Will Annuity Rates Keep Rising in 2022? The Answer Might Surprise You

If you’re considering purchasing an annuity in 2022, you’re probably wondering how rising interest rates will impact annuity rates and payouts. After years of historically low rates, the Federal Reserve has begun aggressively raising its benchmark federal funds rate to combat high inflation. And as interest rates climb, annuity rates are following suit – great news for those looking to lock in higher guaranteed income streams.

Understanding the Link Between Interest Rates and Annuities

Annuity rates are tied to the interest rates available on fixed-income investments like bonds and other securities. Insurance companies generate returns by investing premiums from annuity sales into their general accounts, which are made up primarily of these fixed-income holdings. As a result, when interest rates rise, insurance companies can earn higher yields on their investments, allowing them to offer more competitive annuity rates.

It’s a simple equation – higher interest rates lead to higher annuity payout rates. And with the Federal Reserve committed to taming inflation through rate hikes, we’re already seeing a significant upswing in annuity rates across the board.

Annuity Rate Increases in 2022 So Far

Just how much have annuity rates jumped this year? According to recent data:

  • Income payments from immediate annuities have risen by a staggering 42% since interest rates began rising in early 2022.
  • As of September 2022, the top 3-year fixed annuity rate sits at 5.3% – more than double the 2.3% high from June 2021.
  • The best 5-year fixed rate is now 6%, up from just 3% in mid-2021.
  • And 7-year fixed annuity rates peaked at 5.15%, compared to 2.8% a year prior.

These rate increases are widespread, with 18 major insurance carriers raising annuity rates in March 2022 alone, before the Fed’s first rate hike. As rates continue climbing, we’re likely to see further boosts to annuity payouts in the coming months.

What’s Driving Annuity Rate Hikes?

Beyond the direct impact of higher interest rates, there are a few key factors fueling annuity rate increases in 2022:

  • Pent-Up Demand: After years of low rates, many retirees held off on annuity purchases. This backlog of demand is now being released as rates improve.
  • Competition Among Insurers: To attract new business, insurance companies are quickly adjusting crediting rates and participation rates on fixed and fixed indexed annuities.
  • Expectations of Future Rate Hikes: With the Fed signaling its intention to keep raising rates, insurers are pricing in higher future yields.

Of course, precisely how high annuity rates will climb remains to be seen. But one thing is clear – after over a decade of low rates, the annuity landscape is rapidly shifting in favor of income-seekers.

Taking Advantage of Rising Annuity Rates

If you’re nearing or in retirement, the recent surge in annuity payouts could present a valuable opportunity to lock in higher guaranteed income for life. A few tips to consider:

  • Act Quickly: While rates may continue rising, there’s no guarantee. Locking in today’s higher rates could pay off down the road.
  • Request Updated Quotes: Insurer rate sheets are changing frequently. Get current quotes to ensure you’re seeing the best rates available.
  • Compare All Options: Fixed, fixed indexed, and income annuities are all benefiting from rate hikes. Explore which option best fits your needs.
  • Work With a Professional: An experienced financial advisor can guide you through the rapidly evolving annuity market.

With the right annuity strategy, you can take advantage of 2022’s rising rates to secure your retirement income needs. But be sure to move quickly – this favorable rate environment may not last forever.

Annuity Payout Rates vs. Interest Rates


How high will annuity rates go in 2022?

Company Details
5 Years
6.15% Simple
6 Years
7 Years
8 Years

Should I buy an annuity now or wait?

Of course, that can also be an argument for waiting a bit to buy your annuity. However, while annuity rates have risen over the last few years, there’s no guarantee that they will remain high. In the end, deciding when to buy one will depend on your personal needs and circumstances.

What is the prediction for annuity rates?

Latest annuity rates The 15-year gilt yields increased by +24 basis points to 4.45% during February 2024 with providers of standard annuities increasing rates by an average +4.62% for this month and rates may decrease by -2.22% in the short term if yields remain at current levels.

Will annuity rates rise as interest rates rise?

With an annuity you trade some or all your retirement pot for a fixed, guaranteed income for life. The rates offered by annuity providers are closely linked to interest rates. In short, when rates rise, annuity deals typically improve.

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