You can find at least four variables that impact after-tax annuity rates:
• Market interest rates and the type of annuity contract
• Budget deficits
• Income tax rates
• Levels of competition between companies and relative safety
Of these, interest rates probably possess the greatest bearing, and this can be more critical whenever getting into a period of rising inflation and increased interest rates. For instance, many annuity companies offer annuity rates that change annually. These will be more sensitive to changes in market rate. Multi-year guarantee annuities (MYGA) provide annuity rates that are fixed for the entire term so changes in market rates will have no impact on these contracts
Federal budget deficits can also affect your annuity rates. When deficits are high, the US government may need to borrow more money to finance its debt. That means it is competing with other borrowers-corporations, municipalities, and you-for the minimum possible interest rate on the money it needs to borrow. This could have the effect of forcing interest rates and annuity rates up if there are other borrowers and money is tight. If you are considering a fixed annuity in that scenario, get a contract that lets you participate in rising rates, one that resets annually.
The earnings in annuities accumulate tax-deferred. This means that you or your beneficiaries will not have to pay income tax until the money is distributed from the account. Of course, these kind of annuities are designed for long-term investing, and ordinary federal income taxes and a 10% tax penalty could affect withdrawals taken prior to age 59½. Should tax rates rise (for example, as a means to close the budget deficit), this makes your money in existing annuities worth less upon withdrawal. Therefore, your after-tax annuity rate will depend upon your personal tax bracket.
Rate competition between fixed annuity companies can sometimes result in opportunities to receive a higher return on the money, but you have to know what to look for. By way of example, how safe is the company, what's the renewal rate history, what is their Moodys or S&P Financial rating, and what are the withdrawal options? In general, those annuity companies with higher rating will provide lower annuity rates and vice-versa.
Here's a list of sites where you can find annuity rates.
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