Three Reasons It May Be Time for an Annuity 'Refresh'

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People tend to think of annuities as set-it-and-forget-it investments — and for some, that’s one of the major draws. Annuities can provide predictable payouts for retirees seeking a reliable income source, without much of the worry that can come with other, riskier investments.

But even if you’re satisfied with your current annuity (or annuities), it can still make sense to review your contract(s) to see if you can do better. With today’s higher interest rates and evolving annuities, you may be able to benefit from replacing an older annuity with one that could potentially boost your income and add to the value of your contract.

Here are just a few reasons why you may want to consider an annuity “refresh.”

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1. Higher interest rates

When interest rates rise, annuity income rates typically increase as well. Interest rates have soared in recent years: The Federal Reserve hiked interest rates 11 times between March 2022 and July 2023. If you purchased your annuity before March 2022, you may not be benefiting from those higher rates. A replacement annuity could help you maximize your payments, and it shouldn’t cost you anything to do some comparison shopping.

2. The cost of inflation

Rising inflation can take a toll on your income plan. Even in the best of times, inflation can slowly erode your purchasing power. But the surge in gas, food, housing and other consumer prices we’ve experienced since 2021 has been a good reminder of the significant impact high inflation can have on a household — particularly for retirees living on a fixed income.

If you purchased a deferred income annuity prior to 2021 to help bolster your Social Security benefits and other reliable retirement income sources, you may find that replacing it with a different annuity can help put your budget back on track.

3. Newer products may suit you better

A new annuity may offer better or more relevant options than your current contract. Thanks to the increasing popularity of annuities, the market has grown more competitive. Insurance companies are now offering a wider range of products to meet the demand and the diverse needs of an aging population. Most advisers recommend evaluating your financial plan at least once a year — and more often if your retirement goals change, economic conditions have you feeling uncertain or important life events have occurred that require making some updates.

Your annuity’s performance should be part of that review, and you can use that time to discuss how your annuity needs may have been affected by any changes to your health, your marital status, beneficiary designations, the amount of income you’ll require or your Social Security start date. You may choose to move to a different type of annuity (a fixed-index annuity instead of a variable annuity, for example), get rid of expensive or unnecessary riders, or find more favorable terms that are a better fit for you going forward.

Tax implications and other considerations

Impending cuts to the Fed’s benchmark rate may lead to lower rates and less competitive annuity offerings down the road, so this is a good time to look at the pros and cons of an annuity exchange. If you don’t have a planned review scheduled soon, you may want to give your financial adviser a call to ask about comparing your current annuity with newer annuities available on the market.

Of course, it’s important to consider any tax implications, potential surrender charges and other costs or consequences that could make this the wrong time to replace an in-force annuity. And, as with any financial move, you’ll want to ensure that you understand the terms of the new annuity and that it’s a good fit for your objectives.

Any decisions regarding an annuity purchase — whether you’re getting one for the first time, considering a refinance or wondering how much of your money to commit — should be made with the help of a properly licensed and credentialed financial adviser who has experience with these complex contracts.

Kim Franke-Folstad contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Insurance products are offered through the insurance business Generations Retirement Group, LLC. Generations Retirement Group, LLC is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. AEWM does not offer insurance products. The insurance products offered by Generations Retirement Group, LLC are not subject to Investment Adviser requirements. 02839010-01/25

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Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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As an Investment Adviser Representative and president of Massachusetts-based Generations Retirement Group, David Corman is committed to helping his clients navigate the stumbling blocks that can get in the way of enjoying a fulfilling retirement. The firm is dedicated to all aspects of retirement planning, including Social Security optimization, income planning and investing. David is co-author of the book Plan Now. Retire Well.