The US Federal Reserve, as expected, cut its benchmark Federal Funds rate by 0.25% on September 17, as political and economic pressures mount to keep interest rate cuts going downward.
“The Fed leans dovish despite lingering inflation risks, deciding to pivot toward focusing more on economic and labor market risks,” said Scott Anderson, chief U.S. economist at BMO, in a September 17 research note.
“The decision to cut the Fed funds rate a quarter-percentage point today, and a median FOMC forecast of two more quarter-point rate cuts in October and December this year, rested almost entirely on the shifting balance of labor market and inflation risks and not on any major change in median economic, labor market, or inflation outlook since June.”
Given this week’s FOMC Meeting outcome, Anderson said he expects “three quarter-point FOMC rate cuts this year, and three more in 2026.”
How Falling Interest Rates Impact Annuity Sales and Buyer Decisions
Several rate cuts would have a significant impact on annuity sales, as any substantial downward shift in interest rates would substantially impact annuities, some more than others. That impact could also hit your annuities in ways you didn’t expect.
“The Fed’s latest 0.25% rate reduction is an indicator of interest rates going down going forward, something that directly affects annuities, yet also provides a chance for retirees to move quickly,” said Luca Dal Zotto, founder at London-based Convert Bank Statement, a financial data management company.
When the Fed reduces rates, fixed annuities that guarantee income tend to see yields fall because the insurer receives less from the underlying bonds it holds. “Consequently, annuity rates today are healthy yet likely to come down, so it’s prudent for retirees seeking guaranteed income to capitalize on rates today instead of waiting,” Dal Zotto said.
Dal Zotto points to some of the top fixed annuities today, with quotes from 4% to 6% for durations of 1 to 5 years, with the latest top being 6.15% over 5 years (Wichita National Life Insurance) as of September 18, 2025. “Annuity buyers should start by comparing those rates to returns that are likely to come down if the Fed keeps cutting rates,” he said.
Timing is also a big deal when buying annuities, more so than with interest rate changes.
“Selecting an annuity largely depends on when the applicant will need the money,” said Gary Schwartz, a financial advisor at Madison Planning Group, in White Plains, N.Y. “If you anticipate further rate drops, it may make sense to lock in a relatively higher rate today.”
In a lower-rate environment where the Fed continues to loosen lending and credit, Schwartz recommends fixed annuities with 3- to 5-year terms before typically rolling them over. “Simultaneously, the cap on index annuities will change, becoming more expensive as rates drop,” Schwartz said.
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Annuity Buying Tips In a Lower-Rate Climate
Still, even as annuity rates decline, annuity consumers shouldn’t rush into decisions without considering the whole picture.
“The Fed cuts create urgency, but timing the market rarely works, even with annuities,” said Ryan McEachron, CEO at ISU Insurance Services, an ARMAC Agency in Victorville, Cal.
If you do wade into the annuity market right now, take these buying tips with you.
Take the Ladder
Rather than jumping in quickly to take advantage of lower interest rates, McEachron advises focusing on laddering annuity purchases rather than making a single, all-inclusive investment now.
“I had a client last year who split her $200,000 into three purchases over 18 months instead of one lump sum,” he noted. “This strategy captured different rate environments and reduced her timing risk. “
For product selection, McEachron steers clients toward immediate annuities if they need income immediately, or multi-year guaranteed annuities (MYGAs) for those still accumulating assets. “MYGAs act like CDs but often offer better rates, as they’re currently seeing 4.2-4.7% on 5-year terms from carriers I work with right now.”
Avoid Charges
McEachron also advises annuity buyers to skip any product package that includes surrender charges longer than their time horizon, and avoid equity-indexed products with complex crediting methods.
“Also, when vetting annuity providers, I always check their claims-paying history during past rate cycles, not just current ratings,” he added. “Companies that maintained competitive rates through 2008-2012 tend to be more reliable long-term partners.”
Go For Guarantees
Savers and retirees will also want to react to rates that are currently favorable by looking at solely at annuities with income guarantees.
“Fixed multi-year guaranteed annuities like MYGAs allow for a lock-in return to safeguard against future drops,” Dal Zotto said. “These annuities offer peace of mind in uncertain times as retiree interest shifts to guaranteed income.”
Watch Out For Inordinate Risk
Additionally, buyers should note that variable annuities that correlate to investments, such as stocks, hold additional risk and are less favorable when seeking to preserve capital in a declining rate scenario.
“Don’t commit to longer-term fixed annuities if there is a need for liquidity, as interest changes can restrict access without repricing,” Dal Zoto advised.
Aim For Quality
Ultimately, choosing the right annuity is all about focusing on rock-solid fixed annuity products with top insurer ratings (A+ or higher), similar guaranteed rates, and variable terms.
“Multi-year guaranteed annuities of 3-5 years strike the right balance between fixing rates and optionality today,” Dal Zotto noted. “New buyers are interested in avoiding complicated products with too many fees or unwanted riders if the goal is to maintain principal and income. Avoid annuities that strongly correlate with equity outcomes if guaranteed income is the goal.”
Directionally, retirees can locate the appropriate provider by seeking out insurers that enjoy good ratings from AM Best and related organizations, transparent fees, and favorable customer support.
“Established brands such as MassMutual, New York Life, and Allianz enjoy track records and competitive offerings,” Dal Zotto added. “Consultation with a qualified financial professional specializing in annuities can assist in sorting through choices and making appropriate matches to retirement aspirations and risk capacity.”
