Should Retirees in Their 60s and 80s Convert a Lump Sum to a Joint Lifetime Annuity in a High-Interest Rate Environment?

In July 2025, annuity rates have reached their highest levels in over a decade, with multi-year guaranteed annuities (MYGAs) offering rates like 7.05% for 10-year terms at Atlantic Coast Life and 6.60% for 7-year terms at Knighthead Life. These rates far outpace alternatives like 5-year CDs (4.40%) and 10-year Treasury bonds (4.00%). For retirees in their 60s and 80s, this environment presents a compelling case to consider converting a lump sum into a joint lifetime annuity—a product that guarantees income for both spouses for life, even in a high-interest rate climate. However, the decision requires careful balancing of guaranteed income security against liquidity needs and estate planning implications.

The Case for Joint Lifetime Annuities in a High-Rate Environment

1. Guaranteed Income in Uncertain Times
   A joint lifetime annuity provides a stable, inflation-protected income stream that cannot be outlived. In a high-interest rate environment, insurers can offer more attractive payouts. For example, a 65-year-old couple with a $100,000 lump sum could secure an annual income of approximately $7,720 (as of July 2025), based on current annuity rate trends. This is significantly higher than the 4.00% yield of a 10-year Treasury bond or the 4.40% return of a high-yield CD.

2. Tax Advantages and Compound Growth
   Unlike CDs, annuities allow for tax-deferred growth. Earnings compound without annual taxation until withdrawal, which can amplify returns over time. For a 60-year-old with a 20-year time horizon, this could mean thousands of dollars in additional growth compared to taxable accounts.

3. Protection Against Market Volatility
   With global markets facing geopolitical tensions and economic uncertainty, fixed annuities offer a hedge against downturns. For retirees who have already endured the 2020–2022 bear market, locking in a guaranteed return now may feel like a prudent move.

Key Trade-Offs: Liquidity and Estate Planning

1. Loss of Liquidity
   Once funds are converted to an annuity, accessing the principal becomes difficult. Surrender periods, typically 5–10 years, impose penalties for early withdrawals. For retirees who might need emergency cash or face unexpected medical expenses, this lack of liquidity could be a drawback.

2. Estate Planning Challenges
   While annuities can include death benefits, the proceeds are usually paid out as a lump sum to beneficiaries, which may not align with long-term estate planning goals. For example, a 70-year-old couple converting $500,000 into a joint annuity might leave little to heirs if the annuity is structured without a guaranteed period or cash refund.

3. Opportunity Cost of Rate Cuts
   If the Federal Reserve's rate cuts continue in 2025, future annuities could offer lower returns. However, given that rates have already peaked and are projected to decline, locking in today's rates might still be optimal for those seeking long-term stability.

Strategic Considerations for Retirees

1. Prioritize Needs Over Wants
   Retirees should assess whether their essential expenses (e.g., housing, healthcare) can be covered by Social Security and pensions. If a significant gap remains, a joint annuity could fill that void. For discretionary spending, maintaining liquidity in a brokerage account or high-yield savings account may be wiser.

2. Leverage Laddering Strategies
   Instead of converting the entire lump sum at once, retirees can stagger purchases across multiple annuities with varying terms. For example, a 65-year-old might allocate 30% to a 5-year MYGA (6.35%), 30% to a 7-year MYGA (6.60%), and 40% to a joint lifetime annuity. This approach balances guaranteed income with the flexibility to reinvest at potentially higher rates in the future.

3. Evaluate Insurer Strength
   Annuities are not FDIC-insured but are backed by the financial health of the insurer. Providers like Knighthead Life (A- AM Best rating) and Atlantic Coast Life (B+ rating) offer competitive rates, but retirees should prioritize companies with A+ or higher ratings for greater security.

Conclusion: A Personalized Decision

For retirees in their 60s and 80s, the high-interest rate environment of 2025 creates a unique window to lock in robust returns through joint lifetime annuities. These products offer unparalleled income security and tax advantages, making them ideal for those prioritizing longevity risk mitigation. However, the trade-offs in liquidity and estate planning require thoughtful integration into a broader retirement strategy.

Retirees should consult a fiduciary advisor to evaluate their specific needs, including:
- Health and life expectancy (annuities are most valuable for those with above-average longevity).
- Inheritance goals (if leaving assets to heirs is a priority, consider annuities with cash refund or period-certain guarantees).
- Market confidence (those comfortable with market risk might delay annuitization to retain flexibility).

In a world where interest rates may soon decline, 2025's elevated annuity rates represent a rare opportunity to secure a legacy of guaranteed income. For retirees who value certainty over flexibility, the calculus is clear: the time to act may be now.