Retirees shopping for guaranteed lifetime income can now lock in annuity payouts that are 30% to 50% higher than they were in 2021, when the Federal Reserve held its benchmark rate near zero, according to payout data tracked by industry analysts. A 65-year-old man who buys a $100,000 immediate annuity today can collect roughly $700 a month for life, up from about $500 three years ago.
The reason is mechanical: annuity payout rates move with interest rates. Insurers invest premium dollars in bonds, and when those bonds yield more, the companies can promise larger checks without taking on added risk. The Fed's decision to hold its target rate in a range of 5.25% to 5.5% — the highest level in more than two decades — has kept bond yields elevated, and annuity pricing has followed.
The shift reverses a decade-long squeeze on retirement savers. Between 2009 and 2021, near-zero rates pushed payout rates to record lows, and many retirees avoided annuities entirely, opting instead to draw down stock portfolios and hope for strong returns. That strategy left them exposed to sequence-of-returns risk — the danger that a market crash early in retirement permanently shrinks their nest egg.
Annuities transfer that risk to an insurer. In exchange for a lump sum, the company guarantees payments for life, no matter how long the buyer lives or what markets do. The trade-off is that the money is typically locked up, and early withdrawals can trigger surrender charges that run 7% or more in the first year of a deferred contract.
Sales reflect the renewed appeal. LIMRA, the insurance industry research group, reported that U.S. annuity sales hit $385 billion in 2023, a record and a 23% jump over 2022. Fixed-rate deferred annuities, which function like multi-year CDs with tax deferral, drove much of the surge, with some contracts briefly offering yields above 5.5%.
Buyers should compare carefully before committing. Payout rates vary by insurer by as much as 10% for identical contracts, and state guaranty associations back policies only up to limits that range from $100,000 to $500,000 depending on the state. Financial planners generally suggest annuitizing no more than the portion of savings needed to cover essential expenses like housing, food, and medical care.
The window may not stay open. If the Fed cuts rates as projected later this year, new annuity contracts will price in lower yields, and the payouts available today will shrink. Retirees who waited through the zero-rate era now face the opposite problem: deciding how much of a historically favorable offer to take before it closes.
