Micah Schmidt recently joined Financial Advisor Magazine to discuss how high interest rates affect annuity holders.
Though inflation has cooled from what was once nearly a double-digital figure, it still hasn’t come down quite enough for the Fed to cut interest rates as promised. Granted, officials said rates would only be cut once inflation dropped to a satisfactory number, indicating that the 3% year-over-year increase it continues to cling to isn’t quite low enough for Jerome Powell and the Federal Reserve.
We do, however, seem to be drawing closer to rate cuts, meaning advisors, pre-retirees and retirees need to prepare. That’s why Financial Advisor Magazine reached out to our very own Micah Schmidt to discuss how rate cuts could affect annuity holders. His belief is that annuities should never be purchased because of environmental predictions. He says:
“Nobody should purchase a fixed annuity based solely on the expectation of declining rates.”
Of course, annuities have historically performed better during periods of high inflation, meaning those purchasing an annuity before rates are trimmed could benefit. But it’s important to recognize the other factors at play when it comes to these insurance products. First and foremost, they’re just that: insurance products. They are not directly invested in the market and protect principal based on the claims-paying ability of the issuing insurance company. They also offer a guaranteed rate of growth, which again, is based on the ability of the insurance company to fulfill its end of the contract.
Furthermore, annuities can be a viable option for those looking to create another stream of income in retirement. In addition to the potential for growth and principal protection, they can be leveraged to supplement income sources like retirement accounts and Social Security. Again, however, it’s important to remember that you should never purchase an annuity based on projected future outcomes, especially those as uncertain as interest rates.
That’s where your financial advisor comes in. We can help you determine if the features and guarantees made by annuity contracts and their carriers are right for your situation. If they do align with your goals, we can help you find a product that matches your objectives and positions you to protect your assets and create an income stream to fund your retirement dreams.
