Interest Is Credited To A Fixed Annuity

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So, how is interest credited to a fixed annuity? Boy, that’s a loaded question. I’m going to answer

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that in complete detail that will just— you’ll finish the video and go, ‘That was great.’

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My name is Stan The Annuity Man, America’s annuity agent, licensed in all 50 states and Puerto Rico,

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and the founder of CGO: Contractual Guarantees Only. We only look at what an annuity will do,

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not what it might do. But when I see the word ‘credited’ to the word ‘fixed,’ most of the

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time people are going to talk about indexed annuities. We’ll talk about that as well, but

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interest applies to all the other fixed annuities, and we’re going to go over that after this.

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So, let’s go over the fixed annuity types that I recommend. Okay? There’s multi-year

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guarantee annuities. That’s the annuity industry version of a CD. There are fixed index annuities,

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and we attach income riders to that for lifetime income in the future. There are qualified

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longevity annuity contracts, which are used in IRAs for lifetime income and to reduce your RMD

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taxes. There are deferred income annuities, which are used for income starting in a year or more

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down the road. And then there are single premium immediate annuities. Those are the primary types

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of fixed annuities that we use for contractual guarantees and to solve situations for people.

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We ask two questions: What do you want the money to contractually do? When do you want

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those contractual guarantees to start? From those two answers, we can determine if you need

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an annuity and, if you do, which type is going to provide the highest contractual guarantee.

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I also came up with an acronym called PILL. P stands for principal protection. I stands

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for income for life. L stands for legacy. The other L stands for long-term care. That’s what

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annuities solve for. There’s no growth. I know people want you to believe there’s

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market growth with them. There’s not. These are fixed annuities, and they’re regulated

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at the state level by the NAIC, National Association of Insurance Commissioners.

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So, let’s talk about how interest is credited with multi-year guarantee annuities.

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That’s the annuity industry version of a CD. Do not make it any more difficult than that.

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It’s a guaranteed interest rate for a specific period of time. We have a live feed on my site.

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You can check the best rates in your state for whatever duration that you’re looking to lock that rate in,

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and it’s good for that specific duration. Most of that interest is compounding. There are some

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companies that offer simple interest, but what we do is convert that into a

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compounded interest rate so you’re not getting buffaloed by that high interest rate. We’ll say,

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“Okay, this is the translation if it was compounded— just a regular interest rate.”

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Now, typically with MYGAs, they calculate that daily

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and then put it to your account on a monthly basis,

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and then the number that we show is an annual yield on our site. So, that’s interest rates.

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Now, I’m going to say a couple things about MYGAs because it’s important. The Fed doesn’t

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play a primary role with MYGA rates. I know what you’re saying: “But it does with CDs, Stan.”

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You’re correct. Banks are looking straight at the Fed and the 10-year. With MYGAs, they’re

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being issued by life insurance companies, and life insurance companies have many profit levers that

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they’re pulling from— life insurance, lifetime income, mortality credit tranches involved,

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legacy bond portfolios they have internally. From that, they also look a little bit at the rates at

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that point in time— say 20–25% of the pricing— and that’s how they price that MYGA interest rate.

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But that interest rate in a Non-IRA, non-qualified checking-account-type account grows tax deferred.

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Alright? Now income rider indexed annuities and income riders— I’ve written books on this.

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I would encourage you to download the owner’s manual on indexed annuity income riders that

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I did. The way that interest is credited with indexed annuities is typically with three levers

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that limit upside, which are caps, spreads, and participation rates. Very, very complex, okay?

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All I’m going to tell you is, since 1995— and this is okay. I think it’s great, but it’s just

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not promoted like this— indexed annuities have provided CD-type returns. And the reason why

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is because they were designed to create CD-type returns. There are over 800 index option choices

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at this point in time, and they all pretty much create the same return. You should be buying that

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for CD-type returns and/or the way that we use it: as a delivery system for lifetime income.

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Okay?

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Now, interest credited to income riders— that’s really not true yield. That’s a growth component.

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You’ll see an agent might say, “I can get you X, and the income’s going to grow by 8%.”

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That’s not yield. That’s not interest. That’s a growth component that can only be used for

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income. You can’t peel it off, cash it in, or transfer it, but that’s interest over there.

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So, once again, you asked the question— there’s a lot to the interest part.

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Now, with immediate annuities, deferred income annuities, and QLACs, they’re pretty much the

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same product. They’re pensions. There are no market attachments. There are no annual fees.

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There are no moving parts. The income is a return of principal plus interest,

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okay? And that interest is arbitrarily attached by the annuity company.

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Like I said on the MYGA side, they use a lot of pricing levers to create that.

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But it’s a commodity product, so they’re looking at their competitors out there.

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That’s the reason we call all carriers, because these are commodity products. But that interest

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is part of the lifetime income. So, if you bought an immediate annuity, as an example,

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in a Non-IRA, non-qualified checking-account-type account, that income is going to be a return of

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principal plus interest, and you’re only going to pay taxes on the interest until you draw it

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down to zero. If you draw it down to zero and live forever, then the whole shooting match is taxable.

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But what I want you to take away from this video— it’s important— is that interest rates

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are part of the lifetime income story and part of the annuity story and part of how interest

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is credited, but it’s not the full story. Whereas banks stare straight at the Fed, annuity companies

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glance at the Fed or glance at the 10-year. Because they’re life insurance

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companies, they have many more pricing mechanisms and profit centers to pull from to price things.

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And for lifetime income, they’re looking primarily at your life expectancy,

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with interest rates playing a secondary role.

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Do me a favor. Go to my site at theannuityman.com. I have these six owner’s manuals you can download

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for free. Yeah, I wrote them. They’re like 50 to 70 pages long each, and you can run quotes

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24/7/365. These are live feeds. You can look at MYGA rates’ live feed for your specific state.

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Get educated. Schedule a call. Email me at [email protected]. I will respond to that.

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It’s not somebody responding for me. That’s me responding. Might take a while,

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but I get 300 to 400 a day. But I get to them. That’s what I do. I kind of pedal around,

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and I like to see what you’re asking. So, utilize that, okay?

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One last thing: above my head spinning is a video I did on lifetime income,

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but I did it under the guise of how AI— artificial intelligence— is going to affect lifetime income,

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because it’s going to. Artificial intelligence, as you know, is going to affect everything— some good,

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some bad. It’s not perfect, obviously. But in the lifetime income space, lifetime income products

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with life insurance companies that issue those, it’s going to affect life expectancy pretty soon.

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So, watch that video. Keep watching the videos. I do one a day, every day,

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seven days a week. So, tune in. I’ll see you next time.