The Facts About Different Annuity Types

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Stan: Hi I’m Stan The Annuity Man. I’m sitting here with Gary from Cannex. Gary, we are sitting here to do a video series.

Gary: Yes we are.

Stan: And the reason that we’re going to do the video series is we’re going to explain to people the good, the bad, the ugly, the limitations and benefits of the best annuities out there, the six annuity types. There’s really six primary types that people look at.

Now, the problem is there’s a lot of people out there who say, “I hate all annuities,”, which is like saying, “I hate all restaurants”, or “I hate all shoes”, or “I hate all cars”, it’s ridiculous.

Gary: Right.

Stan: Annuities are contracts. So, they might fit you, they might not fit you. People ask me all the time, “Stan, which is the best annuity that you have?”, or “Stan, do I even need an annuity?” I don’t know, I don’t know what you’re trying to solve for

I think one of the interesting parts about this video series, Gary, is that people might watch the video series and say, “You know what? I don’t need an annuity.” I’m okay with that. Are you okay with that?

Gary: Oh, absolutely.

Stan: Absolutely, because annuities aren’t for everybody, so let’s tell the people what we’re going to do.

What are the six types of annuities that we’re going to cover?

Gary: Sure. Well, the six types.

Actually we will break them into two different groups: income products, and annuities that may provide growth. First we’ll cover the income products.

The granddaddy of all annuities is the immediate income annuity, and some people refer to those as a SPIA.

Stan: The first income product we cover is the Single Premium Immediate Annuity which is an immediate pension product.

Gary: Right.

Stan: Pension.

Gary: Pension. Buy my pension right now.

Stan: That’s it. By the way, that started in the Roman times, just to get off track a little bit here, but that’s where it started.

Gary: Right.

Stan: I didn’t do really well in Latin so, but the word annua A-N-N-U-A, which annuity comes from, means payment.

Gary: Right.

Stan: In Roman times, the Roman soldiers and their family were awarded a pension, an annua, for their dutiful service. That’s where this thing all started. The Single Premium Immediate Annuity is the granddaddy. Really it was the only annuity sold in this country until about in the 1950s.

Gary: Right.

Stan: A lot of people out there think that, hey, that’s the only one still out there. There are other types. What’s the other type we’re going to look at in that income world?

Gary: It’s the Deferred Income Annuity. In this case, I’m going to buy my pension, but my income’s not going to start right away. I’m going to wait a few years, and I can wait as long as 2 years or way out in the future maybe 30, 35, 40 years.

Stan: And that is a cousin of SPIA, that’s a SPIA structure, SPIA is for income now.

DIA, or Deferred Income Annuities, are also called longevity annuities, and they are used for income later. Right?

Gary: Right.

Stan: All right, what’s the third one that we’re going to cover in the income family?

Gary: The third income producing annuity is also a type of Deferred Income Annuity, or DIA, and it’s called a QLAC, or Qualified Longevity Annuity Contract. We’re going to cover this one separately.

Stan: What’s the Q stand for?

Gary: Qualified.

Stan: It’s a Qualified Longevity Annuity Contract, or QLAC. So, what does it do?

Gary: Well, a QLAC uses your (Traditional) IRA money, or your 401k money. It’s similar to a Deferred Income Annuity., but you get to defer your first pension payment until way in the future. The reason why we’re breaking this out separately, is because there’s so much benefit to being able to defer past your Required Minimum Distribution (which starts at age 70.5).

Stan: People need to understand that this is the newest annuity type out there. It was developed and introduced by our friends at the IRS and the Department of Treasury in 2014. You’re very good friends with them, I know, I am too … QLACs provide future income in addition to Social Security. Social Security, as we all know, was not put on the planet for income. They’re kind of tapping everyone on the shoulder and saying, “Hey, everyone’s got these traditional IRAs, not a Roth, but IRAs or 401k’s, let’s take part of those asserts and guarantee future income.”

So, we’ve got the three income annuities: Single Premium Immediate Annuity as you said, and then the offshoot to that which is a Deferred Income Annuity, and then the offshoot to the Deferred Income Annuity is the QLAC.

Gary: Right.

Stan: So, we’re going to cover three income annuity types, then, we’re going to switch a little bit to talk about the three types of annuities that are about growth and control.

Gary: The first of these growth products will be your Fixed Rate Annuity.

Stan: Okay.

Gary: That’s probably the most basic.

Stan: Right.

Gary: You’re getting a CD-like return. In fact, it’s like buying a CD, if you will.

Stan: Fixed Rate Annuities, or Multi Year Guarantee Annuities are a CD-type annuity.

Multi Year Guarantee Annuity is the industry’s version of the CD. One of the key takeaways that people are going to understand is: if you’re a CD buyer, you should probably be looking at Multi Year Guarantee Annuities, because they work kind of the same. There is a guaranteed percentage for a specific period of time. We will explain the tax benefits involved and what separates them. We’re not saying that a CD is better than MYGA or a MYGA is better than a CD, what we’re saying is they’re kind of in the same group, all right? What’s the next type of growth and control type of annuity?

Gary: The second growth and/or control annuity type would be a Fixed Index Annuity.

Stan: Indexed annuity.

Gary: Right. So, essentially it’s like buying a CD, again, but you may get a little bit more of an enhanced return than on that CD.

Stan: Okay. The first Indexed Annuity was put on the planet in 1995. They were designed to compete with CD returns, and you know what’s interesting?

If you look at the historical rates of return for indexed annuities, that’s what they do-they outperform CDs a little bit.

They’re sold as market products, etc., but they’re not.

Gary: No, you’re not participating in the market.

Stan: They might give you a little bit of an enhanced return from that. We’re going to take these kind of growth products, the Multi-Year Guarantee Annuity & the Index Annuity, and we’re going to say, “Hey, yes you can hold onto your money. Yes, you can control your money. You know what? We’re going to show you ways to create income as well.”

Gary: The Variable Annuity is the last annuity type we’ll talk about.

Stan: Okay.

Gary: So, you’re buying CD-like returns in either a MYGA or an Index Annuity, but in the case of Variable Annuities, you’re investing in mutual funds.

Stan: A Variable Annuity is a security. The other five types: Single Premium Immediate Annuities, Deferred Income Annuities, QLACs, Fixed Rate Annuities, MYGAs, and Index Annuities, those aren’t securities. These are life insurance products.

Gary: That’s correct.

Stan: A Variable annuity is not an insurance product. Explain the difference a little bit, and we’ll get deeper into the details obviously in the series.

Gary: Well certainly there are life insurance components around it, because you’re in an annuity contract, but you’re essentially investing in the market and you have the availability to allocate your portfolio across any type of spectrum.

Stan: So real market returns, right?

Gary: Yeah.

Stan: Now, I think what’s interesting about this video series besides those six annuity types, is that we’re going to go deep into it and we’re going to show quotes too, right?

Gary: Yes.

Stan: We’re going to show specific numbers and how the quote system works, and we’re also going to show why it’s important to use Cannex.

Why am I sitting with you? I consider myself the top independent agent in the country. At a minimum, Gary, I’m the tallest. I love Cannex, because I don’t go into a solution with a specific carrier in mind that I like. When people say, “Stan I want to solve for something (P.I.L.L.),” I go, “Great, let’s put in your parameters. Let’s use the Cannex system. Let’s find the highest contractual guarantees based on your specific situation given the state you live in.”

Gary: Right.

Stan: That’s what Cannex does. You break down all six of these products, so that people can make an informed decision. I think this video series is going to show people, hey here’s the product, and if you have an interest in the product, here’s the system.

Use Cannex to create the list of the highest contractual guarantees possible for you, and then you can make an informed decision.

Tell the people a little bit about Cannex, who Cannex is. I mean, Stan the Annuity Man, I don’t really have to say much more, just Google it, but Cannex, what’s Cannex?

Gary: Well, essentially we do independent pricing and analytics around the annuity products. For the income annuity products, it’s a pretty simple calculation. We program those models into our platform, then you get essentially the ability to compare the rates and the illustrations, as far as what type of income you can get based on your specific profile and your intended use with that contract. When you get into the growth products, you get a little bit more complicated, in that not only are you getting the growth or the principle protection that some of those can provide, but you’re also adding additional elements of guarantees, especially around income. So, what we do in that case is we also program the mechanics of those products so that you kind of view what the various guarantees are and break them apart, if you will, so that you can make an informed decision. So, if your preference is say a death benefit versus an income benefit, or even principle protection, you can break those apart and then understand what those levers look like, so that you can make the most appropriate choice.

Stan: A lot of smart people at Cannex it sounds like.

Gary: Apparently.

Stan: Exactly. Well that’s fantastic. You know most of the video series that are out there end up turning into a sales pitch. You have to end up with your fist up because the guys coming at you and trying to sell you something, right? This isn’t that. What we’re trying to do is be informative. We’re trying to inform. So for me, the goal of the series is to take the six types we mentioned and strip them down, explain them & run quotes so people can be familiar with the process. We will show how Cannex can help you make a good decision. That’s my goal, what are your goals?

Gary: I want to make sure we provide a simple understanding of what these products do, if you will. Go through what’s good about them, maybe what’s not so good about them, and do it in simple English and not get too technical. Some people can get very wrapped up into all the minutia, and the technical aspects of these products. What we want to accomplish here is to explain at a very high level what they do, while using simple English.

Bringing understanding that annuities in general, like you said, they me be the right thing for you, they may not be the right thing for you. Either way they’re discipline products. So we’ll make some references and comparisons to bank CDs, where in return for that guarantee, you need the discipline to maybe hang onto that product for a while so you can get that benefit. With bank CDs, you only have to stick in there for 1, 2, or 3 years. With annuities, you can go from 3 to 5, to 30 years.

Stan: Right.

Gary: So there’s the trade-off. There’s a trade-off between the amount of guarantees you can get from these products, and the amount of time that you’re willing to stick with it.

Stan: They’re customizable.

Gary: Absolutely.

Stan: Hey, I’m Stan The Annuity Man, this has been a lot of fun doing this video with you Gary. I hope we can do more.

This video series about annuity types and using Cannex to investigate them, is designed to be informative. You can go back and watch videos about individual annuity types: Single Premium Immediate Annuities, Qualified Longevity Annuity Contracts, Deferred Income Annuities, Variable Annuities, Fixed Index Annuities, and Index Annuities. You’re going to be able to understand how they work, and to determine if you even need an annuity. Gary, what do you think?

Gary: Absolutely. We want to provide this information in a way that it’s easy to understand and transparent, so ultimately you can make an informed decision as to whether or not any type of annuity is right for you.

Stan: Excellent. See you next time, Gary. I hope you all enjoy the videos.

Gary: Take care.