How Does the FED Rate Affect Annuity Pricing?

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Welcome to Q&A Friday. My name is Stan

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the annuity man, America's annuity

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agent, licensed in all 50 states.

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Today's topic is one that gets asked

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infinitum all the time. How does the Fed

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at the time of this taping drone pal and

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friends, how does that affect annuity

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pricing? Good question. And let me give

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you the real answer. It depends on the

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type of annuity that you are purchasing.

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You're saying, "Wait a minute, Stan. All

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annuities are bad. All annuities stink.

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All annuities you couldn't all annuities

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money goes poof when you die. No, that's

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incorrect. There are many types of

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annuities. They solve for four different

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things. The acronym is pill, principal

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protection, income for life, legacy,

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long-term care. Okay, so let's look at

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how the Fed and what they do with

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interest rates affects annuity pricing.

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In a general sense, the when the Fed

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does something, the annuity industry

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glances at Chairman Powell or whoever's

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running the Fed. We're not staring at

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him. we're glancing at him because

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typically the pricing it it might be a

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20 25%

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um effect to what the annuity companies

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are pricing. You're saying, "Wait a

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minute, Dan. Isn't it like a direct

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correlation like the banks?" No, it's

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not because life insurance companies

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issue annuities. Annuities,

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they're contracts between you and the

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life insurance company. So let's take

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life lifetime income products, single

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premium immediate annuities, deferred

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income annuities, qualified longevity

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annuity contracts, income writers

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attached to index annuities.

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Those products are primarily based on

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your life expectancy or life expecties

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if joint at the time you take the

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payment. The older you are, the higher

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the payment because the less projected

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payments means they're going to be

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higher. Reverse is true. The younger you

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are when you take the payments, the

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lower the payments because there's more

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payments. So it's it's life expectancy

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drives the pricing train with lifetime

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income. But the rates

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little bit, not much because life

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insurance companies have many pricing

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levers to price off of. They have their

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life insurance portfolio. They have

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their lifetime income portfolio. They

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have their their in in essence

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investment bond portfolio. Um, and then

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they have what I call trenches of life

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expectancy where they they they they're

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trying to fill 60 to 65 or 65 to 67 or

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whatever their matrix is within that

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company because why do a new annuity

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companies have the big buildings? Life

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insurance companies have the big

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buildings. Good question. It's because

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they know when we're going to die and

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they price things accordingly. So, they

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have numerous things to price off of.

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typically around five, which means that

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interest rates, it's kind of a 20 25%

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depending on the company pricing. I'll

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give you a good example. I'm glad you

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asked. Recently, there was at the time

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of this taping, there was a drop in the

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Fed rate. We had companies in the MIGA

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space, multi-year guarantee annuity,

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that's the annuity version of a CD. We

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had companies actually raise their

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rates,

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Scooby-Doo.

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Yes. Why? because they're glancing at

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the Fed. You know, if the if the company

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is trying to raise money, they're going

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to keep the rates high. In a lifetime

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income situation, if the trunch is full

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of people your age, they're going to

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lower their guarantee to not attract

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you. If they need more people in your

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trunch, they're going to raise the

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guarantee to attract you. It's that

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simple. So, please, please, please

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don't get obsessed with the Fed,

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especially when it comes to annuities.

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Annuities are commodity products and

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because of that pricing matrix and the

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fact that they have numerous levers to

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price off of that's the reason the

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annuity man our company the gorilla in

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the room quotes and and shows all

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carriers because all carriers are at

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different places when they start pricing

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and trying to attract money. So when we

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quote all carriers, we're always going

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to be showing the highest contractual

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guarantee at that time for your

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situation. Kudos to Chairman Pal or

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whoever is the Fed president in the

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future. Obviously, I should be on the

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board of the Fed, but that's a whole

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another story. You know, if they offered

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it to me, I'd say I have to wear my

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gear, the hat and the logo because

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that's how I roll. And they probably

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said, "No, you have to wear a suit."

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Then I then it's off. Then I turn it

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down. Okay. But that's how the Fed and

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rates affect annuities.

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Learned something, didn't you? I know. I

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know what you're saying. My name is Stan

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the Annuity Man. See you next time.