If interest rates come down, according to our fixed income investment guru, “the reductions will likely be at the short end of the yield curve with rates holding steady at the longer end.” Or in layman’s terms, if we move to a more typical yield curve, you’ll see rates on long-term bonds (underlying annuity rates) be substantially higher than on short-term securities and CDs. That may also mean that rates on new annuity contracts are holding steady — although maybe not for long.
For our typical investor, Sally, who is 70, her lifetime income from a $500,000 investment sits at about $42,000 per year, or 8.4%, which means nearly double the current short-term rate of, say, 4.25%. But do you give that advantage away in taxes? That answer and more below.
