Annuitization Costs Dropped During Q2

A BlackRock analysis finds the cost of future retirement income dipped in the second quarter—the first substantial quarterly drop since at least 2013.

The estimated cost of future retirement income eased for workers in their 50s and early 60s during the second quarter, according to BlackRock’s CoRI Retirement Indexes.

The indexes track the current cost of purchasing future retirement income (hence “CoRI”) via deferred annuities, based on the price today of a dollar of annual retirement income starting at age 65. BlackRock notes the CoRI Indexes “use current interest rates, annuity prices, inflation expectations, life expectancy and other factors” to develop an accurate picture of the annuitization market.

A second-quarter summary finds long-term interest rates stabilized somewhat during the three months ended June 30, leading to better retirement income purchasing power. “Pre-retirees got an additional boost from stock-market performance,” BlackRock notes. “Retirement income estimates are sensitive to rate fluctuations, so investors should check them periodically so they have time to make adjustments designed to help them stay on track with their goals.”

BlackRock further summarizes Q2 by observing that the quarter saw “the first real improvement in retirement prospects since 2013, when BlackRock started tracking the cost of retirement income with the CoRI Retirement Indexes.” But the positive aspects of the quarter were tempered by wider uncertainty about market performance in Europe—Greece especially—and China.

“If interest rates stay flat or even rise,” BlackRock warns, “retirees could find it easier to fund their incomes. But market volatility also could continue amid fallout from the situation in Greece and a bear market in China.”

Trailing price figures published by BlackRock highlight the volatility that has challenged the annuitization market. Looking back one year, deferred annuity pricing is up about 5.6%, but compared with three months ago, the price of deferred retirement income is down an impressive 8.11%—including a 3.8% drop in the last month alone.