For anyone who is following economic news—you might be feeling concerned. Inflationary rates are at the highest annual rate in 40 years, and Q2 GDP reports show that the U.S. economy shrank in the last quarter, raising concerns around a recession. In July 2022, the Federal Reserve raised interest rates by .75 percentage points to fight inflation, and interest rates will continue to rise to 3.5% by December of this year. But while increasing rates create challenges to business owners and Main Street, it is an opportunity to add to your retirement savings plan. If you’ve been debating about whether to add a Fixed Income Annuity (FIA) to your retirement portfolio, rising rates may sound like music to your ears.

Interest rates and the FIA owner

An FIA protects your principal from market loss and will never decline in value so long as you continue through the length of your contract. However, they also generate income from interest. Your interest rate is partly based on changes in a market index, which measures how part of the market performs. So as far as the economy goes, the higher the interest rate, the higher the annuity payment. At the same time, your interest earning potential will never fall below zero, even if the index declines in value. This protects the product from inflation and also helps generate higher income payouts at retirement.

Market volatility and rising rates have created a perfect storm for investors looking for ways to protect their nest eggs and generate a guaranteed income stream in retirement. According to LIMRA, first quarter FIA sales were up 21% this year compared to 2021 and LIMRA is predicting FIA sales to grow as much as 10% by the end of 2022.

Things to consider when purchasing an FIA

If purchasing an FIA or any other type of annuity as part of your retirement plan sounds like something you want to do, start with three things:

• Know your financial goals and risk tolerance, how long you have before you retire, and for what you will need your annuity payouts. Understanding how and when you use your money will help you decide what to buy today.
• Look into an insurer’s financial strength rating. The rating is critical because annuities are backed by the insurance companies issuing them, not the federal government. The higher the rating, the more likely the insurer will be around to pay out your annuity.
• Know the roll-up rate (percentage at which the guaranteed side of the annuity keeps growing) and the payout rate (percentage of the annuity you will receive) of an annuity. Variations in rates may be determined by an insurance company’s portfolio of investments and profits and can significantly vary between providers. Be sure to shop around to get the best quotes from different companies.

In addition to a steady, guaranteed, and lifetime income stream with a secured principal, FIAs offer predictable earnings and tax-deferred growth. All-in-all, high-interest rates present an opportunity to consider annuities as part of a diversified retirement portfolio. Retirement readiness cannot be left to chance and preparing for our financial futures means taking steps to shield our savings from unexpected twists and turns.