Understanding Interest Rate Trends Impact | Annuity Watch USA

Understanding How Interest Rate Trends Impact Annuities and Bonds


By Cathy DeWitt Dunn

The risk of running out of retirement income is the No. 1 cause of investment stress for investors and pre-retirees. Filling income gaps in your investment portfolio with fixed index annuities (FIA) and bonds can help reduce that stress and ensure you have adequate funds to support you and your family during retirement. Overcome interest rate trends by being prepared.

Which is better for your portfolio, and which will give you the highest yield? That depends on your expectations and goals. A fixed index annuity can provide a predictable level of income for life by crediting a minimum guaranteed rate of interest over a fixed number of years. Additional interest may be credited based on the performance of stock market indexes. This is a great option for overcoming interest rate trends and the effect they can have on your retirement funding.

With bonds, however, your yield will stay fixed and the market value of the bond will fluctuate. The only way to guarantee your return of principal is to hold the bond to maturity. Both bonds and fixed index annuities are considered low-risk, income-oriented investments. But before putting your money in either, it’s important to understand what you could gain and how your decision could impact your financial plan.

If you lived through the 1970s and 1980s, you may remember a time when interest rates were near 20 percent. While this was a great time for investors, those interest rates also translated to higher rates on loans and mortgages. But, over the last few decades, rates have settled back down into the low single-digits, where they are today.

Recently, the Federal Reserve hiked interest rates to 1.75 percent, the highest we’ve seen since 2008, and more rate hikes are expected this year. With these rising interest rate trends, the value of bonds issued at a lower rate declines. That means if you would have to hold those bonds all the way to maturity in order to get your full investment back.

Unlike bonds, fixed index annuities are guaranteed not to lose value – no matter what. Additionally, volatility in the markets has investors on edge, fearing a market correction is on the horizon. Thankfully, fixed indexed annuities are guaranteed not to lose value, making them an excellent choice to protect your retirement assets from losses.

While some fixed index annuities come with fees, it is possible to find an annuity with no fees that gives you the upside of the market with market protection. Some annuities offer inflation protection, which allows your potential annual income to increase, essentially giving you a raise each year.

A FIA can be a strong bond alternative because of the protection and growth potential they offer in addition to the ability to generate income.

No matter your financial goals, Dewitt & Dunn Financial Services is here to help you select the right plan to meet your objective. Contact us today to learn more and schedule an appointment to discuss your investment portfolio. 972.473.4700.

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Disclosure: For informational and educational purposes only. The information contained herein may contain information that is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor.

Indexed annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate and some participation growth, if any, of a stock market index. Such contracts have substantial variation in terms, costs of guarantees and features and may cap participation or returns in significant ways. Any guarantees offered are backed by the financial strength of the insurance company, not an outside entity. Investors are cautioned to carefully review an indexed annuity for its features, costs, risks, and how the variables are calculated. A fixed annuity is intended for retirement or other long-term needs. It is intended for a person who has sufficient cash or other liquid assets for living expenses and other unexpected emergencies, such as medical expenses. A fixed or indexed annuity is not a registered security or stock market investment and does not directly participate in any stock or equity investments or index.


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