Compare Immediate Annuity Rates: The Truth Behind Percentages

Hi, my name is Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Today is a very important topic. We're going to compare Immediate Annuity rates and answer that question, the truth about those percentages you see all the time. I'll kind of break all that down because there's a lot of misleading information. There are a lot of sites out there, but The Annuity Man doesn't have competitors. If you go to The Annuity Man, you will not see any of those percentages besides Immediate Annuity payouts or Deferred Income Annuity payouts because it's all about your life expectancy. So, when you see those, they're a little misleading. We're going to go through all of that now.

‌The other day, I got a call, and the man said, "I just bought an Immediate Annuity, and it's paying 7.4%." Here we go again. No, it's not paying 7.4%. That is a reflection of your life expectancy at the time you take the payments. Remember that all annuity lifetime income streams, all, not some, are a combination of return of principal plus interest. The older you are, the higher the payment. Why? Because you're older, which means your life expectancy is less, which means there are going to be fewer payments, which means those payments will be higher.

‌Makes Sense Mathematically

‌That makes sense mathematically. That's it. So, when you see sites with 7.2%, 6.5%, blah, blah, blah, that's just garbage because that means nothing. That just reflects where the annuity company thinks you will die.

‌It's not yield; it's not Jimmy Carter's yield. It's not bond yield. It's not a great CD. Remember, in Jimmy Carter's years, you'd get a 12% or 18% CD. It's not yield. That is a reflection of your life expectancy. Are you going to get that? So, in other words, let's just say the guy who called me and said he was getting 7.2%, 7.4% on a $100,000 Immediate Annuity. He is getting $7,400 per year off the $100,000 Immediate Annuity. Not $7,400 in interest. It's being deducted from the 100,000. Let's be clear about that for a second. It's not $100,000, never touch the principal, and you're peeling off $7,400. That'd be fantastic. And anybody that tells you they can get you that, get up and run out of the office, hang the phone up, or click them off the internet.

‌Life Expectancy

‌But for Immediate Annuities, remember this. They were developed in Roman times as a gift for the dutiful Roman soldiers and their families as a pension. And that's where the word annuity comes from. ANNUA means lifetime income or annual income in Latin. And so, with Immediate Annuities, it's a combination of return of principal plus interest based on your life expectancy. The life expectancy portion is the majority of what drives the pricing train. People always say, "Well, I'm not buying an Immediate Annuity because rates are low." Do you mean interest rates? That's fine, but it's your life expectancy. That's where the game is played. And suppose you'll wait and try to time it based on the tenure treasury or something. In that case, you realistically have to factor in the payments you missed while you were waiting and trying to be the Gordon Gekko of the annuity world and time it perfectly because you can't time it perfectly.

‌And I always say to people that annuity companies have the big buildings for a reason because they know when you're going to die, and they price things accordingly. Property and casualty companies do not know when the hurricane is going to hit, when the tornado is going to hit, or when the fire will happen. But I digress. This is like power to the people.

‌Customizable

‌The people in the industry, everybody knows Stan The Annuity Man. I'll call them and say, "Listen man, take the percentages down. People think they're buying CDs for Jimmy Carter." Of course, they don't listen to me because they think they're one-upping me. They're not. What they're doing is misleading the public, and people think they're getting yield. One of the biggest comments I get, especially when I go out and speak to the masses, and I'm in packed coliseums, 15,000 people, know there's a lot. But people often say, "Well, I'd never buy an annuity or Immediate Annuity because the annuity company keeps the money when I die." Well, that's only one of about 35 ways to structure your payout, but it doesn't have to be like that. That doesn't happen. If you want to put a backstop in there and ensure that 100% of any unused money goes to your list of beneficiaries of the policy, you can do that contractually.

‌You have to tell me, what do you want the money to contractually do, and when do you want those contractual guarantees to start. And then, when you get on the phone with us, we'll customize the policy so you can control it from the grave if you want to. You can do whatever you want. But from the standpoint of comparing Single Premium Immediate Annuities, what I just described to you was a life-only payment. Life-only means when your Learjet hits the mountain, money goes poof, and you die. And that's what people say, "Well, I'd never buy an annuity because they keep the money." That's life only. You don't have to do that. When you compare Immediate Annuity rates, life-only will be the highest visually. And then once you start putting backstops in there, so life with a 10-year certain or life with a 20-year certain, life with installment refund or life with cash refund, there's 30 plus ways to do it.

‌The more backstop, the more guarantee you have on that money, the lower the payment. Annuity companies don't give anything away. When you're comparing these rates, let's say the guy calls me up; everybody's named Chester. Chester calls me up and says, "I'm getting 7.4%." If that was a life-only, okay, that's fine. But let's say it was life with a 20-year certain, which means that it will pay you for the rest of your life. But if you die in, say, year five, there's 15 more years of payments for somebody. That's that 20 year certain. It will pay you forever, but if you die within that 20-year period, whatever's left of that 20 years goes to the beneficiary. But if you said, here's life-only, here's life in 20, they won't give that away. They meaning the annuity company. They're just going to price that in. So, instead of it being 7.4%, it might be 7%. It just depends on how you want to structure it.

‌If the period certain were less, like a life with a five-year period certain, it would be above the life with a 20. Why? Because there's less backstop. So, remember, you can customize these products to fit your specific situation and whatever you want to achieve contractually with the goals financially. The 7.4%, the 6.25, and all these percentages you see are very, very, very, very misleading because the public doesn't know. They see percentages and they think that's a bond or a CD or a Multi-Year Guarantee Annuity, which is the annuity version of a CD. They believe it's yield. They think it's an interest payment. It's not.

‌Transferring Risk

‌With a lifetime income stream, regardless of the type that you are getting from whatever the type is, Single Premium Immediate Annuity, Deferred Income Annuity, Qualified Longevity Annuity Contract, or if you attach an Income Rider to a policy for lifetime income, all four of those strategies are for lifetime income transfer risk. You're never going to outlive. It's going to pay you for the rest of your life. It's your personal pension. That percentage payment is based on your life expectancy. Never forget that.

‌I hope we're clear on the percentages you see with income payments. Hopefully you understand that is not yield. If you walk away with one thing, that is important. By the way, if you go to The Annuity Man, you can download all six of my owner's manuals for free. There's no obligation and no cost. You can read at your own leisure. You can also schedule a call with us. We can spend 30 minutes on the phone together and create a customized plan for you and then leave you alone as a professional to decide on your terms and timeframe. I would encourage you to do that. And with that, I'll see you on the following Stan The Annuity Man YouTube blog.

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.