Fed Is Raising Interest Rates. How Do Retirees Benefit?
Some sectors of the population may feel the pain of interest rate hikes, while current retirees, and those near retirement, could actually benefit.


Potential homebuyers frowned at the Fed’s mid-March quarter-point rate hike because they can expect mortgage rates to continue to climb steadily, as they have since January. Freddie Mac’s weekly research bulletin shows that between Jan. 20 and March 24, rates for 30-year mortgages increased more than 1.1 percentage points. A review by the Mortgage Bankers Association revealed that the higher rates are starting to dampen homebuying, with purchases declining by 6% week over week. We have to wait to see whether slowing sales affect how the Fed adjusts its rates.
On the other hand, many retirees are smiling as interest rates creep up. That’s because if a portion of your income is coming from fixed income investments, you can see those yields rise. And one group of retirees could be particularly happy: those who are planning to include annuity payments as one of their sources of income.
Insurance companies sell income annuities, which are the source of annuity payments. They invest the annuity reserves in mortgages and similar loans. When interest rates rise, the insurance companies offer annuities with higher annuity payments, too. An annuity purchased today will pay more than one bought just a couple of months ago. For example, for a woman age 70 who considered purchasing a life-only income annuity with a $1 million premium, the annuity payments increased by 7% from $67,204 on Dec. 21, 2021, to $71,926 March 22, 2022.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
This increase in annuity payments also means you can create more safe income in your plan for retirement income. With both higher and more safe income, you’ll have lots of options on recalibrating your plan.
A Chance at Even Better Annuity Payments Ahead
The Fed says it plans to raise rates several more times over the next year, with one increase expected to be as much as 0.50%. We can expect insurance companies to continue to re-price their income annuities, although not necessarily in lock step.
For every quarter percent Fed rate hike, the income from an annuity might increase by 1.5%. The reason for this multiplier impact is fairly complex and varies by annuity carrier. In its simplest form (which I applied many years ago) the interest rate yield curve on the carrier’s investment was built into the pricing for the life of the annuity and not for a single year.
So, should you wait to buy your annuity until all the predicted Fed hikes have been put in place? Considered in a vacuum, you would do that. But the real world presents variables, such as stock market performance, that should cause you to temper such definite action.
As I wrote during a past stock market dive, ups and downs are unpredictable. Sometimes they’re tied to inflation, interest rates and other economic events; other times a correction might be blamed on pandemics, war and natural disasters. The best response is to create a long-term plan for retirement income that will largely protect your income against negative shocks — but that can also be adjusted to current circumstances.
In other words, maybe the rate hikes will slow the economy and cause a correction in markets. Your increase in income from annuity payments might soften the blow.
Timing Is Everything
Like many others, I advocate that you never try to time the market. In consultation with an adviser, and considering the many possibilities, you might decide you will add annuity payments to your income. At the same time, you might decide to make several purchases spread over a year or more.
A well-prepared plan for retirement income will let you choose from many scenarios that you design. It will also help you choose a mix of income sources to ensure that your risk is spread over many investment types, both safe and a little risky. We want your savings to produce enough income to last the rest of your life and meet your legacy and other goals.
If making all those decisions sounds complicated, I also consistently advise consumers to develop their plans with the help of professionals. At Go2Income, we can provide you with a complimentary personalized plan that delivers both a high starting income and growing lifetime income, as well as long-term savings.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Jerry Golden is the founder and CEO of Golden Retirement Advisors Inc. He specializes in helping consumers create retirement plans that provide income that cannot be outlived. Find out more at Go2income.com, where consumers can explore all types of income annuity options, anonymously and at no cost.
-
What Trump Has Done With Social Security So Far
Since President Trump was sworn into office on January 20, he has proposed or initiated changes impacting how Social Security functions, including closing offices and offering buyouts. Here's a roundup.
By Kathryn Pomroy Published
-
What Trump Has Done With Medicare So Far
Since President Trump was sworn into office on January 20, he has proposed or initiated changes impacting Medicare. Here's a roundup.
By Kathryn Pomroy Published
-
10 Tax Topics Every Retiree Should Know About
A little knowledge can go a long way toward saving on your tax bill. Print this out and take it to your tax planner so you can have a productive chat.
By Michael Miller Published
-
Facing a Layoff? Ask Your Employer These Questions Now
If you're being laid off or forced into early retirement, don't make any decisions without proper guidance — and that starts by asking some key questions.
By Ben Maxwell, ChFC®, AAMS® Published
-
Have $1M+ Saved? Consider a Financial Planning One-Stop Shop
A 'one-stop shop' team — including a financial planner, estate planning lawyer, CPA and more — could serve all of your tax, estate and retirement planning needs.
By Joe F. Schmitz Jr., CFP®, ChFC® Published
-
Five Ways to Safeguard Your Portfolio in Market Downturns
The stock market is nothing if not volatile these days. When it takes a dip, a well-managed, properly diversified portfolio could help you ride out the storm.
By Joel V. Russo, LUTCF Published
-
This Underused IRA Option Offers Tax Benefits and Income Security
Looking to avoid running out of money in retirement? Consider longevity protection provided by a QLAC as a component of your retirement income plan.
By Jerry Golden, Investment Adviser Representative Published
-
These Four Books Explore How to Leverage Our Outrage Positively
The authors offer some powerful tools to help us find solutions to discord rather than remaining silent or blowing up in anger.
By H. Dennis Beaver, Esq. Published
-
Financial Pitfalls to Avoid in Your 30s, 40s and 50s
As you pass through each decade of working life and build wealth for retirement, watch out for the financial traps that can hinder your progress.
By Julia Pham, CFP®, AIF®, CDFA® Published
-
Five Key Retirement Challenges (and How to Face Them Head On)
Life will inevitably throw challenges at you as you get older. But making a flexible retirement plan — and monitoring it regularly — can help you overcome them.
By Walt West Published