Fed policy effect No. 2: Low rates on fixed annuities
Many retirees buy an annuity in hopes of getting a safe stream of income. Low rates undercut that strategy, Moore says.
"The problem is that the monthly income a client receives from their fixed annuity is based on interest rates at the time they purchase the annuity," he says. "With interest rates at all-time lows, annuity payouts are also at all-time lows."
Nathan Kubik, a Certified Investment Management Analyst at Carnick & Kubik, which has offices in Denver and Colorado Springs, Colo., agrees that now is among the worst times to buy an annuity.
"Locking in these historically low rates right now through fixed-rate annuities is the height of folly," Kubik says.
Kubik suggests talking to a fee-only adviser who is an expert in fixed-income investments. Such a pro can suggest alternatives to annuities.
Meanwhile, Moore urges investors to avoid purchasing annuities until rates climb.
"Another option is to buy a smaller annuity today, such as 25 percent of what (investors) would normally buy," he says.
Doing this several times from different companies over a few years allows you to buy at various interest rates, he says. Plus, buying from separate companies protects you if one of the companies goes bankrupt.