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Annuity Payout Rates vs. Interest Rates

Stan Haithcock
July 7, 2024
Annuity Payout Rates vs. Interest Rates

Hi there. Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Today's topic is a very good one and important. Annuity rates versus payout rates. Is there a difference, Stan? You're darn right there's a difference. You know what else is different? This really smooth Adidas T-shirt that I got from my PR team. I'm assuming they contacted Adidas because I often wear Adidas. They're saying, "Hey, Stan The Annuity Man's rocking Adidas, and he's got this saying, 'Will do, not might do.' Can we get a T-shirt, please?" The answer is yes. Yeah, I'm rocking the "Will do, not might do" Adidas T-shirt for Stan The Annuity Man, with the annuity man logo. Isn't that impressive? Nod your head. Of course, it is. It's important to me since I don't wear ties and those types of things.

I used to wear ties and have great suits tailored. I worked for Morgan Stanley, Dean Witter, Paine Weber, and UBS. You'd walk into the marble office in the tie and everything. I am not going to do that. We will be wearing logo shirts.

‌So, what we're talking about today is annuity rates versus payout rates. I'm going to tell you right now; this is an important topic because so many people think they're one and the same. They're not, and we're going to drill down on what that means. People are like, "Hey, Stan, what are the rates? What are the best rates?" I'm spitting. "What are the best rates?" What are you talking about? What type of annuity are you talking about? Are you talking about interest rates? Are you talking about payout rates for lifetime income? We'll get into all that after I lovingly look at this T-shirt again.

‌Lifetime Income

‌All right, let's talk about annuity payout rates. When you start talking payout rates, "Hey, Stan, what's the rate?" If you're talking about payout rates, we're talking about lifetime income. If we're talking about lifetime income, we have commoditized the product, meaning that we have to shop all carriers for the highest contractual guarantee for your specific situation, and annuities are the only product type on the planet that will pay as long as you are breathing. There's no ROI until you die. If you live to 150, 175, 163, 138, or 127, the annuity company's on the hook to pay.

Yes, we can structure it so that 100% of any unused money in your account will go 100% to your beneficiaries, and the evil annuity company will never keep a penny under any circumstance. Are we clear? Because a lot of people call me and say, "I'd never buy an annuity, Stan, because when I die, the money goes poof, and the annuity company keeps the money." That's one of 40 ways to structure it, player, okay? We can structure it like that. That's called life only, but we don't have to structure it like that. If you say, "Stan, I've worked hard for my money. I've scrimped and saved, and we've gotten to this point. Yes, me and the Mrs. want a lifetime income stream or me and the Mr need a lifetime income stream. We want to do that, but we want to make sure that if we die in a fiery Learjet crash to the Bahamas to jam with Mick and the Stones, we want to make sure that 100% of that money is going to go to our beneficiaries and the evil annuity company doesn't keep a penny."

‌Annuity Payout Rates

‌Let's break down the annuity payout rates. It's all about life expectancy. It's all about mortality credits at the time you take the payment. Let me give you a correlation. If you turn on the income stream from your Social Security annuity at age 70, will the payments be higher at age 70 or will they be higher at age 65? In unison, let's all say together, at age 70. Why? Because you're older. The older you are, the higher the payment. It's the same thing with annuity types for lifetime income. By the way, there are four.

‌"Stan, I hate all annuities." Do you hate them all? Do you hate them all? Do you hate all four lifetime income annuities? Single premium immediate annuities, deferred income annuities, qualified longevity annuity contracts, and income riders that are attached to specific policies are the four types of lifetime income products, meaning they're going to pay you as long as you're breathing. They're all contractually guaranteed. Carriers will bid on your business, and they will bid on exact, like if you say, "I need $2,000 a month to start five years from now," we quote all carriers for that. You can visit The Annuity Man 24/7/365 without interacting with a human; you can run quotes on SPIAs, DIAs, QLACs, and Income Riders at your leisure.

‌You can run a lump sum quote. "Hey, there is $100,000. How much would $100,000 pay?" Or if you say, "You know what? Me and the spouse need $2,500 a month," you can reverse engineer the quote and find out which carrier will back up that $2,500 dollars a month using the least amount of money. Yes, that's a great way to buy annuities by using the least amount of money to solve for the contractual guarantee. Those are payout rates, okay? Now, there are some other sites that try to compete with The Annuity Man to no avail. It is just really sad to watch, and they'll put things up: 6.2% payout, 5.9% payout, 4.3% payout. That's crap. If you see that, look at that and go, "That's crap because Stan The Annuity Man told me that's crap."

‌Life Expectancy

‌This is the reason it's crap. All they say is that this is the numerical representation of your life expectancy. The older you are, the higher that payout rate. Why? Because there's going to be fewer projected payments, which means that the payments will be higher. That's what we're talking about. We're talking about payout rates. Payout rates are life expectancy and mortality credits that primarily drive the pricing train. Interest rates play a secondary role. Interest rates play a secondary role in the pricing when we're talking about lifetime income, so don't come in and go, "I'm waiting for interest rates to rise, Stan, before I buy my lifetime income stream." That's dumb. You're not going to beat the annuity company in the pricing. There is no arbitrage. There's no sweet spot. I understand you've been doing that in the markets and you're a master of the universe. There is no master of the universe in the annuity markets because it's about life expectancy when you're looking at lifetime income streams.

‌Interest Rates

‌That's payout rates. Now, let's talk about interest rates. Interest rates apply to Multi-Year Guarantee Annuities. Now, with a Multi-Year Guarantee Annuity, the annuity industry version of a CD, it's interest rates, right? They're looking at the 10-year and 30-year treasury on CDs with Multi-Year Guarantee Annuities. There's a bigger pricing mechanism with life insurance companies issuing MYGAs, so you have life insurance that's being sold and lifetime income that's being sold, and they have a bond portfolio. Then they look at current interest rates, and then they take that combination, and that's the reason that they can provide a higher contractual guarantee for MYGAs than CDs. Those are interest rates. That's an interest rate-driven product.

‌Yes, interest rates play a minor secondary role in pricing payout rates for lifetime income. Still, when you're talking about a Multi-Year Guarantee Annuity, five-year MYGA, I need an interest rate, that's interest rates. That has nothing to do with your life expectancy. It has nothing to do with longevity or payout rates. It is an interest rate-driven product, and there are some arguments that Indexed Annuities are interest rate-driven products because of CD-type returns, period. I need you to be crystal clear about payout rates and interest rates. Remember, when you're talking payout rates, if that's the language you're using with me, then we're talking about lifetime income.

‌No ROI Until You Die

‌The annuity category is the only product category that provides a lifetime income stream regardless of how long you live. As long as you're breathing, there's no ROI until you die. People go, "What's the return on that income stream, Stan The Annuity Man?" I don't know that, Chester, until you die. Then, at that point in time, I come to your funeral, and I announce to everybody at the funeral as your casket is in front of me and say, "Here's the return on investment on that Immediate Annuity or Deferred Income Annuity, QLAC or Income Rider that Chester bought for him and Martha." If he bought it joint life with Martha and Martha's sitting over there alive, Martha would get the continuation of the income stream.


‌Look at payout rates as pension. You're buying a pension. Do you ever ask about the ROI on your Social Security? Do you ever ask about the ROI on your pension if you're a government worker or union worker or lucky enough to be with one of the 9% of the private companies in the country that have pensions? No, you never do that, but for whatever reason, on the payout rate side of the annuity, when you're talking about annuities, "What's the return on investment?" First of all, annuities are not investments. They're contracts. Don't believe me? You're going to get a policy in the mail. It's called a contract. They call it a policy. I'll call it a contract. You buy it for the contractual guarantees, so it's not an investment. You need to get out of the investment mode and say, "Do I want to transfer risk?"

‌Because that's what annuities are. You're transferring the risk to what? Solve for either principal protection, income for life, legacy, or long-term care. That's the PILL acronym that I use, but we're talking about payout rates. That's lifetime income. The question is how do you want to structure it? Do you want to structure it on your life? Do you want it joint life? Do you want a backstop like joint life with cash refund, joint life with installment refund, or life with 20 years certain? Those are things that we need to talk about. Those are things that when you go to The Annuity Man, you run all those quotes, right? You get my How to Buy an Annuity eBook for free. Please get that. That's the best thing. That's gold, as they say on Seinfeld. "That's gold, Jerry." That's what George told you. It's gold.

‌It's free. It tells you how to buy an annuity. I go through the process if you need an annuity. You might not need one, but the point is you can learn how to buy an annuity eBook and go step by step. Does this make sense? But going back to the original question, payout rates versus interest rates are two separate things, two completely separate things when you're talking about annuities.

‌Sorry about my passion. I'm passionate about this stuff. I want you to make a good decision with the facts on your terms and your timeframe at The Annuity Man. That's where annuities are bought, not sold. Yes, we do sell annuities. Yes, I'm America's annuity agent. Yes, I'm licensed in all 50 states, and yes, I want you as a client, but only if it fits and is suitable and appropriate. We're going to use the least amount of money to solve the contractual guarantee goals that you're looking to solve. It's really that simple. Annuities are simple. I make annuities simple, but I'm really passionate about one thing. Do your homework and take your time. There's never an urgency to buy an annuity. The urgency is for you to fully understand what you're buying. With that, I'll see you on the next Stan The Annuity Man 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.

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