Kate Stalter at Annuity.org wrote about a pitch a lot of pre-retirees hear: lock in a multi-year guaranteed annuity rate now, before the Fed cuts. She asked me whether that logic holds. It does not, and buyers should not be so easily swayed.
There is no direct link between a Fed rate cut and a MYGA's declared rate, and an agent should be able to explain that to a client. The fed funds rate is what banks charge each other overnight, so it is extremely short term. A five-year MYGA tracks the belly of the curve and credit spreads, not the overnight rate. The number is not set by the FOMC; it is set by bond market movements and by the carriers themselves, based on what they can earn reinvesting your premium, plus the strength of the company and its need for new business.
My line in the piece: when someone says lock in before the Fed cuts, ask them to explain the transmission. Most cannot.
That does not make a MYGA a bad tool. For someone a year or two from retirement with cash sitting in a money market, a guaranteed multi-year rate can be a sensible piece of a plan. Buy it because the rate, the term and the carrier fit your income needs, not because of a Fed calendar.
Read the full article at Annuity.org →
