The interest rate for annuities is typically at the discretion of the insurance company you purchase the annuity from.
You can control a few factors that will contribute to the rate you get on your annuities; these factors include:
- The time until the annuity matures
- How much they deposit
- How many deposits
Some, however, are beyond the control of the purchaser. These include:
- Condition of the market
- Life expectancy of the purchaser (gender is important here)
- Company fees
The stock market is one thing beyond buyer control. Anyone paying attention will see that the market is becoming more risky for investors. Finding a company with steady growth is uncertain. As the market uncertainty is on the rise the percent return will fall.
Life expectancy will determine how much the insurance company is willing to pay over the collection of an annuity. For example, if one purchases a lifetime annuity, life expectancy of the purchaser is the payout period.
For life expectancy, gender is a large factor to an insurance company. The large impact of gender is the much longer life expectancy of women compared to the longevity of men. The projection for 2009 estimates the population of women to outlive men by 5 years on average.
Age of the one purchasing the annuity also plays into the annuity return for similar reasons. Both life expectancy and gender help determine for how long a lifetime annuity would have to be paid out. Similarly, age of the purchaser, tells the insurance company how many years they can invest the money received from an annuity before needing money to pay out.
These factors will change the return on investments of similar size. There are many other ways and factors that insurance companies could look at, but these are the major areas of focus. For an example of an annuity calculator, visit Sec.gov, which takes these basic inputs and shows either the cost or the payout of an annuity when the rate and time vary.
By – Domenic Gabriella for RetirementSecurity.com