Tennessee Annuity Rates: What Buyers Need to Know

Tennessee Annuity Rates: What Buyers Need to Know

Wondering about Tennessee annuity rates? Learn how fixed, MYGA, and immediate annuities work in this easy guide for Tennessee retirees.

Full written article: Tennessee Annuity Rates: What Buyers Need to Know

Tennessee Annuity Rates

Transcript

SPEAKER_01 0:03

Welcome to the Tennessee Annuity Show. I'm Jessica.

SPEAKER_00 0:06

And I'm Caleb. We break down complex annuity products in plain English, fixed annuities, indexed annuities, income annuities, all of it.

SPEAKER_01 0:13

We cover the products, the fine print, and the questions you should ask before you sign anything.

SPEAKER_00 0:18

Quick note before we start: this show is for general information only and is not financial, tax, or legal advice. Annuity guarantees depend on the issuing insurance company's ability to pay claims. Talk with a licensed professional before making decisions about your retirement income.

SPEAKER_01 0:33

All right, let's get into today's episode. So I had a conversation with my aunt over the holidays. Uh she's 68, lives outside of Knoxville, just sold a rental property, and uh she has this lump sum sitting in a savings account earning almost nothing. And someone at her church told her she should look into annuity rates in Tennessee. And she called me like I would know what that means.

SPEAKER_00 0:59

That is such a common starting point. Someone hears the word annuity, they get a little curious, a little nervous, and then they go looking for answers and find out there are like five different kinds of annuities, and now they're more confused than when they started.

SPEAKER_01 1:11

Exactly. So I want to actually walk through this today in a way that would have helped me answer her questions. Because, you know, I think a lot of people in Tennessee, Nashville, Memphis, Knoxville, wherever are in that same spot right now. Aaron Powell Yeah.

SPEAKER_00 1:28

And I think the first thing worth saying before we even get to rates is what an annuity actually is. Because there's a lot of confusion about this. It is not a bank account, it is not a mutual fund, it is an insurance contract.

SPEAKER_01 1:40

Aaron Powell And that distinction matters legally, right? Not just semantically.

SPEAKER_00 1:44

It matters a lot because it means the product is regulated differently. In Tennessee, annuities fall under the Tennessee Department of Commerce and Insurance. So when you're evaluating a carrier, you're looking at an insurance company's financial strength. Not FDIC coverage, not anything like that. Not anything like that.

SPEAKER_01 2:01

Okay, so let's get into the types because I think that's where people get lost. My aunt was using the word annuity like it's one thing, but it's not one thing.

SPEAKER_00 2:10

Not not even close. So at the most basic level, you've got fixed annuities. And those are probably the most straightforward. The insurance company tells you up front, you you b here's the rate you're going to earn, here's the term, it could be one year, could be ten years. You know what you're getting.

SPEAKER_01 2:27

And uh when people say Tennessee annuity rates, a lot of the time they're talking about this category specifically, right? The fixed rate products?

SPEAKER_00 2:36

A lot of the time, yeah. And closely related to that is what's called Amiga, a multi-year guaranteed annuity, which is basically a fixed annuity with a specific declared rate locked in for a set number of years.

SPEAKER_01 2:49

Aaron Powell Which is where the CD comparison comes in. Because that's what my aunt kept saying. She was like, Well, how is this different from just putting it in a CD at my bank?

SPEAKER_00 2:59

That is the question. And honestly, it's a fair one. On the surface, they look similar. You put in a lump sum, you get a declared rate, you leave it alone for a few years. But the differences are real.

SPEAKER_01 3:11

Walk me through the big ones.

SPEAKER_00 3:13

Okay, so first, protection structure. Um, a CD at a bank is uh FDIC insured. Um, an annuity is backed by the insurance company's reserves. Uh, and in Tennessee, there's the Tennessee Life and Health Insurance Guarantee Association, which provides a layer of protection up to certain limits if a carrier becomes insolvent. But it's a different mechanism than FDIC.

SPEAKER_01 3:34

So people shouldn't assume it's the same kind of protection just because there is some protection.

SPEAKER_00 3:40

Right. The limits are different, the structure is different. That's why carrier financial strength ratings matter so much when you're shopping annuities.

SPEAKER_01 3:47

What's the second big difference?

SPEAKER_00 3:49

Tax treatment. And this one is actually pretty significant, especially for higher earners. With a regular CD, a non-qualified one, you're paying income tax on the interest every single year, even if you're not touching the money. With a deferred annuity, the growth is tax deferred. Uh, you don't owe anything until you take withdrawals.

SPEAKER_01 4:07

Oh, that's actually a bigger deal than I think people realize.

SPEAKER_00 4:11

It compounds over time. Literally. If you're in a higher tax bracket and you've got a five-year MIGA versus a five-year CD at the same rate, the annuity could come out ahead just on the tax deferral alone.

SPEAKER_01 4:22

Uh, and Tennessee specifically has a pretty favorable situation here, right? Uh because of what happened with the Hall tax.

SPEAKER_00 4:29

Yeah, so Tennessee used to have uh something called the Hall income tax, which applied to interest and dividends. Uh that was fully repealed as of 2021. So now uh most Tennessee residents are only dealing with federal income tax on the earnings portion of annuity withdrawals. There's no broad state income tax on wages here to begin with.

SPEAKER_01 4:50

So compared to someone in, say, California or New York, a Tennessee retiree holding a deferred annuity is in a pretty different position tax-wise.

SPEAKER_00 5:00

Generally speaking, yes. Though I always want to say, and I mean this, talk to a tax professional about your specific situation. Tax rules change, individual circumstances vary, and we're not tax advisors.

SPEAKER_01 5:13

Fair. Okay, so back to the types. We've covered fixed annuities and me gays. What about the person who doesn't want to wait, who needs income now?

SPEAKER_00 5:25

That's where a spIA comes in. Single premium immediate annuity. You hand over a lump sum and payments start, usually within 30 days. It converts a chunk of money into a regular income stream.

SPEAKER_01 5:35

Which sounds great in theory, but I feel like people don't fully understand what they're giving up when they do that.

SPEAKER_00 5:41

That's a really important point. When you annuitize, when you convert that lump sum into an income stream, you typically give up access to the principal. The insurance company takes on the longevity risk. They're betting essentially on how long you'll live. You're betting the same thing from the other side.

SPEAKER_01 5:56

Which is why age matters so much for CIA rates.

SPEAKER_00 5:59

Exactly. A 75-year-old putting in $100,000 is going to get a higher monthly payment than a 60-year-old putting in the same amount. Because the life expectancy is shorter. The carrier is pricing that in.

SPEAKER_01 6:11

I actually know someone, friend of a friend in Memphis, who bought a SPIA a couple years ago specifically because she had no pension. She had Social Security, but there was this gap, and she just wanted a predictable check every month that she didn't have to think about.

SPEAKER_00 6:28

That's a really common use case. Um people call it filling the pension gap. You're essentially building your own pension with a lump sum. And for some people that peace of mind is worth a lot.

SPEAKER_01 6:37

Aaron Ross Powell But it's not right for everyone. Like if you might need that money for a medical emergency Right.

SPEAKER_00 6:44

Liquidity is the trade-off. Once that money is annuitized in a traditional SPIA, it's gone as a lump sum. You get the income. But you can't call up the insurance company and say, hey, I need 50,000 back.

SPEAKER_01 6:55

Aaron Powell Okay, so that leaves deferred annuities as the fourth category. And I feel like this is the broadest one.

SPEAKER_00 7:01

It is. Deferred just means there's an accumulation phase. The money grows for a period of time before you start taking income. Fixed deferred annuities, my GAs, indexed annuities, they all fall under this umbrella. It's really for people who are still building toward retirement, not necessarily taking income yet.

SPEAKER_01 7:22

So a 55-year-old in Nashville who's still working but wants to put some money somewhere that grows tax deferred until they retire at 65. That's a deferred annuity situation.

SPEAKER_00 7:34

That's a classic use case, yeah. 10-year accumulation phase, then you either take withdrawals or you convert to income. And during that whole time, the growth is compounding without a tax drag.

SPEAKER_01 7:43

Let's talk about what actually drives the rates. Because I think people assume oh, rates went up, so annuity rates went up. And it's sort of true, but it's more complicated than that.

SPEAKER_00 7:54

It is more complicated. The broad interest rate environment is the biggest factor. When rates rise, carriers can generally offer more competitive crediting rates because they're investing your premiums in bonds, and those bonds are yielding more.

SPEAKER_01 8:07

So the carrier's bond uh portfolio is kind of the engine underneath all of this.

SPEAKER_00 8:12

Essentially. The insurance company takes your premium, invests it primarily in investment grade bonds, earns a yield on that portfolio, and then passes some of that yield back to you as the crediting rate, keeping a spread for themselves.

SPEAKER_01 8:23

Which is why you can't just look at a rate from six months ago and assume it's still accurate today.

SPEAKER_00 8:29

Aaron Powell Not even close. Rates on fixed annuities and Mai Giaz move, sometimes week to week, and different carriers move at different speeds because their portfolios are different.

SPEAKER_01 8:39

What about the term length? Does that affect the rate you're offered?

SPEAKER_00 8:42

Generally, yes. Longer surrender periods often come with higher declared rates. Uh the logic is that the carrier has more certainty about how long they're holding your money, so they can afford to offer a bit more. A seven-year MIGA will often, not always, but often, carry a higher rate than a three-year MIGA from the same carrier.

SPEAKER_01 9:01

But then you're locked in longer. So there's a trade-off.

SPEAKER_00 9:05

Always a trade-off. And that brings up surrender charges, which I think is one of the most misunderstood parts of these contracts.

SPEAKER_01 9:11

Oh, I've heard some stories about this. People who didn't realize they couldn't access their money.

SPEAKER_00 9:15

Yeah, surrender charges are real, and they can be significant in the early years of a contract. If you buy a seven-year MYGOS and you need to pull out a large chunk in year two, you could face a meaningful penalty. Now, most contracts do allow some penalty-free withdrawals each year, often around 10% of the account value, but you have to know that going in.

SPEAKER_01 9:34

Which is why that's one of the questions you have to ask before you sign anything.

SPEAKER_00 9:38

It's on my short list of must-ask questions. What's the declared rate? How long is it contractually set? What are the surrender charges and when do they expire? How much can I take out penalty-free each year? Those are the basics.

SPEAKER_01 9:52

What else is on that list?

SPEAKER_00 9:54

Carrier financial strength. I can't stress this enough. You are entering a contract that could last 10, 15, 20 years. The insurance company needs to be around and financially healthy to honor that contract. So you look at ratings from agencies like AM Best, Moody's, SP.

SPEAKER_01 10:12

And writers. I feel like writers are another thing people don't fully explore.

SPEAKER_00 10:17

Writers are add-ons to the base contract. A lifetime income writer, for example, can give you the ability to take guaranteed income for life without fully annuitizing, so you retain some access to the account value while still getting a predictable income stream. But writers usually come with an additional cost, so you have to weigh whether that feature is worth it for your situation.

SPEAKER_01 10:36

Aaron Powell And that's not something you can evaluate in the abstract. It depends on your age, your health, your other income sources.

SPEAKER_00 10:43

Aaron Powell Your whole financial picture, really. Which is why, and I know we say this a lot, talking to a licensed agent who's appointed with multiple carriers is so important. Not someone who can only sell you one company's products.

SPEAKER_01 10:56

Right. Because if they're only representing one carrier, they can't actually compare rates across the market for you.

SPEAKER_00 11:01

Exactly. You want someone who can pull up current rates from several carriers and say, here's how these stack up given your specific situation. That's a very different conversation than walking into one company's office.

SPEAKER_01 11:12

Let me push back on something for a second, because I think sometimes the annuity conversation can sound a little too tidy. Like, here are the types, here are the rates, here are the questions, but there are real downsides that don't always get talked about.

SPEAKER_00 11:27

Noah, that's fair. What are you thinking?

SPEAKER_01 11:29

The liquidity thing is a real concern, especially for someone like my aunt who's 68 and doesn't know what her health expenses are going to look like in five years. Locking money into a seven-year surrender period at that age, that's a real commitment.

SPEAKER_00 11:45

That's a completely legitimate concern, and it's one of the reasons why not every dollar should go into an annuity. Most financial planners, and I'm not a financial planner, but this is common sense, would say you want some portion of your assets to remain liquid. Annuities work best as part of a broader picture, not as the whole picture.

SPEAKER_01 12:04

And the complexity. Like these contracts are long, they have a lot of fine print.

SPEAKER_00 12:09

They do. I've read through a lot of annuity contracts, and even I sometimes have to read a section twice. The crediting method language, the beneficiary provisions, the free look period. All of that matters. And the free look period is actually something people should know about. Most states, including Tennessee, require carriers to give you a window, usually 10 to 30 days, to review the contract and return it for a full refund if you change your mind.

SPEAKER_01 12:33

Wait, I didn't know that was a thing, so you sign, you get the contract, and you have a window to back out?

SPEAKER_00 12:38

Yes. Use it. Read the contract during that period. If something doesn't match what you were told, that's the time to raise it.

SPEAKER_01 12:46

Aaron Powell That's actually really useful. Okay, let me bring it back to the Tennessee specific angle for a second. Is there anything about shopping for annuity rates in Tennessee specifically that people should know beyond the tax stuff we already covered?

SPEAKER_00 13:02

Aaron Ross Powell I mean the the regulatory environment is worth understanding. Uh the Tennessee Department of Commerce and Insurance oversees these products, and that means carriers operating here have to be licensed in the state. Agents have to be licensed too. So if someone approaches you about an annuity and you can't verify their license, that's a red flag.

SPEAKER_01 13:20

Aaron Powell You can look that up, right? Agent licensing is public record?

SPEAKER_00 13:23

Yes, you can verify a Tennessee insurance agent's license through the Department of Commerce and Insurance. It takes about two minutes. Do it.

SPEAKER_01 13:31

Okay, so let's say someone's listening to this. They're in Nashville or Memphis or somewhere in between, and they're trying to figure out if an annuity even makes sense for them. What's the actual first step?

SPEAKER_00 13:45

Honestly, get clear on what problem you're trying to solve. Are you worried about outliving your money? Are you trying to grow a lump sum tax deferred? Are you trying to fill a gap in monthly income? Because the answer to that question points you toward a very different type of annuity.

SPEAKER_01 14:00

So it's not start with the rate, it's start with the need.

SPEAKER_00 14:03

Start with the need, always. The rate is a feature of the product. The product has to fit the need first, or the rate is irrelevant.

SPEAKER_01 14:11

I think that's actually the thing my aunt was missing. She was asking what rate can I get when really the first question is, what am I actually trying to accomplish with this money?

SPEAKER_00 14:22

And uh once you answer that, the product type narrows down pretty quickly. Um if she needs income now, SPA conversation, if she wants to grow the money, tax deferred for five years, and then maybe take some withdrawals, uh, my JA or fixed deferred. Uh if she wants income later with some flexibility, uh, maybe a deferred annuity with a writer, these are all different conversations.

SPEAKER_01 14:44

And none of them should happen without a licensed agent walking through the specifics with her.

SPEAKER_00 14:50

None of them. Because the difference between two contracts that look similar on paper can be enormous when you get into the surrender schedule, the renewal rate provisions, the beneficiary options. Those details matter enormously over a 10 or 15 year contract.

SPEAKER_01 15:04

Renewal rate provisions. Say more about that because I don't think we touched on it.

SPEAKER_00 15:08

So uh with Amiga, you have a declared rate for the initial term, but what happens at the end of that term? The carrier sets a renewal rate, and it may or may not be as competitive as what you started with. Some contracts have minimum renewal rate guarantees written in. Some don't. You want to understand what happens when that initial term expires before you sign.

SPEAKER_01 15:26

Because otherwise you could roll into a renewal rate that's significantly lower and not realize it until it's already happened.

SPEAKER_00 15:33

It happens. And at that point, you can usually move the money. But there may be tax implications, and you're starting a new surrender period. So it's not catastrophic, but it's not ideal either. Better to understand the renewal mechanics upfront.

SPEAKER_01 15:48

Okay. I feel like we've covered a lot of ground here. Fixed annuities, migas, spAs, deferred annuities, the CD comparison, the Tennessee tax situation, what drives rates, the questions to ask.

SPEAKER_00 16:02

And the things that can go wrong if you don't read the contract.

SPEAKER_01 16:05

Right. What's the one thing you'd want someone to walk away from this conversation knowing?

SPEAKER_00 16:09

That annuity rates in Tennessee, or anywhere, are not the whole story. The rate is one number in a contract that has a lot of other numbers and provisions that matter just as much. A slightly lower rate in a contract with better liquidity provisions might be the smarter choice for your situation. You can't evaluate this stuff in isolation.

SPEAKER_01 16:26

Aaron Powell And for me, it's the question first approach. Don't walk into this asking what's the best rate. Walk in asking what do I need this money to do? And then find the contract that does that.

SPEAKER_00 16:37

That's exactly it. And find a licensed agent who will actually help you answer that question rather than just showing you the highest number on a rate sheet.

SPEAKER_01 16:44

Which is a real thing that happens.

SPEAKER_00 16:46

It's a real thing that happens. The highest rate on a rate sheet is not automatically the right product. Context matters. Your age, your health, your other assets, your tax situation, your timeline, all of it matters.

SPEAKER_01 17:00

I'm gonna tell my aunt to call a licensed agent and to go into that conversation knowing what she's trying to accomplish, and to ask about surrender charges on day one.

SPEAKER_00 17:11

And to use the free look period. If she buys something, read the contract. Every page.

SPEAKER_01 17:15

Every page, even the boring ones.

SPEAKER_00 17:17

Especially the boring ones. That's where the important stuff usually lives.

SPEAKER_01 17:24

That's it for today's Tennessee Annuity Show.

SPEAKER_00 17:27

If you have questions about your specific situation, talk to a licensed advisor.

SPEAKER_01 17:30

Visit Tennessee AnnuityRates.com for show notes or to get matched to an advisor.

SPEAKER_00 17:35

We'll see you next time.