Interest Rates and Annuities: Shootin It Straight With Stan

Welcome to Shooting It Straight With Stan. I'm Stan The Annuity Man, America's annuity agent. I'm glad you joined me on this topic—it’s a hot one. Everyone’s asking me about it, so I thought I’d make a blog to cover it. And, of course, you’re welcome to schedule a call with us if you want to dive deeper. Today’s topic is Interest Rates and Annuities.

People are asking, "What’s out there, Stan? What do you see happening?" Let’s start with a broad overview. The government has printed 25% more money than it had a few years ago, which is a classic inflationary model. People always say, “Well, they have to raise rates then, right?” In a perfect world, yes. If the FED were truly independent, as they should be, and not influenced by political administrations, we would expect rate increases.

The FED has raised rates up to four times this year. I recorded a podcast with Owen Schrum, one of the top money managers in the country, who spoke with experts like Byron Wien and Jeffrey Siegel of Wharton. They all predicted the rate hikes, which is significant. Honestly, I found it hard to believe. However, history tells us that Wall Street tends to react negatively once or twice once the FED raises rates, which can drive markets down. Investors may flee to fixed-rate instruments.

These are strange times. Seven or eight hikes are a lot; even four increases would be significant. But I believe rate hikes are necessary because of the excess money printing.

Now, how does this affect annuities? For those who say, "I hate all annuities," that’s not a rational stance, as there are many types. Let’s break them down.

MYGAs (Multi-Year Guarantee Annuities)

MYGAs, often referred to as CD-type annuities, are directly influenced by interest rates. At the time of this recording, some MYGA carriers have started proactively raising rates slightly on their 3, 4, and 5-year products, which is encouraging. However, timing the market is never a good strategy. Instead, we recommend keeping durations short and using a laddering approach—spreading funds across 2, 3, 4, and 5-year terms—so you can take advantage of rate increases as they occur. MYGAs are straightforward: you invest and earn a contractually guaranteed annual interest rate, and at the end of the term, you can withdraw or reinvest your funds.

Lifetime Income Products

When it comes to lifetime income, there are four main products:

• Single Premium Immediate Annuities (SPIAs)
• Deferred Income Annuities (DIAs)
• Qualified Longevity Annuity Contracts (QLACs)
• Income riders attached to deferred policies, like Indexed Annuities

These products guarantee lifetime income as long as you’re alive. The annuity industry has a monopoly on lifetime income, but for some reason, they don’t promote it—so I will. Payments are based on a combination of principal return and interest, calculated using your life expectancy at the time payments begin. This is similar to Social Security, which is the best inflation-protected annuity on the planet.

While interest rate increases will slightly impact lifetime income pricing, the effect is minimal compared to factors like life expectancy tables. Waiting to buy an income annuity for better rates is generally unwise because you miss out on payments during the waiting period.

Fixed Indexed Annuities

Higher interest rates can positively influence declared rates (fixed rates), which are an alternative to indexing options like caps, spreads, and participation rates for products like Fixed Indexed Annuities. In the past, declared rates were as high as 2.5% or 3%. If that happens again, it could be a good option.

General Advice

Annuities are commodity products, meaning there isn’t one “best” annuity. Instead, we shop all carriers to find the highest contractual guarantees for your needs. You can visit The Annuity Man to run quotes on MYGAs, SPIAs, DIAs, QLACs, and Income Riders—all without speaking to anyone.

Yes, interest rate increases can positively impact annuities, especially MYGAs and fixed indexed annuities. However, you can’t time the market. Focus on the contractual guarantees available today, and we can always ladder strategies to adjust for future changes.

2025 will be a critical year, with all eyes on the FED. Let’s hope they make independent decisions without external pressures. Baby boomers deserve better rates after working hard their whole lives.

Be sure to join our mailing list for weekly newsletters. Check out my YouTube channel and my podcast, Fun With Annuities. Thanks for joining me today, and I’ll 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