Building Your Guaranteed Income Floor
This is a very important topic, and the way that I look at annuities and how annuities fit into building your income floor is key to your future.
To read this Webinar in it’s entirety, click below:
Hi, this is Stan The Annuity Man with an important webinar called Building Your Guaranteed Income Floor. Thanks for joining us and spending your time with me. This is a very important topic, and I think the way that I look at annuities and how annuities fit into building your income floor is very important.
Let’s get started. First of all, I am the top independent Annuity agent in the country, and am licensed in all 50 states. So if you’re in Hawaii, or wherever, we can handle you. I am sitting right now in Ponte Vedra Beach, FL. That’s where we’re based, but my staff is located in other states as well. I have published 7 books on annuities, with an 8th on the way. I am a prolific writer of articles for everywhere from the Wall Street Journal to Investor’s Business Daily, and those are found on my website if you want to read them. I am all about education, and giving you enough information, so you can make an informed decision. Let’s go through the books that I have written.
The most recent Owner’s Manual is the FIA-Fixed Index Annuity Owner’s Manual. It took me a while to write this just because it is such an overhyped and oversold product. I really wanted to make sure I was crystal clear on my explanations: the good, the bad and the ugly aspects of this product. This is a game changer for the industry.
The first owner’s manual I wrote was QLAC-Qualified Longevity Annuity Contract Owner’s Manual. This is a kind of new pension product for the IRAs. I also wrote one on Immediate Annuities, Single Premium Immediate Annuities, then one on Fixed Rate Annuities, the industry calls these MYGAs, or Multi Year Guarantee Annuities.
Let’s not forget the Income Rider Owner’s Manual. Income riders are the guaranteed benefits attached typically to an indexed or variable annuity. This book really covers just that guarantee. Once you attach that guarantee to one of those deferred products like a variable or indexed annuity, you really should focus solely on the income rider as the guarantee. It’s important that’s where your decision should be made.
The Deferred Income Annuities Owner’s Manual covers Deferred Income Annuities which is kind of a new product. It is cousin to an immediate annuity. It is a deferred pension. We certainly will describe how to use that during today’s webinar.
The first book I wrote a long time ago, The Annuity Stanifesto covers everything. When I wrote it QLACs weren’t around, but the other annuity types and the history of annuities is in there. I’ll send you all of these books for free. No obligation, no cost, no catch. Just email me your physical mailing address-not your email, and I will send you in the mail a package of my books. They’re quick easy reads, and you’ll be able to fully understand these products: the good, the bad, and the limitations. These aren’t sales pitchy books. These are books that you can refer back to. I write in a bullet point easy to understand fashion, so you’ll be able to fully get what these products can do and what they don’t do.
My whole mantra is “Will Do. Not Might Do.” You’ll see that on my cards, on my website, and my books. “Will do. Not might do.” It means you buy annuities for the contractual guarantees. You buy them for what they will do, not what they might do. You don’t buy annuities based on some hypothetical, theoretical, back-tested, projected pie-in-the-sky number from an agent, return scenario that sounds fantastic. You buy them for Armageddon. You buy them for what the contract is going to give you. Annuities are contracts, they are not investments.
One of the things about annuities that is very important is the claims paying ability of the annuity carrier that you are buying from, right? Everybody is familiar with AM Best, Moody’s, and Standard, Poors & Fitch. They have the A ratings –A, A+, AA+, and none of us really know kind of what that is. Comdex is a ranking system from 1-100. 1 is horrible 100 is perfect in their eyes. They take the compilation of all four rating services and then assign a score. On my site I give this away for free. On my website you see that middle tab resources? If you click on resources, then pull the Comdex rankings at the bottom of that screen you find the bottom green button to download your free Comdex report. Every month we update that Comdex report so you can see the ratings of the carriers, and the Comdex rankings. For example here’s a screen shot of a report. Tabs at top of report show the separate ratings system columns, and then the last column on the right shows the Comdex compilation score- 100 is perfect then it goes all the way down.
It’s a 20 page report. You can download it for free, you don’t even have to sign up to get it. The financial industry uses this all day long. It’s amazing how often this is downloaded, but always do your homework on the carrier. I represent pretty much all carriers, so when I do a quote for you we look at all carriers and then we can have a discussion on which would be best for you.
All annuity solutions, including the income floor stuff we’ll be talking about today, really come down to 2 questions.
- What do you want the money to contractually do? That’s basic. Please don’t say reasonable rate of return. That’s not contractual. Please don’t say market growth. That’s not contractual. Tell me exactly what you want it to do: “I want income to start now”, or “I want income to start later.”
- When do you want those contractual guarantees to start? With your income flooring there are a couple other things we need to know, but that’s really the basics.
There are 4 places annuities really fit into your portfolio: Legacy, Income, Long Term Care, and Safety.
Notice there isn’t market growth anywhere. What we will talk about in this webinar primarily is income, but we can throw in some legacy and some safety as we move forward with our income flooring plans.
An annuity is a transfer of risk. You’re transferring the risk to the annuity company to pay you for the rest of your life or protect the principal, etc. I’ve come up with an acronym called P.I.L.L. P=principal protection, I=Income for life, L=legacy, L=long term care. That’s it! If you’re saying, “Stan, I’m not sure I need an annuity.” You’re going to look at this P.I.L.L. acronym, and if you don’t need any of these, you don’t need an annuity. It’s really that simple.
Now let’s start building your income floor. There are 5 primary reasons why you should contractually build your guaranteed income floor.
- Peace of mind. Having a lifetime income stream you can’t outlive, Social security, or a pension brings peace of mind. Annuities can give that same type of peace of mind if structured properly.
- Having your income floor in place will make you a better investor. Think about this for a second-if you have your income stream in place, the monthly expenses plus your lifestyle income you need coming in every month regardless of how long you live. You’ll be a better investor with the other stock market type money you are investing. I’ll tell you that right now. You won’t be peeling off systematic distribution from growth. Building that guaranteed income floor will make you a better investor.
- Transferring risk is needed for most portfolios. Some don’t, but most people with a portion of the portfolio you need to transfer some risk. Meaning you need to give money to a carrier to provide guaranteed lifetime income stream, or principal protection, etc.
- Continuation of a lifetime income stream for your spouse. A lot of us have spouses that really aren’t into the market and just want to go see the grandkids and the kids. When you build an income floor, I am going to encourage you, if you have a spouse or significant other, to set up the income stream Joint. In other words it will pay you for the rest of both your lives. If you die, then your spouse continues with that income uninterrupted and unchanged for the rest of their lives. We can structure that income so that 100% of any unused money goes to beneficiaries. People get confused thinking that all money goes to the insurance company when they die. You can structure it that way, but you don’t have to.
- Never outlive your money with a guaranteed income floor. Think about that. People ask me, “What is the return on investment on an immediate annuity or a lifetime income annuity?” I really don’t know that until you die. I will tell your beneficiaries at your funeral. I’ll say here is the ROI on the lifetime income stream that was purchased. Up until that time it is a transfer of risk.
I can help you build your guaranteed income floor. In addition to representing every company out there, there are initial action steps for you to take:
- Order my books (my gift to you)-no cost or obligation
- Request a personalized income floor quote-I don’t want you to be tentative. I’m not going to call and I’m not going to say you have to buy. We will have a grown up conversation on the phone, and I’ll send you the quotes. We’ll go over them and in combination with the books you’ll make a qualified and informed decision.
- No cost or obligation…or pesky phone calls. Nobody will show up on your door step. You’re going to deal with Stan The Annuity Man.
- Set up a specific phone appointment with me to go over the quotes. Then you make the decision on your own terms.
- There is a schedule a call button on my website. When you want to talk to me, let me know.
This is how the magic works. This is how the annuity sausage is made when getting a lifetime income stream and a guaranteed income floor in place.
So diving into income flooring using annuities:
- Complete transfer of risk-risk is transferred to the carrier
- Non-correlated asset-meaning it’s not market attached, meaning if the markets go into the toilet your income flooring plan will not change.
- Guarantees backed by claims paying ability of the annuity carrier-so going back to Comdex rankings it’s important you understand the company backing up the guarantee. If you are going to live to 150 you need to know that carrier is going to be there.
- Never outlive your money-try not to think of annuities as investments, they are contracts with guarantees. It’s hard because you’re thinking about ROI and annual yield, etc. They aren’t like a mutual fund, bond or ETF. Annuities are the only product on the planet that guarantee lifetime income regardless of how long you live.
- Income=return of principal + interest- All annuity types we’ll talk about today provide this. Anybody who tells you otherwise is lying. Anyone showing you growth scenarios, non-guaranteed scenarios to offset are being misleading. When you turn on an income stream using an annuity you are getting your money back with interest.
- Annuities are the only financial product that guarantees payment-pays you for as long as you live even if your balance eventually hits 0. I have hundreds of clients with account balances of 0 who are still getting paid from their lifetime income stream.
What comprises your income floor?
- Pension (if so fortunate)
- Social Security (best inflation annuity on the planet) it’s a political football with payment levels determined by votes not on your life expectancy as annuities are. Both work like a pension, so you can’t hate annuities and like your Social Security.
- Dividend stocks or ETFs
- Municipal bonds, corporate bonds, REITs, etc.
- Rental property
- RMDs from your Traditional IRA-You have to consider RMDs as part of your income stream.
What are the rules of annuity income flooring?
- Make your decision on the contractual guarantees only.
- Don’t try to time rates!-If you decide to wait for interest rates to go up, then you have to factor in the payments you’d be missing if you purchase the annuity today. Don’t be a rates guru. It’s not an investment but a contract. The primary pricing mechanism is your life expectancy, not the rates.
- Use as little $ as possible in an annuity, especially with income flooring, to contractually achieve your income flooring goals. I know the sales gods are rolling in their graves, and the industry is against this. I know it’s crazy, but the way to create income flooring is to use as little $ as possible.
- Consider laddering strategies-a lot of people say I hear you on the interest rates, but I just don’t want to go all in. We can ladder purchase date and start date and more.
- Lifetime income pricing is all about life expectancy. It’s a life expectancy bet between you and the carrier. The carrier prices the annuity based on when they think you’ll die. You take that bet thinking you or your spouse will outlive that date leaving the carrier on the hook to pay. That’s the value proposition of an annuity.
- Annuities are commodities, so shop and quote ALL carriers. Shop them all! Quote them all! You have to understand this! If some agent is only showing you only one, they either have bad inventory or they are trying to fund a trip to Bora Bora to drink for free with their wife or girlfriend. There’s no other reasons than these. They either have bad inventory or bad intentions. You need to shop all carriers-we will do that for you.
What is the true benefit proposition of a lifetime income stream?
There is No ROI until you die! Remember that! I’ve talked about that. You cannot figure that out. Yes, you can run numbers as if you’ll live to 95, and say, “Hey Stan, I’ve got a 6.1 return if I live to 95.” Whatever, until you die those numbers are theoretical. We can’t run those ROI numbers. All annuity lifetime income, whether it is from an income rider a deferred income annuity, any of these products, is a combination of return of principal and interest. Your goal truly is to get into the annuity companies pockets when it gets to 0. You want to outlive their life expectancy projections.
How is the income flooring sausage made? How is lifetime income priced?
There are life expectancy tables out there. It’s no more difficult than that. If you add another person to the income stream, doing a joint policy, the carriers will base the value on 2 lives and primarily on the younger of the two. It’s a life expectancy bet between you and the annuity company. Interest rates play a secondary role. You should be wondering, “What is the rate we are talking about?” We are following the US 10 Year Treasury, that’s the benchmark, the bogey, the one you need to follow. So when people show you back-tested numbers, it’s misleading because the 10 Year Treasury was at different levels from what it is now. So, yes interest rates do play a part in pricing, but a secondary role.
There are a couple different ways to do annuity income flooring.
Earlier we went through a list of the parts of the income floor: social security, pension payments, mutual funds, RMDs, etc. Add all those up and find what the gap in income is for you. You can reverse engineer the quote to solve for the specific monthly $ amount you still need. Then you’ll find the premium amount needed.
Or, you can start with a lump sum of $100,000 as an easy contractual multiple. You provide the specifics of your situation: when you want the money to start payments, if it’s joint or not, how to structure payments to beneficiaries or if you just want the highest payout as life only. You just submit your parameters, and you can multiply out that income stream if you’re wondering how much $200,000 is going to give you.
I’m the only one who will tell you this, but submit anything above a million dollars and a lot of companies give you poorer pricing. They call it the Healthy Wealthy Wise Rule meaning they think you know something that the carriers don’t. Typically $1 Million and below is where the preferential pricing is for the customer. If you say you have $3 Million to place in an annuity, we’ll probably split that up between 3 or 4 companies to ensure you get the best contractual pricing and the highest guarantees available. This is just knowledge. Food for thought. If you go to NYL, or Guardian, Met Life with $5 Million you probably won’t get as good of pricing as if you split between 4 or 5 companies.
What is the quote information needed? It’s very basic.
- IRA or non-IRA $$-Why? The taxation is different with different products. In an IRA, all money coming out of an IRA is taxed the same, right. It’s taxed as ordinary income. In a non-IRA setting a lot of these products, like DIAs-Deferred Income Annuities or SPIAs-Single Premium Immediate Annuities, are going to have tax beneficial income streams. Meaning they are annuitized, so you are getting your principal back with interest. You won’t be taxed on the premium, just the interest.
- State of residence-Why? Annuities are regulated at the state level, and annuity products are approved at a state level. So I have to go in based on your parameters to search for the best approved products in your state.
- Date(s) of birth-Single Life or Joint Life- They price your life expectancy to the day. All the information provided to me is confidential and we do not share it.
- Lump sum or specific $$ amount- We can reverse engineer for the specific dollar amount, or with the lump sum, we see how much income you can get with that $ amount given the parameters you provide.
- When do you want the income to start-Immediately? 7 years from now? 6 years from now? Be specific with your request! Tell me exactly how you want it to work in your dream scenario, and I’ll tell you if it’s contractually possible. If it is contractually possible, I’ll go quote every single carrier approved in your state to find you the highest contractual guarantees.
- Customize the payout structure
We need to dive a little deeper into what it means to customize the payout structure.
- Single Life or Joint Life-When I say that I am talking about whether you want the income stream to pay for Single Life or Joint Life. Do you want it to pay for your life time, or a spouse’s life time as well? We can run them both ways if you’d like to see a comparison.
- Life Only-You can look for the highest payout ever contractually-it’s Life Only. Why? When your Lear Jet hits the mountain the remaining premium left goes poof! Then the carrier keeps the rest of the money. People think that is the only way to structure an annuity, it’s not. It’s one of 15 or more choices.
- Life with Period Certain-You can choose Life with Period Certain- This means the annuity will pay you for life, regardless of how long you live. When you die and you have specified a period certain, it will pay out for whatever years remain within that period. For example, Life with 20 years certain: if you die year 5 of the contract, the payout will continue to beneficiaries for the next 15 years.
- Life with Installment Refund or Cash Refund-You can also do what I like for my clients to do, which is Life with Installment Refund or Life with Cash Refund. It is a Period Certain, but it is calculated to the day of your life expectancy. It is the highest lifetime income stream payment, with full principal protection of the initial amount. Meaning with Installment Refund it’s going to pay you for the rest of your life, and when you die whatever’s left in the account will go to your listed beneficiaries in payment form. With Cash Refund it’s going to pay you for life with the remaining balance (if there is any) going lump sum to your beneficiaries. Obviously, Installment Refund pays a little bit more guaranteed, because the insurance company holds onto the money longer.
- Period Certain Only-You might have a 7 year income gap, or a 10 year income gap that you need to fill. You can just buy a 10 Year Certain or 7 Year Certain to fill that income gap period.
Customize it. You tell me exactly how you need it to work. I’ll find the contractual guarantees and tell you if it’s possible. There are numerous other choices. We’ve only covered a few of them, there’s 15 or more of them. Tell me what you need or at least get on the phone and we can discuss all of the options.
It really comes down to whether you want Income Now or Income Later.
- Income Now really comes down to 2 products:(SPIAs, CGAs) Single Premium Immediate Annuities or Charitable Gift Annuities- Income starts with both of these as soon as 30 days or deferred start up to 1 year. Immediately in this year means 30 days from now up to a year from now.
- Income Later-I don’t need it now, but need it down the road. We’re talking here about (DIAs) Deferred Income Annuities,( QLACs) Qualified Longevity Annuity Contracts, and Income Riders. These can start income payments as early as 13 months out with some available to defer out 40 years with some deferred income annuities.
Diving deeper into Income Now:
- SPIA (Single Premium Immediate Annuity) is the original annuity design from the Roman soldiers and their families for dutiful service to the Roman Empire. It was the only annuity type sold in the USA until the 1950s. It’s still the most efficient way with the highest contractual guarantees for immediate income. It has tax preferential income with non-IRA $$. Why? You get your money back with interest. You pay tax on the interest, not the principal. If I do a quote for you that is a non-IRA quote you see the income stream guarantee total and then the taxation of that income stream. In the industry they call that the exclusion ratio-how much of that income is excluded from taxes.
- CGAs (Charitable Gift Annuities)-I do not sell these. I think they are great, but charities sell these. Hospitals, Universities and other non-profits and charities offer them. They are very efficient. A lot of them offer deferred annuities. The difference is that when you die the charity will keep any remaining balance. You can visit the charity you are considering to see what kind of product they offer. There is a big tax write-off up front.
SPIA-Single Premium Immediate Annuity
- First SPIAs during Roman times
- Only annuity type sold in U.S. until 1950s-The big boys play here. You have to have real reserve requirements to offer these. The grand-daddies offer these. The companies you’ve heard of and are comfortable with offer these.
- Straight transfer of risk contract
- No moving parts, no annual fees
- Commodity quote-You’ve got to quote ALL CARRIERS! Do not allow anyone to show you only 1 or 2. When I show you an immediate annuity quote I’m typically showing you the top 7-10. These quotes are based upon your situation. These quotes expire. So you might have the same parameters, but if time passes you need to requote. These products change. Look at these products as if they are a gallon of milk. It’s a commodity product that expires. So to those people who notice that last month Met Life was #1 and this month it’s NYL, well that’s to be expected. These are open market commodities.
- Life expectancy drives the pricing
CGA-Charitable Gift Annuity
- Functions primarily like a SPIA-it can function like a DIA. Some offer deferral periods, so you need to check with the specific charity you are considering.
- Universities, charities, non-profits
- Can be set up Single or Joint Life
- Organization keeps the money when you die
- American Council on Gift Annuities www.acga-web.org – This is the overseeing body that has a website for you to visit and do some research. I don’t sell them. You can’t sell them! It’s not like your University just randomly comes up with something. There are fantastic people at the ACGA, so visit with them and learn about what is offered.
- DIA (Deferred Income Annuity)-Same structure as a SPIA. No moving parts and no annual fees.
- QLAC (Qualified Longevity Annuity Contract)-DIA structure that can ONLY be used in a Traditional IRA. Right now the rule is that you can use the lesser of $125,000 or 25% of the total IRA/Qualified (non-Roth) assets. You can read about these in my QLAC Owner’s Manual. This product was originally offered in 2014-that’s how young this product is. One of the reasons I encourage you to get my books is to read about these products. These Owner’s Manuals are generally 50-60 pages. You can sit down and read through them in 20 minutes.
- Income Riders-. Most agents and advisors lean here because the commissions attached to indexed annuities or variable annuities, which is where income riders are generally offered, are higher. When I show income later I show both deferred income annuities and income riders and we talk about the value propositions of each. Each are different. Can be attached to deferred annuities (VAs & FIAs). The rider is really just a separate calculation that can only be used as income. So if somebody says they can get you a 7% annuity-they are talking about monopoly money. It’s a phantom account used to calculate that first income payment. Jimmy Carter is not in office. There isn’t any 7% yield. If you don’t believe me, and you bought one, try calling the carrier to see if they can send you that money. They can’t. It’s not that they are bad, they are just sold wrong. Income riders are good for income later, but you need to understand the limitations of the product.
DIA-Deferred Income Annuity
- Aka: “Longevity Annuity”
- SPIA design & structure, but deferred payment start-It’s an immediate annuity design.
- No moving parts, no annual fees
- Defer for 13 months to 40+ years-No annual fees, no market attachments
- Commodity quote-16 to20 companies, the Big Boys quote this, and we’re going to quote them all for you. Here again the DIA Owner’s Manual helps explain the good and the bad about this product.
- Life Expectancy is the primary pricing mechanism.
QLAC-Qualified Longevity Annuity Contracts
- Introduced in 2014 by Labor Dept. & IRS- Originally introduced for the younger workers to start planning within their 401K for future income. So with some 401K plans QLACs are offered in those. It’s like the government is tapping those youngsters on the shoulder saying-Stop depending on Social Security for your retirement, because it wasn’t set up for that. The good news is that they also included within a Traditional IRA structure-Not a ROTH.
- DIA structure used in Traditional IRAs
- Lesser of 25% of IRA total or $125,000
- Lowers RMDs-That $125K/ 25% is not included in your RMD calculations. For example: you have a 500K IRA with 125K in a QLAC. You can defer payments out to as far as age 85, you don’t have to go that far. The RMDs are calculated on 375K not 500K.
- Future lifetime income stream with spouse- The good news is you can also attach your spouse as a future secondary annuitant to the QLAC, literally turning your personal IRA into a pension plan for both you and your spouse. That’s a good thing.
- No moving parts, no annual fees.
- Primarily attached to VAs & FIAs
- Separate calculation from Accumulation Value
- Draw a line down the middle of the page-The left hand side is called the accumulation value side (Variable side holds mutual funds, FIA side holds index options). The right hand side is the income rider side. These are 2 separate calculations. So, 99.9% of the time the right hand column, or the Rider calculation, is going to be higher. They are designed that way because the carrier wants to hold onto the money. On the rider side: you cannot transfer the amount, you can’t peel off the interest in any way, and you can’t cash it in lump sum.
- Monopoly money used to calculate initial income payment amount-The only use for the rider account level is to calculate future income at a specific time. It’s monopoly money. Look at it like a phantom account. For instance if there is a 6% income rider on the right hand side it grows at that amount, until you turn on the income stream, then it goes away- poof! It’s not true yield, it’s a phantom account.
- Numerous types of Riders (i.e. commodities)-Don’t let anybody say they have the best income rider. They don’t. You have to quote all income riders to see who has the highest contractual payout. There is a lot of bait and switch. A high % on an income rider does not mean there is a high contractual payout. That’s why it’s important to quote all the carriers for future income.
What about inflation? How do annuities adjust for inflation? What about hyper-inflation?
There is not an annuity on the planet that really tracks and solves for inflation.
- COLA (Cost of Living Adjustment) – You can say, “But Stan, some guy showed me a COLA rider.” This is an amount or percentage you can ask for your income stream to increase by, let’s say 3% for the life of the policy. Sounds great right?
- CPI-U (Consumer Price Index) – You can also say, “Stan, I want my payment amount to increase by the CPI-U.” You can attach those increases at the time of payment of an immediate or a deferred annuity. Guess what the insurance company does. Guess what the annuity company does if they attach a COLA or CPI-U. Guess why they have the big buildings with their logo on the plates. They lower your payment. They significantly lower the payment. Depending on your age it can be a 5- 9 year breakeven point using the exact same annuity. In other words when you want your payments to increase they are just going to lower the payment.
- Social Security (VIA-Voter Inflation Adjustment) – I came up with an acronym-it’s a VIA adjustment. Why? Because politicians know that people receiving social security are regular voters. They will raise it to get you to vote, and then we taxpayers will have to pay for it. That’s the best inflation annuity on the planet. I will run quotes that include COLAs and CPI-U increases, so you can see them side by side with the same product without them. Then you can see how they price them. Maybe in a laddering situation you might buy one of each, but this way you can see they aren’t too good to be true. Annuity companies don’t give anything away.
- Index Annuity “hopes & dreams” don’t exist! The gunslingers only sell Index annuities. If you have the flu they’d prescribe an index annuity. Or if you sprain your ankle they’ll say you need an indexed annuity. Or you wreck your car, suddenly you need an indexed annuity. No! If someone says they have an indexed annuity that increases income when the index increases, what is the carrier going to do? They are going to lower the payment when compared to income riders that don’t have that potential.
- SOLUTION: Buy a SPIA at the time you need more income- Nobody knows when inflation is going to hit, so the best thing to do (in most cases) when inflation hits or when you find you need to fill an income gap, then buy a SPIA at that time. That’s the most simplistic way to do it.
- KEY POINT: Annuity companies lower the initial payment if you attach these increases. A COLA, a CPI-U increase, or buy an indexed annuity with the hopes & dreams that the index will keep up with inflation and increase the income stream, and they are just going to lower the payment. You need to look at the breakeven points. What happens if you get that COLA or don’t get that COLA? We will run those comparison numbers for you. You already own the best inflation annuity on the planet, right? Remember? It’s the Voter Inflation Adjustment: Social Security.
IRA or Non-IRA Account
You need to let me know which you would use in order to run a quote.
- DIAs & SPIAs have tax-preferential income streams in a non-IRA account-Why? They are preferential because you are paying taxes only on the interest.
- Exclusion Ration=only pay taxes on interest part of the income stream (principal + interest)
- IRA annuity income is taxed as ordinary income levels, with no exclusion ratio.-If anybody tells you they have figured out a way for you to not pay taxes on your IRA money that’s been deferring for all these years-Run! Run down the road screaming like your hair is on fire. Nobody has figured that out. The IRS is not going to allow that nonsense. You and I both know it, so don’t fall for it!
- Income Riders in a non-IRA account are taxed LIFO (Last In First Out) or gains first at ordinary income levels- DIAs and SPIAs have tax preferential treatment, but income riders are taxed gains first. I am not a tax person, you need to talk to your CPA and tax lawyer, but we can lay it out so you can take that information to them for the conversation. Then they can sign off on it.
Laddering Strategies-There’s 2 ways to ladder.
- Ladder the purchase date- Example: Buy a SPIA every year for 5 years. You say, “Stan I have 500K to put in an immediate annuity, but feel queasy.” Let’s ladder the purchase dates buying 100K every year for the next 5 years. What happens here? If rates don’t move you are still older at purchase date so the quotes will be higher because your life expectancy will be less. If rates do move higher, even though it is a secondary pricing mechanism, you’ll get a better quote.
- Ladder the start date of the income stream- The best way to combat inflation is to have income starting at a future date. For example you can have a QLAC starting income payments at age 85, or sooner. But with income starting at different intervals as you get older it’s the best way to combat inflation. Example: Buy 3 annuities at the same time with income starting at different dates for each policy. Say you’re 70, so you start income at 75, 80, and 85.
- Ladder both purchase & start date- You can ladder purchase date and payment start date. Once again tell me how exactly you want the income floor to work for your situation and we will customize that quote for you and quote all carriers.
How do you get a customized Income Floor quote built to meet your specific goals?
There are 3 primary questions to answer. How much, when to start, and how it’s structured.
- How much income do you need on a monthly basis, or what lump sum $$ amount to you want to use? – You add up all your income floor options: social security, pension, rental property, REITs, the bonds, etc., but still need an additional amount monthly. Tell me what that amount is, or you may have a lump sum with an idea you need some income and are wondering what monthly income that lump sum will bring.
- When do you want the contractually guaranteed income to start?
- How do you want to structure the income stream? Joint Life-Single Life. Put it in plain English for me. Tell me, “I want to make sure my beneficiaries get all the unused money, because I don’t want the evil annuity company to keep a penny”, or “I could care less about my beneficiaries. I don’t like them anymore. They have enough money. They’ve got enough money from me. Just give me and Marge or me and my partner the highest contractual guarantees available.”
Specific Quote Information Needed
- IRA or non-IRA $$
- State of residence
- Single Life or Joint Life –Dates of birth
- Lump sum or specific monthly $$ amount
- When do you want the income to start
- Base your decision on the “worst case” guarantees
- Customizing the payout structure
Email me these specifics: firstname.lastname@example.org
I don’t have any Jr. Agents working for me. You get me. We have thousands of clients, but you’re going to get me. I’m not farming you off to anybody. You are talking to me. I need to sign off on everything. I take responsibility for the recommendations.
To Do List
- Order my books (my gift) – no cost or obligation. It will show up in a Willy Wonka Golden Mailer
- Request a quote for your specific situation
- No cost, obligation, or pesky phone calls- No Jr. Agent will show up at your door. We will treat you like a grown up and have a conversation.
- Set a scheduled phone appointment with me if needed.-I’ll call right on the nose. It’s a reflection of the military school my father sent me to.
Top 5 Questions
- Can I combine IRA & Non-IRA assets? – Yes. Just be specific and tell me which assets you’re talking about and we’ll pick the best products based on that asset stream.
- Can I see Single Life and Joint Life quotes? – Yes, you can do both and see the difference. A lot of times the difference isn’t that much, but you need to see how they are pricing life expectancy. Then we customize beneficiaries.
- Why does my state of residence matter? Aren’t annuities all over the country? – Yes they are national, but regulated at the state level. Carriers literally have to get the products they offer approved in every state, which is probably a good revenue stream for the states. Not all products are approved in every state. When someone says they have the best product. No they don’t. They probably only sell in a 30 mile radius, and only learned about one product to make enough money to go on a trip to Italy. Tell me your state of residence.
- Is there any cost or obligation for books or quotes? – No. Test me on that. You can buy a kindle version on Amazon. That would make my wife happy, because then we’d get all those royalties. If you email your physical mailing address, I’ll ship the actual books to you.
- Should I wait for interest rates to go up more? I say no. Don’t try to be a genius. Nobody can figure out rates, but you can ladder purchase dates to address the possibility of rates rising.
Lastly, someone asked about life insurance as an income revenue. If I go too far into this topic my head could pop off. I’ll just say any time you take money out of a life insurance policy it is a LOAN. It isn’t tax free income. A loan is not income. Life insurance is the best death benefit. It is the best return on investment that you will never see. Why? Because you are dead, but it is not income.