A conversation between Denzel Rodriguez and another speaker about how interest-rate movements (and the bond market's reaction) influence annuity payouts and product behavior. Key points: bond yields—not just the fed funds rate—drive insurance companies' pricing; fixed lifetime income annuities lock in rates for life; different annuity types (fixed, indexed, variable) respond differently to rates; rate changes matter most in the decumulation phase when retirees rely on income. Also noted: courts may require annuities for minors because of insurer guarantees.
So if so, give me an example. I don't know if you're able to answer this. We're at that number with the Fed rate being between 4, 4 and a half percent right now. I know it's not above 4.5. If rates come down a half a percent.
Yeah.
What does that do to the annuity industry? Does it equally go down by 0.5%, or is it a higher. How do we interpret rates coming down in this example?
Okay. To answer your question, it really depends on how the bond market reacts to those rates. Right. So really, just because the fed funds rate comes down and we see this with, like, inverted yield curves and weird things that happen, doesn't necessarily mean the bond rate's going to move exactly like the interest rate is. Sometimes the bond market knows more about the future of interest rates than we do. Right. So it's really going to depend. But, Denzel, the reason I love being on your channel so much is you unpack so many amazing things. So can I go back to your point before we got to here real quick?
Yes.
When I was talking to the attorneys, there was a team of attorneys setting up this annuity for this girl. And I was just the agent, you know, on the call, listening. I. I asked them so many questions, and I said, is there any other vehicle? Could they go buy stocks? Could they go buy bonds? Could they go put it in the bank? The judge would not allow anything else other than an annuity for this little girl because of the guarantees from the insurance company. So that's really powerful to highlight. Right. I mean, that's what it's, you know, when you're talking about, you know, a decision for a minor and the parent has a fiduciary obligation and a guardianship obligation to make sure that they're monitoring this asset properly till that child turns 18. The only thing that was suitable that the judge will allow would annuity. So that's a great point to touch on, you know, which I want to make sure people understand. The other thing that I want to touch on that you talked about was when you lock in that 1 or 2%, you're locking it in for life. So a lot of people misunderstand, and they go, oh, well, rates are high today. What about when they drop? It doesn't matter. If you lock in at a lifetime income annuity and a high rate, you have that rate for the rest of your life. So as rates fall, you're locked in. And the third point that I wanted to raise, based on the question you kind of Asked in the middle, there was, you know, do interest rates only affect the performance of annuity? There's different kinds of annuities. There's ones that just offer a fixed rate. There's some that are indexed to, like the S&P 500. Now, interest rates play a role in how much you get to keep out of the performance. But again, there's other things that drive the performance of that annuity. Right. It could be an index, it could be a variable annuity where it's just directly in the market. So there's different types of annuities, but interest rates overall, to answer your question, yes, have an impact on those. And however the bond market reacts, that's how you'll see insurance companies react. But I like to keep things really simple. You know, I like to think of things in frameworks, especially if it's stuff I don't understand. I happen to understand this well. But if you're not familiar with, like the different places in life where you would use different things to go back to what you said, if you're approaching or in the decumulation phase of life, which is like the second half, then, yeah, interest rates moving is significantly important for you. It's bad for annuities because they go down in rates and it's bad for bank products. A lot of people, a lot of seniors keep a lot of money in the bank and they love shopping interest rates with CDs, money markets, savings accounts. So it has an impact on all of that. So that's important for that phase of life. For our phase of life, the accumulation phase, where we're trying to get to a place where we can even have the ability to be in a decumulation phase. It's phenomenal because things that appreciate in value as we're building wealth will go up and debts that we're trying to reduce, we have a better chance of paying those off with lower rates. So again, you really got to place yourself in like, what area is your priority at this stage in life? If you're really thinking much more about that decumulation phase where you're going to be using your money, then these interest rates matter tremendously. And this is a really important time to sit down with my team and we can just do an audit of, you know, what you currently have and what you're looking to accomplish income wise and make sure you're on that trajectory.
Absolutely. So that's the next action step. For those of you that are still watching presentation, you're dialed in.
