Last month, the Federal Reserve finally conducted its first rate cut of 2025, dropping its benchmark rate by 25 basis points after months of anticipation. This move marked the start of what many experts and analysts expect will be a gradual pivot toward lower borrowing costs, with at least two more rate cuts anticipated before the end of the year.
For retirees and near-retirees, that shift has sparked renewed questions about how today’s changing rate environment could affect long-term financial decisions. As a result, annuities, in particular, are drawing attention again.
### What Are Annuities?
These insurance-backed retirement products convert savings into guaranteed income for life, much like a pension, providing retirees with a sense of stability that’s hard to find elsewhere. But because annuity payouts are influenced by prevailing interest rates, the timing of your purchase can have a major impact on the income you’ll ultimately receive.
With rates still relatively high, many savers are wondering whether now is the best time to lock in an annuity, or if waiting for the Fed’s next move could be the smarter play. Knowing how interest rates shape annuity performance can help you decide how to secure the most reliable income for your retirement years.
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### How Do Interest Rates Affect Annuities?
Is it better to buy an annuity when interest rates are high or low? All else equal, high-rate periods favor buyers of fixed annuities, such as:
– Immediate annuities (SPIAs)
– Deferred income annuities (DIAs)
– Multi-year guaranteed annuities (MYGAs)
In other words, it’s typically better to buy an annuity when interest rates are high. Here’s why:
When you purchase an immediate annuity or lock in a fixed annuity rate, insurance companies are essentially promising to pay you a steady stream of income, generally for the rest of your life.
Behind the scenes, though, they’re investing your premium in conservative investments like bonds. The higher the prevailing interest rates when you buy, the more income those investments can generate—and therefore, the more generous the payout the insurer can offer you.
Think of it this way: If an insurance company can invest your money and earn 5% versus 2%, they can afford to pay you significantly more each month while still covering their costs and profit margin.
During the low-rate environment that persisted through much of 2020, annuity payouts were disappointing overall due to low rates. Fast forward to today’s higher-rate environment, and a 65-year-old buying a $100,000 annuity could potentially receive about $650 or more monthly.
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### Timing Is Key—But Don’t Wait Forever
There’s a catch, though. You can’t just wait forever for interest rates to hit some magical peak. Rates are cyclical, and trying to time the absolute top is like trying to time the stock market—it’s nearly impossible.
If you wait too long, rates might drop again, and you’ll have missed your window. Plus, there’s a personal timing element to consider. The older you are when you purchase an annuity, the higher your payout will be since the insurance company expects to pay you for fewer years.
Waiting too long, however, could mean potentially running down your savings in the meantime.
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### Why Annuities Deserve a Spot in Your Retirement Plan
Beyond just the interest rate question, annuities solve a fundamental retirement challenge that’s only getting harder: longevity risk. Humans are living longer overall, which means your retirement savings may need to last 25, 30, or even 35 years or more.
That’s a long time to worry about whether your retirement portfolio will hold up through market swings, periods of inflation, and other unexpected events or expenses.
This is where annuities tend to shine. Unlike bonds or dividend stocks, an income annuity provides payments you literally cannot outlive. That certainty lets you budget with confidence, knowing exactly what’s coming in each month regardless of what the market does.
You can plan vacations, help your grandkids with college, or simply have more peace of mind knowing your essential expenses are covered.
Annuities can also complement your other retirement income sources. Social Security provides one guaranteed income floor, and an annuity can add another layer.
This combination creates a reliable baseline that covers your must-have expenses, like housing, food, healthcare, and utilities, while your other investments can be managed for growth, emergency funds, or legacy goals.
Ultimately, a solid retirement plan is about creating a diversified income strategy—not putting everything into one basket.
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### The Bottom Line
Higher interest rates create a more favorable environment for buying annuities, offering better payouts that can significantly boost your retirement income. But the perfect time to buy an annuity is less important than making sure it fits your overall retirement strategy and that you’re buying when rates are reasonably attractive.
If we’re in a higher-rate environment now compared to the past several years, that’s generally a green light worth considering.
Just remember, the best time to secure guaranteed lifetime income is when you actually need that security, not some theoretical future moment when rates might be marginally better.
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**Compare your annuity options and lock in a great rate today to help ensure the income you need during retirement.**
https://www.cbsnews.com/news/is-it-better-to-buy-an-annuity-when-interest-rates-are-high-or-low/
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