Does an Annuity Make Sense with Low Interest Rates?

"But the reward for waiting five years may not be as great as shown in this example. The reason for this is that life expectancy for people at retirement age keeps extending. This lowers the mortality credits portion of the payments, because annuities are calibrated to return your premium and interest over your expected remaining lifetime. If that lifetime is expected to extend, the payments necessarily must decrease to take added expected longevity into account.

"Periodically, actuarial tables are updated to reflect changing life expectancy trends. These updates typically come somewhere between 2 and 11 years, but you don't know when the next update will be implemented, nor what direction life expectancy will go.

We wanted to establish a bit of extra income. There was a good recommendation about ImmediateAnnuities.com on CNN. We also liked that we could see excellent reviews about them on Google. They were very thorough from our first inquiry to when we decided to buy our annuity from Mass Mutual. They always answered our questions promptly and followed up with the insurance company, too. We have been receiving our monthly payments since last November and couldn’t be happier. What more can we say?

Keith and Samantha Isley

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"I waited too long twice, only to have the mortality credits portion of annuity payments on new contracts diminish due to the recent revamping of mortality tables. Two years were added to my life expectancy with the 2014 changes in the mortality tables. Worse, interest rates also declined so that my payouts were diminished even further. The updating of mortality tables can have a very significant detrimental effect on payouts if you're unlucky. Therefore, delaying annuitization may not always be rewarded." [End of Dr. Babbel's quote]

What will you do if interest rates do rise?

So, looking at the 30-year treasury bond chart where do YOU you think interest rates are headed over the next three years?

And if rates rise from here, will that end your dilemma? Will you buy your annuity at the new higher rates or will you be thinking, "If I wait some more maybe rates will go up even higher?"

Truth is that no one really knows what interest rates are going to do or how they will react in the future.

While all annuity shoppers naturally hope to see interest rates rise, interest rates have consistently headed lower. So any time you buy an annuity, there's the chance that you might have gotten a bigger payment had you waited and the possibility you would have done better if you had bought earlier.