In an article for SmartAsset, Patrick Villanova CEPF covers a recent note from Schwab which discusses why this is a favorable time to purchase an annuity. It’s not entirely a contrarian position given that annuity sales hit record highs during the first-half of 2023 which saw a 28% increase from strong sales in the first-half of 2022.
Annuity sales tend to spike during periods of economic uncertainty and attractive rates. The last time there was a similar spike in sales was during the 2008 financial crisis. Currently, there is considerable uncertainty about the economic and monetary outlook while rates are at their highest level in decades. These purchases would perform especially well if inflation and rates return back to levels that were commonly experienced over the past couple of decades, while they would underperform if current conditions persist.
Currently, most fixed annuities are paying yielding between 6.5% and 7%, adjusting for various factors. In contrast, the yield on a high-quality corporate bond ETF is about 5%. However, the corporate bond ETF provides more upside in the event that bonds strengthen especially if rates normalize but have more downside if rates stay elevated or rise further.
Finsum: Annuity sales are at record levels in 2023 and offer more yield than corporate bonds. Here’s why they continue to remain a good buy according to Schwab.
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