What The 2025 Rate Cuts Mean For Your Retirement Income

The Federal Reserve has begun cutting interest rates. For retirees, this matters more than most people realize. Here is why.

Annuity payout rates are tied to the bond market, which follows the Fed. When rates drop, insurance companies lower the crediting rates on new annuity contracts. The rate you could lock in today may not be available next quarter.

Here is the math: a 65-year-old with $200,000 at current rates can generate roughly $1,100 to $1,300 per month in guaranteed lifetime income. If rates drop 1%, that same $200,000 may only produce $950 to $1,100 per month. Same money. Less income. Permanently.

CD rates are also affected. The 5% CDs that were available in 2023 have already dropped. If you have a CD maturing this year, you will likely renew at a significantly lower rate.

The window to lock in today's rates is still open, but it is closing. Insurance companies typically lag rate changes by 30 to 90 days, which means the current crop of annuity products still reflects the higher rate environment. That will not last.