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How The Stock Market Affects Annuities

Stan Haithcock
August 2, 2021
How The Stock Market Affects Annuities

Is an annuity affected by the stock market? The stock market and annuities are giant topics, and some are affected by the stock market, and some aren't. We're going to go through every single type of annuity, single premium, immediate annuities, deferred income annuities, QLACs, multi-year guarantee annuities, index annuities, variable annuities, all of them. And I'm going to tell you how the stock market either does or does not affect them.

Variable and Fixed Annuities

So the two primary types of annuities affected by the stock market are variable annuities and fixed index annuities. So let's talk about variable annuities first. That's the purest form of a stock market-type product in the annuity world. I don't sell them just as a disclaimer. I don't sell anything that has the possibility of going down. That doesn't mean variable annuities are bad. Still, variable annuities have what's called separate accounts inside the policy (you and I call them mutual funds), and you can change those and that they have the potential to grow. And that mutual funds can be attached to the stock market.

Fixed Index Annuities

The other product type that we need to discuss a little bit more in detail is the fixed index annuity. That is not security. Variable annuities are a security. Fixed indexed annuities are life insurance products that are issued at the state level. They are also CD products and not market products, even though they are often sold and pitched in high pressure as stock market products. They're fixed annuities where your principal's fully protected, but the gains are attached to index call options, not including dividends, by the way, that can lock-in. However, understand that fixed index annuities, CD returns, and variable annuities can have market returns if you choose suitable mutual funds.

When it comes to annuities and interest rates, you need to watch the United States 10 year treasury note with annuities. That's the interest rate, a figure that the companies look at and that you should look at as well.

So, there are many types of annuities that the stock market has zero effect on the contractual guarantees. Single premium immediate annuities, deferred income annuities, and qualified longevity annuity contracts are all lifetime income products. This stock market has zero to do with that.

The two primary types of annuities affected by the stock market are variable annuities and fixed index annuities.


Now multi-year guarantee annuities, which is the annuity industry version of a CD. Zero to do with stock market volatility. So understand that there's only a couple of variable annuities and index annuities that are somewhat affected by stock market volatility and returns. But single premium immediate annuities, qualified longevity annuity contracts, deferred income annuities, and multi-year guarantee annuities have nothing to do with the stock market.

I will give an example and use my favorite fictitious character, who I lovingly call Chester. So Chester called me the other day and went, "Stan the annuity man®, I just don't want an annuity that's affected by the stock market ever. I hate the stock market; it’s volatile. Can you do that?"

The answer is yes, Chester, I can do that. There are types of annuities that are not affected by the stock market. And those are the lifetime income products like single premium immediate annuities, deferred income annuities, qualified longevity annuity contracts, and multi-year guarantee annuity. So if that's what you want, Chester, that's what we can give you when we can shop all carriers for the highest contractual guarantee.

I do understand markets, and I used to work for major firms. I get it. I understand that everybody wants to have those seven and eight, nine percent returns. The bottom line with annuities, in my opinion, is that you should never, ever, ever, ever buy an annuity for stock market returns. When it comes to annuities in the stock market, remember this: You don't need an annuity if you're looking for stock market growth. Buy the mutual funds and the ETFs and all that stuff; annuities are transfer risk products.

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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