In ancient Greece, there were two different forms of the word “time”: chronos, which aligns with our understanding of time as chronological or sequential, and kairos. Kairos is not a date or a number on the clock, but a critical time or passing instance of an opportune moment. Although there is no equivalent word to kairos in modern English, we all have experienced windows of opportunity that have produced better results than if we acted at another time.
When we keep in mind that opportunities are grounded in specific moments with particular conditions, we can better understand when and why certain opportunities should be taken. Recently, a large number of retirement-bound Americans have purchased annuities, driving curiosity among Americans as to when and why they should purchase one. To understand why so many retirement-bound Americans are purchasing annuities – and why now is such a critical window of opportunity – it is vital to know about the relationship between annuity payout rates and interest rates.
In the graph below, the green and pink lines represent the historical payout rates of annuities, and the dashed black line reflects corporate bond rates. Annuity income rates follow the bond market, indicating a correlation between high-interest rates and high-annuity returns.
With interest rates in the United States the highest in 15 years, many are jumping at the opportunity to purchase an annuity and lock in higher payout rates. We are near the peak of this rate-hike cycle, and the Fed has indicated three rate reductions later this year. Although rates have started to drop, there has been volatility in recent months, providing an opportunity to lock in those rates before the Fed cuts later this year.
To emphasize the importance of acting on these rates, consider the cost of waiting. For example, let’s look at the different returns for someone who would have purchased an annuity at the last peak compared to their returns if they waited just two years later to buy one.
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This material is intended for educational purposes only and is not intended to serve as the basis for any purchasing decision. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. The hypothetical example is shown for illustrative purposes only and is not guaranteed. The characters in this example are fictional only. Your actual experience will vary. Policy loans and withdrawals will reduce available cash values and death benefits and may cause the policy to lapse or affect any guarantees against lapse. Remember to consider your client's individual circumstances and objectives when discussing their specific situation. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of the unrecovered cost basis will be subject to ordinary income tax. Withdrawals are generally income tax-free unless the withdrawal amount exceeds the amount of premium paid. Tax laws are subject to change. Clients should consult their tax professionals. Investment advisory and financial planning services are offered through LifePro Asset Management, an SEC Registered Investment Advisor. Registration does not imply a certain level of skill or training. Investments involve risk.