By Dave Hanzlik
I get this question a lot: why annuities in today’s low-rate environment? If you buy an annuity now, aren’t you locking in low rates, and doesn’t that mean less value?
Valid question, but first, it’s essential to understand that an annuity is an important financial tool. Annuities can provide guaranteed income for life and can guarantee investment results. They’re essentially a contract with an insurer to receive regular payments for a period of time. They come in many flavors, and some provide steady guarantees while others are tied to the stock market.
They’re always priced to market conditions, exactly like every other financial tool at your disposal. Mutual funds, stocks, bonds, managed accounts, CDs, and annuities all derive their value from current market conditions.
Currently, interest rates are historically low. For context, the five-year treasury yield has been hovering in the 20-30 basis-point range – about a quarter of a percent; at the end of 1999, the five-year treasury yield was over six percent.
Low rates mean less yield, so there are many pundits suggesting hunkering down and waiting out the pandemic, the election, and the recession. The assumption here is that rates must rise eventually, and given rising government debt and the possibility of volatility presenting opportunity in the stock market, maybe there are better ways to put your money to work. But that indicates a perception that one can time the market. Most cannot. The few who can typically manage hedge funds.
So, should you defer an annuity purchase right now due to the low-rate environment? Well, chances are you are not a hedge fund manager capable of timing market imperfections to maximize gains for your portfolio. As such, current market conditions should not derail your long-term goals and objectives.
It’s important to stick with the plan. So, if an annuity is something you’ve already been considering, eschew any short-term thinking when your goals are long-term.
About the author: Dave Hanzlik
Dave Hanzlik is Vice President of Annuity & Retirement Solutions at CUNA Mutual Group, a leading insurance, financial services and technology company focused on helping people achieve financial security through all life stages.
CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. Annuities are issued by CMFG Life Insurance Company (CMFG Life) and MEMBERS Life Insurance Company (MEMBERS Life) and distributed by their affiliate, CUNA Brokerage Services, Inc., member FINRA/SIPC, a registered broker/dealer and investment advisor, 2000 Heritage Way, Waverly, IA, 50677. CMFG Life and MEMBERS Life are stock insurance companies. MEMBERS® is a registered trademark of CMFG Life Insurance Company. Investment and insurance products are not federally insured, may involve investment risk, may lose value and are not obligations of or guaranteed by any depository or lending institution. All contracts and forms may vary by state and may not be available in all states or through all broker/dealers. CMGA-3283030.1-1020-1122
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