Annuity Rates

Written By : Elaine Silvestrini
Fact-Checked content is meticulously reviewed to ensure it meets our high standards for readability, accuracy, fairness and transparency. articles are spellchecked, grammatically correct and typo-free. editors may revise content for clarity, logic, flow and meaning. only uses credible sources of information.

This includes reputable industry sources, select financial publications, credible nonprofits, official government reports, court records and interviews with qualified experts.

Because annuities are insurance products, their payout rates are determined differently than interest rates of return on other investments. Understanding how this works will help you judge whether annuities are right for you.

When considering interest rates, figures from annuity providers are useful when choosing between annuities, but not when comparing annuities to other types of investments.

That’s because of the unique nature of annuities, which are really insurance policies different from other investments. Unlike other investments, quoted interest rates on annuities include some money that is part of the original principal that was invested.

Current annuity rates will tell you what percentage of your annuity principal you will receive as payment each year.

Annuity Rates
Example of an annuity rate

The thing to remember about annuities, according to certified financial planner Matt Chancy, is that they come in a lot of different varieties because of various annuity formulas. He said he tells clients that annuities are like dogs. Some people like big dogs; others like little dogs. There are loud dogs and quiet dogs. People like different things, Chancy said. “You’ve got to find the one that works for you.”

Learn More About Annuities

Interested in Buying an Annuity?

Speak with a financial expert to learn about the best annuity rates and find the one that's right for you.

Annuity Payments Include Principal

While market interest rates at the time you purchase your annuity play a significant role in the annuity’s rate, they are less relevant than with other investments. That’s because the payments you receive will not be interest alone. They will include a portion of your original principal.

For this reason, the interest rate on an annuity is not a rate of return, but a payout rate.

Factors That Affect Rates

Companies that sell annuities use three factors to price them and set rates, according Wenliang Hou, senior research advisor at the Center for Retirement Research at Boston College.

Those factors are:
Interest rates
Companies can earn by investing the customer’s money relatively safely.
Mortality, or the purchaser’s life expectancy, helps the company estimate the number of payments it should expect to make on the annuity.
Administrative costs and profit margin
The company will likely include an allowance for the fact that people who buy annuities tend to live a little longer than average. That’s because annuities make more sense for people who have reason to expect they will live longer.

Mortality Factors

Because women tend to live longer than men, they receive lower payout rates. Older people purchasing annuities receive higher payout rates, as a rule.

Hou said a 65-year-old man has a life expectancy of 83 years. A 65-year-old woman is expected to live until age 85.4. So if that 65-year-old man might get a quote of 8.3 percent (not counting administrative costs and profit margins), that woman would be quoted 6.7 percent.

Reducing Risk Reduces Rates

Women, because of their generally longer lifespans, and couples will get lower rates than single men. If you don’t add any beneficiaries, you will have a higher payout rate than if you do.

Pro Tip
As a rule, every rider you add to your annuity contract, reduces your payout rate.

In other words, provisions that alter the basic contract generally result in you getting less money back.

That’s because these provisions either remove some of your risk by making payout more predictable or increase the number of payments you are likely to receive. Likewise, if you elect to leave annuity funds to someone after your death, your payout rate will be lower.

As a general rule, according to Chancy, the certified financial planner, it takes about 17 years for an annuity purchaser to get all of his or her principal back in payments. If you think you’ll live longer than that, an annuity can be a good purchase.

Annuity Types Affect Rates

Different types of annuities have different payout rates. As with other factors, the general rule is less risk and more payments equal lower payout rates. The more time your money has to build, the higher the payout rate.

Fixed annuity rates could be lower than the payout rates on variable annuities. But, because variable annuities are tied to other investments, they also carry the risk of lower rates.

Marguerita Cheng, Certified Financial Planner
Marguerita Cheng, CEO, Blue Ocean Global Wealth

Some types of annuities are straight-forward, said certified financial planner Marguerita M. Cheng, citing fixed annuities, which have preset interest rates.

But indexed annuities, which are tied to investments and share some characteristics with fixed annuities, can be confusing. “This can be kind of overwhelming,” Cheng told The important thing, she added, is to invest with a reputable insurance company “because this is your retirement.”

Just as annuity types affect your rates, annuity rates affect your financial planning. For example, annuity laddering, a strategy for getting the best return from your annuities, takes into account the same factors that influence your rates.

Multi-Year Guaranteed Annuities (MYGA)

MYGAS are fixed-rate, deferred annuities that function very much like CDs with significantly higher interest rates.

This type of annuity is very similar to certificates of deposit. There are two main differences between MYGAs and CDs. First, MYGAs offer tax-deferred interest. But MYGAS are not insured by the Federal Deposit Insurance Corporation (FDIC). Rather they’re guaranteed by life insurance companies.

Life Expectancy Factors

And if you die before the end of the contract – depending on the provisions of your annuity – your estate could lose all of part of the remaining principal. If you outlive what the insurance company thinks your life expectancy is, then you will continue receiving payments even after you have received all of your principal back.

Pro Tip
The older you are when you start receiving payments on a life-only annuity, the higher your payout rate will be.

That’s because life-only annuity payments end at death. So the older you are, the fewer payments you are able to receive.

If your annuity allows for beneficiaries or is shared with a spouse, that increases the likely number of payments. Consequently, the payout rate will be lower.

Mortality Credits

Because some people will die each year without receiving the full value of their annuity investment, annuity companies provide their clients with something called mortality credits. This allows people who live longer to potentially receive more money than they invested, plus interest. In other words, those who live longer can benefit from the unused funds of those who don’t.

Pro Tip
Those who benefit from mortality credits will ultimately receive a greater return on their annuity investment than those who don’t.

This is why some refer to annuities as reverse life insurance. Life insurance is designed to provide for your loved ones if you die early. On the other hand, annuities serve as insurance for you against outliving your savings. So annuities are insurance that pays off if you live long.

Annuity Comparison

All this explains why it’s nearly impossible to compare the interest rates on annuities with other investments, such as certificates of deposit, which operate under completely different rules.

In most cases, since you don’t know how long you’ll live, you can’t know how many payments you’ll receive. So, while you can know the annual payout rate, you can’t know the total amount of money you will receive on your investment.

But you can compare the rates between one annuity and another, so long as both annuities being compared have the same provisions and limitations.

Learn More About Death Benefits And Payout Options

Ready to Secure Your Financial Future?

Speak with a financial expert to learn about the best annuity rates and find the one that's right for you.

How Are Annuity Rates Set?

Annuity rates and how they are set are up to the insurance company that provides the annuity. The details will be spelled out in the annuity contract.

The company will usually provide a guaranteed annuity rate for a specified length of time. A minimum guaranteed rate is the lowest rate your annuity will pay out.

Annuity Calculators

Most annuity providers have online annuity calculators, so you can determine the rate the provider is offering for different annuities. A calculator at helps you determine your annuity payment schedule for different interest rates and withdrawal frequencies. The same website has another calculator where you can determine the present value of an annuity.

Calculate Your Rate of Return

The best way to compare annuities to other investments is to determine the internal rate of return (IRR). This is the interest rate at which the net present value of all cash flows – incoming and outgoing – equals zero. This can be determined using various financial calculators online or Microsoft Excel.

According to Forbes, this annuity table includes some of the best fixed annuity rates available in 2018:

Source: Forbes
Company Rate (APY) Term Earnings during term on $100K in 2018
Sentinel Security 4.2 % 10 years $50,896
Sentinel Security 4.0 % 5 years $21,665
Oxford Life 3.75 % 10 years $44,504
Colorado Bankers 3.8 % 5 years $20,500
North American 3.35 10 years $39,029
Reliance Standard 3.3 % 5 years $17,626

15 Cited Research Articles

  1. Barney, L. (2018, August 31). Refresher on Annuity Pricing Mechanics. Retrieved from
  2. Carey, M (2018, August 1). The Best Fixed Annuities Available in 2018. Retrieved from
  3. Molis, J. (n.d.) How to Calculate the Rate of Return on Annuities. Retrieved from
  4. Anspach, D. (2018, June 7). Learn How to Compare Immediate Annuity Rates. Retrieved from
  5. Carey, M. (2018, August 1). The Best Fixed Annuities Available In 2018. Retrieved from
  6. Brown, J. (2018, January 5). Fixed Annuities Are an Option Over CDs. Retrieved from
  7. Pfau, W. (2015, August 27). Payout Rates and Returns on Income Annuities. Retrieved from
  8. Murdoch, A. (2015, November 4). Low interest rates make immediate annuities attractive. Retrieved from
  9. Mandell, L. (2013, September 12). An 8.3 Percent Return on Your Money, Guaranteed for Life? Retrieved from
  10. Tomlinson, J. (2017, July 21). What Advisors Need to Know About Annuity Mortality Credits. Retrieved from
  11. Nuss, K. (2017, December 7). Annuities Beat CDs by Offering Higher Guaranteed Rates and Tax Savings. Retrieved from
  12. Carey, M (2018, August 1). The Best Fixed Annuities Available in 2018. Retrieved from
  13. Chancy, M. (2018, August 31). Certified financial planner. Interview with
  14. Cheng, M. M. (2018, August 31). Certified financial planner. Interview with
  15. Hou, W. (2018, September 6). Senior research advisor at the Center for Retirement Research at Boston College. Interview with
Who Am I Calling?

Calling this number connects you to Senior Market Sales (SMS), a trusted partner of

If you're interested in buying an annuity, a representative will provide you with a free, no-obligation quote.

SMS is committed to excellent customer service. The company can help you find the right insurance agent for your unique financial objectives.