Annuity Interest Rates: Can You Time the Purchase?

Hi there. I'm Stan The Annuity Man, America's annuity agent, licensed in all 50 states, the top agent out here and the guy that's forgotten more than most agents will ever know.

Today, we're talking about annuity interest rates. Can you time the purchase? The answer is absolutely not. Do not try it. It's like trying to nail Jello to a wall. Please do not send me videos of you nailing Jello to a wall. But the point is you cannot time it. Let me give you some examples of that.

Multi-Year Guarantee Annuities

Multi-Year Guarantee Annuities are Fixed Rate Annuities. They are the annuity industry's version of a CD. Can you time the purchase? Do you know when the interest rates are going to be? No. By the way, nobody knows when interest rates are going to move. I remember two years ago when people called me when interest rates were between the two and 3% level on the tenure treasury, and they'd be like, "I'm going to hold for now, Stan, because I think interest rates are too low." At the time of this blog, we would dream of two and 3% tenure treasury rates. Hopefully, it will return to that sometime soon. But that's a great example of trying to time it. I mean, that genius and those geniuses that did not buy that annuity then, they wish they would have. And I have people who have the audacity to call me and say, "I really wish you would've convinced me to move forward." I don't do that. I do not pressure people. We have conversations, we provide the highest contractual guaranteed quotes, and then I leave you alone to decide on your terms and timeframe. And I always tell people to trust their gut feelings and instincts on these purchases. I will respect that, whether it's buying an annuity through me or not buying an annuity at all.

Getting back to the timing of it. With fixed rates, you can't time it. The only thing you can do to combat the movement of interest rates, of which no one knows where they're going to move north or south, is to ladder those MYGAs. MYGAs are the annuity industry's version of a CD. Let's say, for example, you want to use $300,000. You would buy a hundred thousand dollars in a three-year duration, a hundred thousand dollars in a five-year duration, and, say, a hundred thousand dollars in a seven-year duration. What are you doing there? You're not trying to time rates. You're going to have money coming due starting in year three, so hopefully, we can transfer that asset to a higher-yielding asset at that time. Hopefully, rates have moved north in that time period, but that's the only way that you can do it.

Lifetime Income

Let's talk about timing interest rates with lifetime income. First of all, when people say, "Well, I'm not going to buy annuities because rates are low, and I'm not going to buy lifetime income because rates are low, Stan." First of all, with lifetime income guarantees, the primary pricing mechanism is your life expectancy or life expectancies if it's joint when you take the payments. Interest rates play a secondary role. Yes, they do play a role, but it's secondary to the life expectancy. It's a life expectancy bet with the annuity company to pay you for the rest of your life regardless of how long you live. It solves for longevity risk, which is the fear of outliving your money. But I get these calls all the time.

Client Example

I got a call the other day from a guy who said, "Well, I'm going to hold on to this Immediate Annuity purchase and stuff we've been talking about because I think interest rates are going to move." Okay, great. If you think interest rates are going to move, that's fine, but you're going to have to factor in all of those Immediate Annuity payments you missed while you're waiting for interest rates to move to a level you want them to be at. That's not a sales pitch; it's just math. Annuities are contracts; annuities are math. If you're going to try to time this, you're going to have to factor in the payments you missed if you're going to be fair about the analysis. And you're not going to beat the annuity companies at their own game. I always tell people all the time, that property and casualty companies, they don't have the big buildings and they're always in trouble because they don't know when the hurricane's going to hit, they don't know when the fire's going to happen, they don't know when the tornado is going to happen, they don't know when a virus is going to hit, right?

Life insurance companies know when we're going to die. That's the reason they have the big buildings. That's why they have the big planes with the big logos: they price everything according to life expectancy. Lifetime income is a combination of return on principal plus interest. So, they're giving your money back over time, over your life expectancy, even though they're on the hook to pay for the rest of your life. The bottom line is, can you time interest rates? You can sure try, but you can't, and you can't beat them. And that's not a sales pitch; that's just reality. And if you don't believe me, I have a ton of examples over the last four or five years where people were trying to time rates, they never bought, and guess what? Right now, they wish they would've.

Treasury Notes

On the interest rates, getting back to that, annuity interest rates, the bogey, in other words, the interest rate that you can peg what's happening in the annuity world to is the United States ten-year treasury note. There are five-year, 10-year, and 30-year treasury notes. The 10-year is the one that the annuity industry looks at and pegs a lot of the pricing toward. It doesn't constitute all the pricing, but if you said, what's the one interest rate that I should follow as a consumer to kind of tell me where the annuity industry is from the standpoint of pricing based on interest because, with Multi-Year Guarantee Annuities, that's a straight interest rate play with a period-certain income stream, just for a period-certain, not life. That's a straight-interest rate play. And with lifetime income guarantees, those types of products: Single Premium, Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, it's a combination of return on principal plus interest, but that interest, again, is bogeyed and pegged kind of to that ten-year treasury. So, keep that in the back of your mind.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.