Episode 009: How do interest rates affect different annuity types?
The Annuity Man
There are many different types of annuities available to the consumer. You can't just say the word "annuity" and have that cover the category. Each type has its own unique benefit propositions and limitations, and interest rates affect each one differently.
Multi-Year Guarantee Annuities (MYGAs) are the industry version of a CD. Fixed Index Annuities (FIAs) are also a CD strategy that protects the principal. Variable Annuities (VAs) are for potential upside using mutual funds (aka: separate accounts). Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs), and Qualified Longevity Annuity Contracts (QLACs) are all pension type lifetime income stream strategies. Income Riders are attached lifetime income stream benefits that can be attached to VAs and FIAs at the time of application. Interest rates affect each one of these types differently.
Lifetime income guaranteed payments using annuities are a combination of return of principal plus interest. Your life expectancy(s) at the time the payments start is the primary pricing mechanism, with interest rates playing a secondary role. With a strategy like Multi-Year Guarantee Annuities (MYGAs), interest rates are the primary pricing source.
Unfortunately, there is no way to "time" your annuity purchase, regardless of which annuity type you choose. Annuity companies have the big buildings for reason, and there is no "sweet spot" time to make the purchase.
In this episode, The Annuity Man discusses:
- How interest rates affect each annuity type
- How life expectancy and interest rates work with each income annuity type
- What is the interest rate benchmark that the annuity industry follows
- What specific strategies to use instead of trying to “time” interest rates
- With lifetime income guaranteed strategies, life expectancy is the primary pricing mechanism
- Interest rates play a secondary pricing role with lifetime income guaranteed strategies
- The US 10 Year Treasury Note is the “bogey” for the annuity industry
- No one on the planet can predict interest rate movement
Fun with Annuities Podcast is hosted by America’s Annuity Agent, Stan Haithcock, The Annuity Man. Hear brutal annuity facts with no sales pitches from the top independent agent in the country, licensed in all 50 states. Author of 7 books, Stan dives deep on all annuity types and strategies. It’s fun, learning the contractual truths on how annuities actually work and if they’ll fit your personal retirement lifestyle. Listen in on how you can be livin’ the reality, not the dream.
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