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How The Economy Affects Annuity Rates

Stan Haithcock
February 15, 2024
How The Economy Affects Annuity Rates

Hi, Stan The Annuity Man, America's annuity agent licensed in all 50 states, including the beautiful one you're sitting in. The question is, how does the economy affect annuity rates? That's a basic question with a very detailed answer because annuities are not all the same. I know that "I hate all annuities" ads are out there. "I hate all trucks." Is what I would say or, "I hate all restaurants." It's crazy. The economy affects annuities differently, just like it affects everything differently. But we're going to go through that. Before that though, I encourage you to visit my site. You can do a few things there. Number one, it's under the guise of education. You can get my books. Six owner's manuals that you can download for free and under no obligation.

‌You can also schedule a call with me for a one-on-one discussion. That's the best thing you can do because I will tell you if you need an annuity or not. I'm going to shoot it straight so that there's no BS or sales pitches. We will talk like pros, which I assume is what you want. And you should never buy hopes, dreams, and unicorns chasing butterflies.

‌Annuities Are Contracts

‌How does the economy affect annuity rates and annuities in general? Well, let's look at it in a myriad of ways. In my previous life, I used to be with Morgan Stanley, Dean Witter, Paine Webber, and UBS on the stock side of it. The stock market really has no use for annuities. They could care less about annuities. They think annuities are boring. They're all about pie in the sky, "Let's go get this great return." And if you want a return on your investment and good market stuff, you've got to do a non-annuity product. Annuities are contracts. They're transfer risk contracts that primarily solve for four things: principal protection, income for life, legacy, and long-term care and confinement care, and that acronym is PILL, P-I-L-L. But from the economic standpoint, when you're talking about lifetime income, annuities are primarily based pricewise on your life expectancy when you decide to start the payments. Interest rates play a secondary role.

‌Life Expectancy

‌So how does the economy affect a lifetime income stream annuity, like an Immediate Annuity, a Deferred Income Annuity, a Qualified Longevity Annuity Contract, or an Income Rider? And those are the four types that provide lifetime income. Well, interest rates play a secondary role. Obviously, if interest rates were higher, and the bogey that you need to look at is the 10-year treasury, your income stream would be slightly higher. But the primary pricing mechanism for lifetime income is your life expectancy at the time you take the payments. And you're at risk of those changing as well.

‌Annuity companies aren't just going to sit here and not make money. If their interest rates are low and remain low, I guarantee they will look at changing those life expectancy tables so that they project you to live longer. What does that mean? The payments will be lower because there'll be more of those payments their projections saying, "Hey, you're going to live a long time." That's how the economy affects annuities and annuity rates.

‌Now, the other thing too is when people can't get good interest rates like CD rates or Multi-Year Guarantee Annuity fixed rates, then they gravitate toward the markets, the stock market, buying ETFs or mutual funds or whatever to try to get some return on their money. Obviously, there's risk with that. Anytime rates are low in the annuity world, the stock market will get a bump from that. Now, the reverse is true, too. When people are scared to death, and things are happening in the volatile economy or the worldwide market, many people are scared. A lot of people are looking to protect their money. Annuities are contracts, and many Fixed Annuities will fully protect the principal if you structure them that way. With the 10,000 baby boomers that are reaching 65 years old every single day, a lot of those people are looking for contractual guarantees.

‌Fear and Greed

‌It comes down to fear and greed. Unfortunately, many annuities are sold with fear in mind: fear, volatility, fear of the market going down, fear of all of that. But it really shouldn't be sold like that. Or greed. Many annuities are sold via greed, meaning you can get all this upside, potential non-guaranteed return. As I tell people all the time, if you're looking for stock market-type returns and perfect return scenarios, never buy an annuity.

‌Now that's coming from me. Stan The Annuity Man, America's annuity agent. Number one agent out here, licensed in all 50 states. I've been on the other side advising on stocks when I was with Morgan and UBS, Paine Webber, and Dean Witter. I've seen that side. If you want true market growth, never buy an annuity. If you want to transfer risk to solve for lifetime income, principal protection, legacy, or long-term care type confinement care, then an annuity might fit.

‌Client Example

‌So as I always say in the annuity world, there's no perfect answer, just bad sales pitches. A great example of that was a person who called me the other day, and they're looking at a lifetime income stream type product, and their comment was, "Well, I'm going to wait until interest rates," which is the secondary part of that pricing. Remember, life expectancy plays the primary pricing role. "I'm going to wait until interest rates go up until I buy that annuity," they were looking at an Immediate Annuity and Deferred Income Annuity. And he'd been advised on that as well. One of his advisors said, "You got to wait until interest rates go up." There's never a perfect answer here. But if you're waiting to buy a lifetime income stream annuity, you will have to factor in the payments you missed while you were waiting. That's just a rational thought.

‌Never a Sweet Spot

‌That doesn't mean you have to buy one right now, but what it does mean is you cannot time the purchase. It's like nailing Jello to a wall. You cannot time the purchase of an annuity. There's never a sweet spot or an arbitrage situation that we sometimes find in stocks and mutual funds, bonds, etc., that, "Oh, this is the right time to buy, or this is kind of the bottom." No, you're buying annuities. You're buying a contract and transferring the risk to an annuity company to primarily solve for lifetime income, principal protection, legacy, or long-term care confinement care. That's what you're doing. There's never a perfect time to do that.

‌If you're trying to time annuities, then you're making an apples-to-oranges comparison to how you look at investments and annuities. They're entirely different. You cannot compare the two because one's a contract, the annuity side, and the other is you shouldering the investment risk. That doesn't make annuities better than the stock market or the stock market better than annuities. It really comes down to your risk tolerance and what you're trying to solve for. Remember this when looking at an annuity of any type: ask and answer these two questions. Number one, what do you want the money to contractually do? And when do you want those contractual guarantees to start?

‌Now, from those two answers, you need to go to my site, schedule a time to talk with me, and then we'll talk about those contractual guarantees that we've emailed to you, quoting all carriers, and then we can talk about how the economy's affecting it. Maybe we come up with a laddering strategy. I can customize strategies for your specific situation utilizing these contracts. But the bottom line, and in conclusion, the economy does affect annuities, but annuities are contracts. So, if you feel comfortable with a contractual guarantee, then it makes sense.

‌I look forward to speaking with you one-on-one. 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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