What's a good annuity rate in 2025?

Annuities have long been a cornerstone of retirement planning, offering a reliable income stream when your working years end. But given today's issues with economic uncertainty and lingering inflation, it makes even more sense for retirees and those planning for retirement to explore their options for securing guaranteed retirement income streams, and annuities should be included in that conversation. After all, these insurance products, which promise to pay you a set amount of income over time, can be especially appealing when other investments feel volatile.

Not all annuities — or annuity rates — are created equal, though. In general, a higher-rate landscape means insurers can afford to offer more generous payouts on annuities, which means that today's high-rate climate could pay off for those purchasing this type of retirement tool. But determining what a good annuity rate is may not be as simple as looking up a single number. That's because there are different types of annuities — like fixed, variable or indexed — and each comes with its own rate structure, payment rules and risks. 

So, if you're thinking about using an annuity to bolster your retirement income, it's important to understand how annuity rates are determined and what rate benchmarks you should be looking for this year. 

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What's a good annuity rate in 2025?

The annuity rate is the percentage of return you'll get on the money you invest, usually expressed as the annual payout you'll receive. For example, if you buy a fixed annuity with a $100,000 premium and the insurer offers a 5% rate, you can expect $5,000 per year in payments.

So, what's considered "good" right now?

Some of the top fixed annuities currently offer rates between 5.25% and 6.80% — so if you're aiming to find the best rate possible, those are the types of rates you should look for. However, it's important to note that annuity rates vary depending on the insurer, contract length and product type. Some of the highest-rate 5-year fixed annuities, for example, are currently offering guaranteed rates of around 5.30% to 6.15%, while multi-year guaranteed annuities (MYGAs) with shorter terms — let's say three years — might land closer to 4.15% to 5.50%.

For immediate annuities or lifetime income annuities, the "rate" is a bit trickier to compare directly, since it's calculated based on your age, life expectancy and the payout option you choose, such as whether payments continue for a spouse or end upon your death. Still, it's possible for retirees in their mid-60s to mid-80s who are shopping for immediate $100,000 annuities to secure payout rates between about 6.5% and 10.5% right now.

Variable and indexed annuities work differently, as the returns are tied to market performance or specific index benchmarks. These don't have a guaranteed fixed rate, but they may include income riders or other guarantees that can ensure a minimum income floor even if markets underperform.

So, the short answer is that a good annuity rate in 2025 will depend on the type of annuity you're considering. Generally, though, you'll want to aim for rates that are at least in the lower 5% to mid-6% range for fixed products, and carefully evaluate guarantees for variable and indexed options.

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How to find the right annuity options for you

While it's tempting to focus only on the headline rate, choosing the right annuity involves more than just chasing the biggest returns. Here's what else to keep in mind as you weigh your annuity options:

• Consider your timeline: Are you looking for income now (immediate annuity) or later (deferred annuity)? Shorter-term MYGAs may offer slightly lower rates than longer-term contracts, but they provide more flexibility if rates rise in the future.
• Compare multiple insurers: Not all insurance companies offer the same rates, and some specialize in certain products or markets. Shop around or work with an independent advisor who can help you compare annuities across providers.
• Evaluate fees and riders: Some annuities come with additional benefits, like guaranteed income riders or death benefit protections, but these often carry extra costs. Make sure you understand how fees will impact your net returns.
• Understand the surrender period: Annuities typically lock up your money for a set number of years (called the surrender period). Withdrawing early can trigger hefty penalties, so be sure you're comfortable with the timeline before committing.
• Factor in inflation: While a 5.5% guaranteed rate sounds appealing today, remember that inflation can erode purchasing power over time. Some annuities offer inflation-adjusted payouts, but they typically start with a lower base rate.
• Align with your overall retirement plan: An annuity shouldn't be your only source of retirement income. Make sure it complements other assets, like Social Security, pensions or investment accounts, to create a well-balanced income strategy.

The bottom line

A good annuity rate in 2025 is one that balances strong, competitive returns with the right level of security and flexibility for your situation. While it's possible to find fixed annuity rates in the 5.25% and 6.80% range right now, remember that the best option isn't necessarily the one offering the highest percentage. It's the one that fits your long-term goals, risk tolerance and income needs.

So, before committing to any annuity, take the time to shop around, compare offers, and, if needed, consult with a financial advisor who understands the complexities of annuity products. When done thoughtfully, purchasing an annuity can add a valuable tool to your retirement income toolkit, assuring that you'll have a steady cash flow no matter how the markets perform.