The Federal Open Market Committee or FOMC is the Federal Reserve’s monetary policymaking body. It is responsible for the formulation of a policy designed to promote stable prices and economic growth. Simply put, the FOMC manages the nation’s money supply!
The Federal Open Market Committee (FOMC) holds eight regularly scheduled meetings (usually every six weeks) during the year. Last month, during their March 15th-16th meetings, the FOMC approved its first interest rate increase for the “Federal Funds Rate” in three years. The reason for the rate increase is to address spiraling inflation without torpedoing economic growth.
This brings the “Federal Funds Rate” (the bank lending rate banks charge each other for interbank overnight lending) from zero to between 0.25%-0.5%. They had kept the rate near zero since the beginning of the Covid-19 pandemic. The FOMC has all but committed to small increases for each of their next six meetings, which could bring that rate up to 1.9% by year’s end!
You might be asking yourself “what does this all mean and how do these interest rate changes impact me and my family?” The move in the “Federal Funds Rate” corresponds to an increase in the “Prime Rate,” which immediately pushes lending rates higher for most forms of consumer borrowing and credit. This means mortgage rates, car loans, and some variable student loan interest rates will be increasing.
The good news is this also means that bank account and CD (Certificates of Deposit) rates will increase as will fixed annuity rates! When fixed interest rates go up, it can have a negative effect on the stock market, as conservative investors often reposition funds from the “choppy” stock market in favor of the fixed, predictable, and guaranteed interest rate returns of fixed annuities, CDs and bank accounts.
Fixed annuities are written primarily by insurance companies offering safe alternatives that provide fixed, guaranteed, and predictable returns. They are also one of the more flexible financial products. Fixed annuities can be converted into a guaranteed income for life, similar to a pension with a guaranteed monthly income. They make an excellent pension supplement or primary pension if you do not have one. Fixed (no fee) annuities are often confused with variable annuities which can have high fees.
See My Top 12 Advantages of Fixed Annuities below:
1. Guaranteed Interest Rates: You can choose how long to guarantee your interest rate, usually between 3-7 years.
2. Guaranteed Principal: The principal is protected regardless of market conditions, company performance, or the economy.
3. Interest Rates: Insurance companies offer higher interest rates usually by 0.25%-0.50% than bank CDs, bonds, or Treasury Bills!
4. Tax-Deferred: You do not pay income taxes until you start withdrawing funds, which allows for faster accumulation providing greater income.
5. No Fees: You pay NO annual management fees while funds accumulate and NO fees on death benefits to heirs!
6. Protected From Creditors: If you get sued, creditors cannot go after/attach fixed annuity funds.
7. Bypasses Probate: Fixed annuity death benefit proceeds bypass probate. They save on estate fees, and court costs and go directly to named beneficiaries outside the will. They are private and therefore cannot be contested. Usually, the beneficiaries receive the lump sum funds in 1-2 weeks.
8. Lifetime Income Options Available: At any time, your annuity may be converted into a guaranteed lifetime income stream you cannot outlive. This product works very well for seniors looking for a steady income. The biggest fear of seniors is the fear of “running out of money!”
9. Annual Withdrawal Options Available: Most fixed annuities allow for withdrawals between 10%-20% of the account balance annually.
10. Annuitization: This unique annuity feature allows the policyholder to take a guaranteed income for life or a shorter-term (such as 10 years) and have a portion of the income excluded from taxation. There are a variety of guaranteed income combinations to choose from.
11. State Protection: Should the annuity insurance company become insolvent, there are state protections (depending on which state you reside) with limits between $100,000-$500,000 in most states.
12. Piece Of Mind: Fixed Annuities are secure and offer peace of mind to account holders knowing they are guaranteed to not lose money regardless of economic uncertainties.
In conclusion, Fixed Annuities should have a place in everyone’s portfolio!
For more information and a no-fee consultation to discuss your specific needs, feel free to reach out to me at Rob@InsuranceDoctor.us.