Annuity Examples Annuity Ladders

Today we'll talk about annuity examples and look at annuity laddering strategies. "Ladder? What are you talking about?" Yeah, annuity laddering strategies.

You've probably in the past, laddered CDs or laddered bonds. Guess what? You can ladder annuities. And I'm the best laddering annuity dude on the planet. Why? I'm Stan The Annuity Man®. Of course, we're looking at all the ways to maximize the contractual guarantees for your specific situation, and often that means laddering.

Should You Climb the Annuity Ladder?

Conceptually, you're stair-stepping. You can do ladders two ways with annuities. You can ladder Principal Protection, or you can ladder income. "Laddering income. What? Huh?" Yes. Let's do the easy one, ladder in Principle Protection. As you all know, my saying is, "You own an annuity for what it will do®, not what it might do." The will do, is the contractual guarantee of the policy. And I have an acronym that is very easy to understand and remember. The acronym is PILL. P stands for Principal Protection, I stands for Income for Life, L stands for Legacy, and the other L stands for confinement care, Long-Term Care. Okay, that's what it stands for. But we're talking about Principal Protection. So how do you ladder Principal Protection? Here's an example. A person called the other day and said, "I've got $400,000 to put in MYGAs." Multi-Year Guaranteed Annuities are the annuity industry's version of a CD. It's a CD- type, and it's a guaranteed interest rate for a specific period of time. So, under this example, he said, "Okay, $400,000." I said, "Since none of us know where interest rates will go..." And by the way, if anyone tells you they do, they don't. And the people that do know won't tell you. I always tell people, "If someone is selling, get rich quick stock market tips. They're not making any money in the stock market, and they're selling you the get rich quick package." People that know don't tell.

With annuities, these are contracts, and you need to understand the contracts. Now, looking at Principal Protection and this guy's example, $400,000. We did just a basic ladder. We bought a $100,000 in a two year, a $100,000 in a three year, a $100,000 in a four year, and a $100,000 in a five year. We are still determining where rates will go in the Principal Protection part. We have a two, three, four, and a five year, a $100,000 in each. Then we can attach and transfer that Multi-Year Guaranteed Annuity to another higher yielding, Multi-Year Guaranteed Annuity, or you could transfer to another annuity. And remember, with all annuity types, you can use them in IRA, Non-IRA, and Roth-IRA. The only exception is Qualified Longevity Annuity Contracts. You can only use that in a traditional IRA. But with MYGAs you can protect the principle, ladder it, and use all different account types.

Principal Protection

Let's talk about Principal Protection in another laddering fashion. I have come up with something called a Mixed-Fixed Ladder. It is a combination of using Multi-Year Guaranteed Annuities and Fixed Index Annuities. Both are CD-type products. Yes, Index Annuities are CD-type products designed in 1995, and that's what they do. And what we do is mix and match. We'll do the same example of the $400,000, and we might do a two-year, a four-year, a five-year MYGA, and then a seven-year fixed Index Annuity, hoping to get a little more yield out of that. So that's the way to ladder Principal Protection.

Lifetime Income

Let's go to Lifetime Income. "How do you do that, Stan The Annuity Man, America's Annuity Agent®?" Here's the way you do it. Many say, "Well, I know Stan The Annuity Man that Lifetime Income is primarily based on your life expectancy at the time you take the payment, and interest rates play a secondary role. And what if interest rates did move from current rates to 4% on the 10-year?" Yes, it would move the needle a little, but it's still a secondary role. But a lot of people don't want to go all in. So, what we do, is we'll ladder the income purchase. In other words, a person comes to me and says, "I have $300,000 for an Immediate Annuity." I was like, "Great, let's do this. Let's buy a $100,000 Immediate Annuity this year. Same time next year, buy another $100,000. Same time next year, buy another $100,000. That's laddering the purchase. Or you could say, "I want to have an income start at $300,000. I want to buy an Immediate Annuity now for Lifetime Income. Then I want to buy two Deferred Income Annuities that start two years from now and three years from now." That's laddering the income start date. And to get fancy, you can do a combination of the two. You can ladder the income purchase date, the annuity purchase date, and you can ladder the income start date. He's like, "Wait a minute, that's a lot Stan, my head is spinning. Why would I do that?" I don't know. We're going to get on the phone, and we're going to talk about your specific situation. And I'm going to come up with a customized plan. And, based upon what you tell me confidentially, I'm going to come up with a laddering strategy that makes sense and can contractually guarantee the numbers you want to achieve for you, your family, you and your spouse, or partner.

Let's Have a Talk

That's the reason we need to talk. Am I going to be your friend and talk about golf and the latest football game? No, I'm not. But I'm going to be brutally factual about annuities and the best agent and advisor you have ever had in your life because you're going to get brutally factual information. And I'm going to take that confidential information that you give to me, and we never, ever, ever share it. I'm going to put together a customized plan for you, which we can discuss, and go over the numbers, the benefits and limitations, the good and the bad. That's the reason we're talking about laddering.

I don't want to put the ladder in your head because that would hurt. I want to put the laddering strategies thought, in your head, because that might be something we do. Annuities are customizable, even though they're commodity products when it comes to strategy. You don't want to talk to some 30- year-old. You want to talk to someone that's been in the business 30 years, that's seen it and done it. I know more than most agents will ever know, seriously. And my staff, oh, my goodness! My CEO has been doing this forever, and we have seen it all.

Again, you can look at annuity laddering strategies in two ways. I want a ladder for Principal Protection or a ladder for Lifetime Income, and you can do both. So, my explanation of laddering seems so appealing that it's now stuck in your head, and you go, "Man, I need to do a ladder. Laddering sounds fantastic, and laddering sounds excellent to me. Laddering, laddering, laddering, laddering, laddering." No, just because you can ladder doesn't mean you should ladder. I'm giving you some examples of just the high level that we play at.

Conclusion

Listen, I've got an extensive background. I've worked for everybody, Morgan Stanley, UBS, I even work for the old firms, PaineWebber, Dean Witter. I've been there, done that, and seen it. So, I look at these policies in a different way. Yes, they're contracts, but I'm always looking at ways to maximize the contractual guarantee. Not some hypothetical theoretical, projected back test, unicorn chasing the butterfly nonsense. You never hear that from me. We're always going to look at the contractual guarantees. I'm trying to convey that when we talk, I might come up with an annuity laddering strategy, but don't call me and say, "I want to do an annuity ladder." Under that premise, the only, yes, let's do an annuity ladder might be for Principal Protection, but the income part, when you ladder for income, that's a whole different ballgame. And it comes down to our confidential conversations about your situation to determine if laddering makes sense. It might, it might not, but just remember laddering is a great thing, but you don't ladder just because you can ladder.

Never forget to live in the reality, not the dream with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.