Annuity Whisperer: Historical Annuity Rates Do They Even Matter
Hi there, Stan The Annuity Man®, America's annuity agent® licensed in all 50 states, aka The Annuity Whisperer. I whisper the facts. So, the question today is, do historical annuity rates even matter? Looking back in time and how annuities are paid, does that matter? We'll look into that. I got all kinds of charts and stacks of papers, and I've looked into it, and I'm going to tell you the truth about it.
When we put together these titles for the Stan The Annuity Man blogs, there are intelligent people around the table. There's this big huge marble table, envision it, on the top floor of a penthouse, downtown Manhattan, and we're sitting there trying to figure out what to tell you, what to inform you about. And the intelligent people in the room are like, "Well, people are very interested in historical rates, Stan The Annuity Man, and they want to look back." They gave me all these charts, and looking back at this, what's all that mean, Stan The Annuity Man?
How to Look at Annuity Rates
Many of you are like chartists, and you look at things or are used to charting the markets and the back- tested stuff. Well, if you look at annuity rates back in the day, it's like looking at what I weighed in college. It was a lot less, and it doesn't matter because I'm never going to get to that point again, and we might not get to the historical annuity rates as well. Who cares? We need to live in the present right now. Let's talk about rates in general when it comes to the world of annuities. And if you're one of those people that go, I hate all annuities, Stan, that's like saying you hate all restaurants, and you're not too bright if you're saying that. So don't say that because when you say that out loud, people look at you and go, "He might not be that smart. She might not be that smart."
There are many types of annuities. You already own the best annuity on the planet, Social Security. Yes, that's an annuity, and a pension's an annuity and a CD. There are MYGA CDs, which is a MYGA CD type annuity, and a Multi-Year Guarantee Annuity, so if you bought a CD, you can't say you hate all annuities because that0's an annuity type of CD. I have pounded that into the table. But in the world of annuities, and we're talking about historical rates, it comes down to two types of rates, interest rates, which everybody's hung up on. "Well, I'm going to wait then to buy until interest rates are higher." What? And then there are mortality rates which are about life expectancy. When you're looking at annuities, the two primary solutions that annuities provide are principal protection and income for life. I have an acronym, PILL, in which the P stands for Principal protection, the I stands for Income for life, the L stands for Legacy, and the other L stands for Long-term care confinement care. But the majority of the time, people are trying to solve for principal protection or lifetime income when it comes to buying annuity types.
Let's talk about the interest rate and the principal protection part of it. There are two primary types of annuities, Multi-Year Guarantee Annuities and Fixed Index Annuities, which are principal protected products that are interest rate driven. I've done a zillion videos on Index Annuities, and you can check those out on my YouTube channel. But the bottom line with interest rates is you can't time interest rates. What I would tell you if you're trying to protect the principal and get an interest rate is to keep the durations short. If you want to look at live MYGA rates, you can pull up your state, the duration you're looking at, whether it's a three or a four or a five year, and you can see the highest guaranteed annual yields available for your specific state in that duration. Those are guaranteed interest rates annually, just like if you bought a CD. So MYGAs are the annuity industry's version of a CD. It's not a CD, but it's a version of a CD because it pays a specific interest rate for a specific period of time that you choose. And interest rates, we can look historically back at that.
Everyone has said the following to me for the last six or seven years when they book a call. "Hey, Stan, interest rates have to go up. I mean, they just have to go up." I have been saying that for six years, and they may be right eventually. What do they say? A broken clock is right two times a day, right? That could be the case, and interest rates do go up, but I want you to think logically. Now put on your logic hat. If the government prints all this money, is there any incentive for the FED? No, it'd be like me and you raising our mortgage interest rate voluntarily; it makes absolutely no sense. And if you run the math numbers, if interest rates just went up a percentage point based upon the trillions and trillions and trillions and trillions and trillions and trillions of dollars that have been printed, there's going to be a lot of taxes. So, could interest rates go down? Yes, they could. Could interest rates go to zero? Yes, they could. Could interest rates go negative? Yes, they could. Do I want that to happen? No, I don't. But let's be rational about it. Do not just cavalierly say well, interest rates have to go up. They don't have to go up. Ask Japan, and ask some countries in Europe. Interest rate levels have been at zero and negative. Some countries are on a 10- year treasury; you give them a thousand dollars, and they'll guarantee $990. Come on, player. Could that happen here? Yeah, that could happen here.
We are in kind of blue water. I know people that always say to me and some of the intelligent people on my podcast, Fun With Annuities®, interest rates have to go up. I don't think so. We are in a different time period where we've painted ourselves into a corner. So, interest rates, who knows? If you buy a principal-protected product with a guaranteed annual interest rate, keep the duration short, like five years. And then, if you look at just a basic yield curve analysis, meaning where's the sweet spot right now, my opinion is five years at the time of this blog.
The other version of interest rates in the annuity world is mortality credits based on life expectancy. What are those mortality rates? Meaning how long is the annuity company expecting you to live because that's what they will price their lifetime income guarantees on. And mortality credits are the pooling of risk of every single person your age. Some of you are going to live longer, some are going to live shorter, some are going to live right on the money to your life expectancy, and you're pulling that risk to get preferential pricing for lifetime income that the annuity company's on the hook to pay for as long as you're breathing. People always say, "Well, Stan, I'm going to wait until interest rates." It's not about interest rates. When talking about lifetime income, it's about life expectancy and mortality credits. That's what it's about. Do interest rates play a part? Yes, it plays a secondary role. People say, "I'm going to wait until I buy an Immediate Annuity until the 10-year treasury hits three and a half." At the time of this blog, that's a dream, and you can't do that. And that's not a sales pitch. If you do that, you have to factor in all those payments you're missing while you're waiting for the interest rates, even though that's a secondary pricing role.
At the time of this blog, Tom Hegna, a very good friend of mine and a brilliant guy, thinks mortality credits and mortality rates are at an all-time bargain on the consumer's behalf. Why? Because he thinks that life expectancy tables, and mortality rates, are going to go out further, meaning that the annuity companies and the life insurance companies that issue annuities are projecting you to live longer. Why is that an issue? Because if they're projecting you to live longer, then there will be more payments. And if there are more payments, those guaranteed payments you will receive will be lower. So, you might want to look at rates right now. I know this is crazy, and this is the contrary, so bear with me.
Rates are in your favor. "I know that's crap and a sales pitch, Stan, I don't fall for sales pitches out there." I understand that. But when you're buying lifetime income, rates are reasonable right now, mortality rates are good right now, and even though interest rates play a secondary role, mortality rates are good. For all you people out there that are waiting and hoping and praying that Jimmy Carter's interest rates will return, you are going to be dead before that happens, period. And let's look at it, let's just say I'm wrong about that. Let's go back to 12% CDs and 14% CDs. What will your home loan be, and what will car loans be? It only works sometimes, as you know. Don't time it. When you're looking at annuities, and you're looking at historical rates of annuities, forget historical rates, forget it. It's about you, and it's about you right now. It's about your lifestyle right now. It's about the rest of your life right now. It's about living for the day right now. If you're going to do that, and you're one of those baby boomers and the 10,000 people turning 65 daily, which is a demographic tidal wave, you need to buy contractual guarantees. You need to transfer risk. You need to either transfer a risk for principal protection or transfer a risk for lifetime income for as long as you're breathing. You can set those lifetime income payments up to set up joint or single life. You can ensure contractually that when you die, whatever's money is left in the account goes to the list of beneficiaries of the policy, not the annuity company. Let me say that again. You can get a lifetime income guarantee, and you can contractually put in there that 100% of the money when you die goes to the list of beneficiaries of the policy, and the evil annuity company doesn't keep a penny.
Now, we've talked about interest rates and historical interest rates. We've talked about historical mortality rates, which are the two types of rates with annuities. If you like the contractual guarantee you've seen when you go to our annuity calculators, run those quotes, and see those MYGA rates, then buy it. Buy it from me, of course, but buy it because you can't time it. And there's no analysis. Throw away the analysis, throw away the historical charts, throw away what happened in the past, throw it all away. Life is fragile, and it's about right now. It's about your lifestyle right now. It's about your family right now. It's about your income right now. It's about your principal protection right now. Can I hear an amen? That'd be an annuity, amen.
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.