Annuity Paralysis by Interest Rate Analysis: Shootin' It Straight with Stan®

Today's topic is called Annuity Paralysis by Interest Rate Analysis. Suddenly everybody seems to be an Interest Rate Analyst and knows what Mr. Powell's going to do and what Ms. Yellen's going to say. Understand that the annuity industry, they do watch the Fed, they do listen to their speeches, and they do go to cocktail parties, but it doesn't drive the train.

Annuity Companies Aren’t Banks

Annuity companies are not like banks. Annuities are issued by life insurance companies. So, in essence, life insurance companies issue all kinds of products. They have life insurance products. That's a profitable product. They have lifetime income products. That's a profitable product. They have Fixed Rate Annuities, Multi-Year Guarantee Annuities, and Indexed Annuities. They have legacy bond portfolios, bonds from Jimmy Carter and Barack Obama, and non-callable bonds. They've got huge bond portfolios.

They glance at the Fed and then they also have something called capacity. And I've talked about this recently because it needs to get out there. When annuity companies are getting in more money than they know what to do with or that are filling a specific tranche or age range or product that they put out, then they're going to lower those contractual guarantees in order to not attract more money. So, the last time that our friend Mr. Powell raised rates, we had a few companies’ lower rates pretty much the same day or that week, and people calling me up, "Hey, Stan, the annuity man, America's annuity agent®, how's that even possible?" And I said, “Capacity.” It's the truth.

When annuity companies put out a Multi-Year Guaranteed Annuity, there usually is a specific dollar amount that they're trying to raise. Once they raise it, they'll lower those interest rate guarantees to avoid attracting as much money. Same with a lifetime income product, et cetera. It's called capacity, and that's what drives the train right now.

There is a demographic tidal wave that's going on in this country, and what I mean by that is there are probably anywhere from 10 to 11,000, baby boomers reaching the age of 65 every single day. That is a demographic tidal wave of people looking for contractual guarantees. They’re looking to put in place pensions that aren't offered by their company, a pension-type lifetime income stream that coordinates with the other lifetime income annuity they own called Social Security.

The FED Conductor

In addition to that, there are a lot of people looking to just protect the principal and peel off interest for income needs. But the Fed doesn't drive the train. Capacity drives the train. What they're trying to raise in premium drives the train. Do they look at interest rates? Yes. Does it affect it a little bit? Yes. But it's not linear. People say, "Well, I just assumed, Stan The Annuity Man®, that when Chairman Powell raised rates that all companies would just fall in line and raise rates." No, not the life insurance annuity side of the ledger. Banks, maybe. I don't know. I don't follow CDs and banks. I know for a fact that some of our corporate accounts with banks haven't raised rates.

So, don't get fixated on the media telling you about Chairman Powell and the media, CNBC and Fox Business or Bloomberg, fixated on what Powell says. Listen, that's what they have to do. They're a 24/7 news business. They have to talk about it. Your best bet is to turn the television off, not listen to any of this nonsense, and just look at the contractual guarantees that are available out there, whether they're fixed interest rates with a Multi-Year Guarantee Annuity or a lifetime income guarantee, which by the way, life expectancy at the time you take the payment drives the train of pricing, not Mr. Powell.

Life Expectancy

I love these comments that I get, everyone's like, "Well, I'm going to wait to buy the Immediate Annuity until Mr. Powell continues to raise rates." That's dumb because life expectancy drives the train. The older you are, the higher the payment. It's kind of like Social Security. Because Social Security is the best inflation annuity on the planet. Answer this question for me. Are the payments higher when you're 65 or are the payments higher when you're 70? Correct. When you're 70. Why? Because you're older and you have less life expectancy, which means the projected payments are fewer, which means the payments will be higher. It's that simple. It's the same thing with annuity companies. But what I am trying to tell you is don't paralyze yourself by analyzing rates and analyzing the tea leaves of finance, globally or domestically. You're wasting your time.

I know that's drilled into your head. Listen, most of the people watching this video, you have managed your money. You found Stan The Annuity Man. You know that I'm going to tell you the truth. You know I'm going to shoot it straight. You know I'm the walking middle finger of annuity truth. You know better than to fall into the traps that are out there of people telling you about markets and interest rates and things like that. I'm hoping there's a point in time that you are tuning all of this out, looking at the money that you have, seeing if you can either live off the interest, or convert some of it to a lifetime income stream using as little money as humanly possible, reverse engineering the quote, and living your life.

At what point are you going to stop analyzing everything? Or maybe you like it. If you're an analyst full-time, then great. But for most people that are watching this, my point was, you have enough money to consider just taking the interest off the money and living off the principal or doing that and then taking a portion of that and buying an Immediate Annuity or Deferred Income Annuity or a future lifetime income guarantee, but you're not going to be able to time it.

The Bell Doesn't Ring

When I worked for Morgan Stanley, Dean Witter, Paine Webber, and UBS, they would always say, "Bell doesn't ring at the top or the bottom. You know what I'm saying?" It doesn't ring at the top or the bottom. You don't know where rates are going to go. I thought that they would keep trending up. I didn't know the capacity issues were going to happen so quickly. And now most of the announcements I'm getting from companies at the time of this taping is they're not going to be raising rates. In fact, they are lowering rates. Is that a trend? I don't know. The longer you're in the business and I've been here for three decades, you know that you don't know. It's the young bucks that I have cowboy boots older than that go, "Well, yeah, interest rates are going to go blah, blah, blah." They don't know. You don't know. Nobody knows. Bell doesn't ring at the top or the bottom. And when people ask me, "Where do you think interest rates are going?" I don't know. My question back to you is at the current rates or the current guaranteed payout levels, are you okay with that? Does that satisfy the goal contractually of what you're trying to achieve? Yes or no? And if it's a yes, then I'm like, "Well, then why are you analyzing and not pulling the trigger?" Paralysis by analysis.

The bell doesn't ring at the top. You're never going to time it. I know that everybody out there is a market timer and they're trying to find arbitrage and the sweet spot to buy annuity types, and there are many types. There is no arbitrage and there is no sweet spot with annuities of any type. You either like the contractual guarantees and think those are fair or you don't. If you do, lock them in. If you don't, move on. It's really that simple.

Conclusion

My advice to you out there is to understand that annuities are contracts. They are contractual guarantees. You own them for what they will do, not what they might do®. Never ever buy an annuity of any type for a potential return, a hypothetical return, or a back-tested number that somebody shows you. "Well, if you'd owned it 10 years ago, you would've gotten this." That's garbage. That's like me saying, "If you'd followed this exercise plan for the last 10 years, you would look like this." The point is, back-tested numbers are crap. I wish they'd do away with them in the annuity industry and the life insurance industry. They're misleading, and too many agents and advisors are selling dreams and not contractual realities. In my opinion, most of you out there can handle reality. You've been living reality your whole life. You can handle the facts. You've been living in a factual world your whole life. Stay in the factual world. Buy annuities for the contractual guarantees. Look at the contractual guarantees, whether it's for lifetime income or a guaranteed interest rate, and if those contractual guarantees fit your goals and solve for those goals, then stop the analysis and get rid of the paralysis, and lock them in.

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.