The truth about declining annuity payouts: Opinion
February 12, 2016 by ANDREW MURDOCH, CFP
Sadly, bad news has emerged on the annuity front — and brokers and agents should inform their clients and prospective clients accordingly and help them cope. Annuity payouts have been declining, typically about 10 percent, and those insurance companies that have yet to trim payouts are highly likely to do so as the year progresses.
The reason is that insurance companies are adopting new mortality tables that show people are living longer (three additional years for men, to 88.5 years; and two additional for women, to 90.3 years). This requires insurers to offer guaranteed lifetime payments for a longer period overall, and that means they have to offer lower lifetime income streams to remain profitable.
There may be some sunshine down the road to offset the clouds. New annuity buyers could catch a break later this year because the Federal Reserve recently started raising interest rates for the first time in nine years. Increases in short-term interest rates typically spark increases in long-term rates, with a lag. If this happens again, insurance companies would reap higher profits from their bond investments and likely increase payouts to try to jumpstart sluggish sales. Click HERE to read more…