The popularity of fixed annuities has grown quite a bit recently, and it isn’t hard to figure out why. Tax deferral and guaranteed rates are just two of the perks offered with these retirement planning tools. However, with interest rates at historic lows, many consumers are wondering if they should wait to purchase in order to lock in a higher rate. According to me waiting is not recommended and could actually put you behind in your retirement savings.
It is impossible to know when, or even if, annuity rates will increase, which means the rate you get today may be the best you’ll do if you decide to wait. But let’s say that magic rates do improve significantly. There’s still a good chance you’ll never come out ahead because while you are waiting, your money market fund or bank savings account will earn next to nothing. That means if you wait too long, you’ll never catch up later.
This interest-rate waiting game can be referred to as a form of passive gambling; one you’re almost certain to lose. Instead, we recommend considering a strategy of half now and half later, if you just can’t get comfortable with today’s rates. Emotions are often to blame for poor financial decisions, but the statistics show that it’s better to commit to a fixed-rate annuity now rather than wait for a possible higher rate in the future.
As always, it is recommended that you speak with a trusted financial advisor before making an annuity purchase. There are many pros and cons, and it’s always best to have the big picture before signing on the dotted line.