Interest Rates

Hi there. Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Today's topic is about interest rates and how those interest rates affect MYGAs, Multi-Year Guarantee Annuities, and income annuities. There are four types: Single Premium Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, and Income Riders. So, let's talk about interest rates.

People are always asking, "Are interest rates going to go up? Are they going to go down?" I don't know. If I knew that, I'd be on a Learjet trading interest rate futures and not doing these blogs. Not many people know. We can guess where they're going, if you think they will go lower, etc. I encourage you to try not to be an interest rate Svengali, an expert, because you're not, and I'm not, and the bell never rings at the top or the bottom. You cannot time it. I know you think you can. But you cannot time it to lock it in at the very top. You just can't, period. Let's talk about MYGAs first.

Multi-Year Guarantee Annuities

Multi-Year Guarantee Annuities are the annuity industry version of a CD. Remember, life insurance companies issue annuities. But MYGAs function just like CDs. You get a guaranteed interest rate for a specific period of time that you choose. You can get as short as one year, all the way out to 10 years. Typically, what I tell people is that if your duration is three years or more, MYGAs will most likely provide the highest contractual yield. If it's less than three years, CDs are your better bet or treasuries or things like that. Now, we don't sell CDs, and obviously, we don't sell treasuries because you have to buy them directly. But that's what a MYGA is, no moving parts, annual fees, or market attachments. You can use it in a Roth IRA, traditional IRA, or non-IRA. If it's a non-IRA account, non-qualified, that interest can grow tax-deferred and compounding if you don't want to take the interest out. There's a lot of people out there that want to take interest out of the MYGAs, just like they do on the CDs. You can do that as well.

Not all will allow you to do that, but some will. You can go to my site at The Annuity Man and pull up a live, 24/7 MYGA feed. Put in your state of residence and the duration you're looking at, and up will pop the current inventory, and that inventory changes like a gallon of milk every 7 to 10 days because there's something in the annuity industry called capacity. So, if a company has the highest rate for, say, a five-year, and then you go back two weeks later, and they're nowhere to be found, all that means is they got in and attracted enough money for that five-year guarantee, so that they just lower the rate not to attract you anymore. They have a bogey, a capacity number they're trying to hit. They don't share that with us or you. But that's the reason you have to shop all carriers. There's not one carrier better than the other. So, interest rates are static with MYGAs. I mean, they do play the primary role. But when you compare CDs and MYGAs, interest rates are really the mainstay of how they price things.

With MYGAs, because they're issued by life insurance companies, the companies are pricing off life insurance, lifetime income products, legacy bond portfolios, and then capacity, and that's the reason that the yield on a MYGA is typically higher than a CD. They just have different pricing mechanisms to give you a better guarantee. Interest rates are pretty basic with MYGAs. But you needed to know how MYGAs are priced compared to CDs.

Lifetime Income

When it comes to interest rates and lifetime income, people are mistaken, unfortunately, on how that all works. With lifetime income, remember that life insurance companies issue annuities, and they issue the ones that solve for lifetime income. They have the big buildings because they know when we're going to die, okay? So, it's all about life expectancy if you're running a single life, if it's joint, its life expectancies, plural, but life expectancy drives the pricing trains. Interest rates play a secondary role. Let me repeat that. Interest rates play a secondary role. Now, with higher interest rates, would they produce a better payout for lifetime income products, even though it's primarily based on life expectancy? Maybe.

Capacity

But again, remember capacity. Remember I talked about capacity with Multi-Year Guarantee Annuities? The same thing applies to lifetime income. When you go to our site, and you're quoting either SPIAs, DIAs, QLACs, or Income Riders, which are the four ways to solve for lifetime income using annuity strategies, those are all life expectancy products, and we're shopping all carriers. Some carriers this week might have the highest guarantee, and then you come back two weeks later and can't find them. Why? They lowered the guarantee because they raised enough money for that age range, that capacity. That's what they did. Think about when you have a portfolio. You have growth. You have a small-cap, large-cap, mid-cap, or international value, whatever that asset allocation is. For a life insurance company that's issuing lifetime income products, they have age ranges they're filling. And once they fill up that tranche, they're going to lower the guarantee in order to not attract you. But there's always a company that needs your age range, which is why we represent pretty much every company out there and the reason that annuities are commodity products. There's not one better than the other.

There are a lot of great carriers out there. I don't mention names. Why? Because we only look at the number. We only look at the contractual guarantee. For lifetime income, we prefer that you go with an A+ or better company because you're marrying that. It's hard for Southerners to say that. M-A-R-R-Y-I-N-G, marrying that product for life, A+ or better for lifetime income. We can go a little bit lower on the ratings for Multi-Year Guarantee Annuities. But that's on a case-by-case basis because we're looking at the company's financials, etc., and the stuff that they're filing with the state to make sure that they can back up that claim for that specific period of time. So, MYGAs, you're dating. Lifetime income products you're marrying. Anytime we talk about interest rates involving annuities, whether it's Multi-Year Guarantee Annuities, which are principal protection products or lifetime income products, don't get fixated on the interest rate. Get fixated on the contractual guarantee. Get fixated on quoting all carriers for the highest contractual guarantee for your specific situation. Don't try to time it. You cannot. Please don't wait on it.

Chapter 2

A call came in the other day, and the gentleman said, "Well, I'm going to wait to buy the income product until rates go up again." I'm like, "Okay, that's fine. But are you going to factor in the payments that you missed while you're waiting?" In other words, you can't beat the annuity company, the life insurance company issued the annuity. You can't beat them. Don't try to beat them. If the contractual guarantee works for your situation, lock it in and go live your life. Transfer the risk. For people who are going into chapter two, I don't like saying the word retirement because I just don't believe in it. Chapter two of your life is about you. Chapter two of your life is about guarantees. Chapter two of your life is about protecting the money you worked so hard to earn and creating a lifetime income stream and an income floor that combines with Social Security and a pension if you're so fortunate. That's really where you're at when you're looking at chapter two of your life. If you're already in chapter two, the question is, why are you still playing the game?

If you've won the game, why are you still playing? I did a video, if you want to type that in in the search bar, "You've won the game. Why are you still playing," it talks about how we have been conditioned that we have to be in the stock market, that we have to buy mutual funds, that we have to be in it for the long term. My comment, having been on that side and managed money at a huge level on that side in a previous life, is, why? If you won the game, why are you still playing? Can you put guarantees in place? I'm not just talking about all annuities. I'm talking about treasuries, AAA, AAA municipal bonds, CDs, money markets, MYGAs, lifetime income, annuities, whatever. Can you solve your goal and live a good life without worrying about politics or geo-economics? You've got the income coming in, or are you protecting the principal and just peeling off the interest? I want you to give that some thought.

It's okay to opt out of what everyone else is doing, period and annuities, MYGAs, and lifetime income products. There are many more than that, but annuities are transfer of risk products. They solve for four primary things: principal protection, income for life and legacy, and long-term care. If you don't need to solve for those four things, you don't need an annuity. Never buy an annuity for market growth. Stay in the markets if you need that.

Hopefully, I've answered the interest rate question. Nobody knows. Don't get fixated on it. Focus on the contractual guarantee and if that guarantee works for your specific situation. I'm Stan The Annuity Man. See you next time.

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.