You'll find at least four things that may possibly effect your fixed annuity income:
- Market interest rates (i.e. what treasury bond and bills pay)
- Income tax rates
- Levels of competition between companies (and whether some companies need funds more than others)
- The particular annuity's surrender charge schedule
This post addresses the factors which affect annuity income during the accumulation phase of your fixed annuity (there are other factors which impact your annuity income during the annuitization phase) .
Of above listed factor, interest rates probably make the greatest impact, and this can be more critical whenever getting into a period of rising inflation and increased interest rates. For instance, many annuity companies offer multi-year guarantee annuities (MYGA) and may be more inclined to do so when rates are rising. The hope is that they can lock in some investors at a lower rate of annuity income than the company may need to pay 12 months later.
If in fact you do believe that rates will increase, you are better off with a traditional fixed annuity that adjusts its annuity income rates annually. How do you know if they will actually increase your rate if market forces dictate they do so? You can as for their annuity income rate history and see how they have treated investors in the past.
Rate competition involving fixed annuity companies can sometimes result in annuity income opportunities so that you can receive a higher return on your own money, but you have to know what to look for. For instance, how safe is the company, what's the renewal rate history, what is the Moodys or S&P Financial Strength score, and what are the withdrawal options? As fixed annuity ensures and benefits are subject to the claims-paying ability of the annuity company, financial safety is very important to consider.
The particular contract surrender schedule will also affect the annuity income rate. If the contract has a long surrender schedule, that company may pay you more as you are locked in for a longer period and they can invest you funds in longer term securities which typically pay more. But if you want a short surrender schedule (e.g. a 3-year term) don't expect to earn much annuity income.
Last, there are periods when one insurance company may need to raise funds more aggressively than others to manage their balance sheet. During that period, the company may offer a special rate or bonus rate, both of which will increase your annuity income. The way to find out about these is to tell several annuity agents to contact you only with special rates having a limited annuity income offer.
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