This ongoing nightmare of low interest rates has unfortunately fostered the creative selling tendencies and line-blurring that too often leaves the consumer with a deferred annuity they don’t understand or need. Even though indexed annuities were designed to compete with CDs, not the stock market (yes this is true!), a lot of consumers still want a straight fixed-rate or CD-type of return and not the complexity of an indexed option or variable annuity strategy. Most baby boomer customers are not investment savvy, and don’t feel comfortable with complicated products like indexed or variable annuities. Agents might not think they are complicated, but the vast majority of people do. What they want and yearn for are the good old days of solid fixed-rate guarantees.
The magic number 3
Just recently, the five-year MYGA reached an annual guaranteed rate of 3 percent. This is a significant rate-level “tipping point” in my opinion, and should start attracting both agents and clients back to the MYGA fixed-rate strategy. The other reason that the five-year number is important is that most “rate experts” advise against locking up your money for more than five years under the proverbial current yield curve argument.
Whether this five-year lock-in premise is right or wrong, it is a common time-frame theme in the financial world, and influences a lot of consumer buying decisions. Let’s hope that the 5/3 combo is a sign for future MYGA rates to increase and for this customer-friendly strategy to emerge as a viable allocation choice once again.
“Yellen” for rates to move up
It looks like a done deal that Janet Yellen will replace Ben Bernanke as the next chairman of the Federal Reserve. Early indicators point to the real possibility of Ms. Yellen continuing the practices of “Big Ben” and keeping rates as flat as possible for the foreseeable future. Because her main competitor for the job (Larry Summers) lost the public relations battle early in the process, Ms. Yellen seems to be a rational and imminent choice for a very tough job. Time will tell what her true intentions are, and the next presidential election should be the ultimate indicator of where our interest-rate future lies. Can you say Hillary?
I always find it perplexing when most people immediately sum up the current low interest rate environment by saying, “Interest rates have to go up.” That’s a pretty cavalier and baseless statement, and nothing more than a dart throw into the political abyss. Japan has gone decades with low or flat interest rates, and there is no “tick data” or past history on the planet to predict the ramifications of Bernanke’s policy of printing $80 billion a month and then immediately buying it back. It’s an understatement to say that we are in unchartered fixed-rate waters, so anyone’s guess is as good as the next one.