer when it comes to annuities. That’s why it’s essential to conduct a personalized review with a financial professional who understands your specific needs and goals.
A thorough review should include:
- An assessment of your current annuity’s performance.
- An analysis of how changes in interest rates and inflation affect your annuity.
- An evaluation of the relevance and cost of any riders.
- Consideration of any recent life events that might impact your financial strategy.
Take Action Today
If you haven’t reviewed your annuity recently, now is the time to act. With interest rates and inflation impacting your financial landscape, ensuring your annuity aligns with your current and future needs is crucial.
A personalized review can provide valuable insights and uncover opportunities to optimize your annuity. Whether it’s switching to a product with better terms, eliminating unnecessary riders, or adjusting for life changes, taking action today can set you up for a more secure financial future.
If you would like to have a conversation about your annuity situation, or you just have a question about annuities, we’d love to hear from you! Schedule your complimentary call with us to get started.
By incorporating these strategies and regularly reevaluating your annuity, you can ensure that it continues to serve your financial needs effectively. Don’t let your annuity become outdated – take control of your financial future today.