The topic for today? Biscuits and annuities. Yeah, biscuits like the biscuits you eat. See, you're saying, "Wait a minute, Stan, what do biscuits have to do with annuities?" Well, first of all, I'm from the south. I love biscuits. I've always loved biscuits. I love biscuits with gravy. I love biscuits with butter. I love biscuits with jelly. I love biscuits with eggs. I like biscuits. Love it, period.
Let's talk about biscuits and annuities. So, biscuits and annuities. Now, you can just get a plain biscuit without anything on it. What's a plain biscuit in the annuity world? A plain biscuit is a Single Premium Immediate Annuity or a Deferred Income Annuity. That's a plain biscuit for a lifetime income. There's nothing on it, there are no annual fees, there are no moving parts, and there are no market attachments. It's a straight transfer of risk that's based on your life expectancy, or life expectancies if it's joined, at the time you take the payment. That's your plain biscuit lifetime income annuity.
Now, I guess you could also say we're cooking biscuits for the weekend. That would be your Qualified Longevity Annuity Contract that you can use inside of your IRA for future lifetime income needs. So, you're planning the Sunday dinner with Grandma and Grandpa and Uncle Joe, or Chester as I call... And Chester, "Where are the biscuits? I need some biscuits because I love biscuits and buttermilk biscuits. I love them buttermilk biscuit." You're cooking it for Sunday. That's QLAC. You're putting it off for the future, but you know what's coming. You've got the biscuit.
The other biscuit for lifetime income would have a little bit of jelly on it. A little bit of butter. That's an Income Rider. So, a biscuit Income Rider would be, it's attached typically to an Indexed Annuity at the time of application. It's an attached benefit for a future lifetime income. And the reason it's got a little jelly and a little butter on it is that it comes with a fee for the life of the policy that's taken out of the accumulation value. So, if you draw a line down the middle blank sheet of paper, the left-hand side is the indexed option side, and then the right-hand side is the Income Rider side. That income writer comes with a fee, but it's taken out of the biscuit on the Indexed Annuity side. It's got a little butter and a little jelly on that.
I always say, annuity companies had the big buildings for a reason. Why? Because they're charging a fee for the life of the policy. That doesn't make Income Riders bad, but you must know that the fees are not taken out of the Income Rider’s side. So, when you're buying lifetime income in the future and you want little jelly on it, a little butter, and you want to have your cake and eat it to a little bit, meaning control the asset that yet has a lifetime income stream; that biscuit for lifetime income is called an Income Rider.
So, that's biscuits and income. But let's talk about biscuits for accumulation. What's a plain biscuit? "Stan, I don't want any jelly. I don't want any gravy. I don't want any butter. I don't want any of that. I just want the biscuit. I want the biscuit for accumulation. Simple." That's a Multi-Year Guaranteed Annuity. Multi-Year Guaranteed Annuities are the CD version in the annuity world. Is it a CD? No, but it works like a CD. It functions as a CD because it gives you a guaranteed interest rate annually for a specific period of time that you choose. It could be one year in length, it could be two years in length, or it could be three years in length. It would be all the way out to 10 years in length.
So, plain biscuits for accumulation. Multi-Year Guaranteed Annuities. There are no indexed options. There are no caps and spreads and bonuses and all that. There are no bad chicken dinner seminars serving biscuits talking about Multi-Year Guaranteed Annuities, which means that those probably are pro-consumer because the commissions are low, even though all the commissions are built into annuities. But the reason that nobody ever shows you that plain biscuit for accumulation, that MYGA, is because that agent wants the biscuits and gravy, and what's the gravy? The gravy is that big commission that they're getting from the annuity company to jam that Indexed Annuity down your throat.
This leads us to the biscuits and gravy Indexed Annuity. Is it a bad product? No, it's not a bad product. Indexed Annuities were put on the planet in 1995 as a solution for a little bit better returns than a normal CD return. That was the hope. That's what you're trying to do. It's not a market upside with no downside. It's not market participation with no downside. It's not that. If it was, then I'm in Janet Yellen's office patting her on the top of the head and going, "Hey, Janet, first of all, inflation is not transitory, but this is the best product ever and you all should buy it." No, I'm not doing that.
The biscuits and gravy, the problem with that, agents want to eat it all. But Indexed Annuities in our world, in the truthful and factual world of The Annuity Man, and you can get quotes at TheAnnuityMan.com, and you can get my book on Indexed Annuities as well; it's a CD product. It's a principle protection product. It's not a security, and it's a very efficient delivery system for that biscuit, with a little jam and a little butter on it. That Income Rider we talked about.
Now, there are all other kinds of biscuits out there for annuities. There are biscuits for charitable gift annuities, love charitable gift annuities. Of course, we do not sell them. I do like them. If you have a charity of choice, they can give you that Immediate Annuity type return. Here's the biscuit analogy for a charitable gift annuity. You take a bite out of the biscuit and then you give the biscuit back. The rest of the biscuit you give back to the charity.
Of course, there are Variable Annuity biscuits, which are... Very expensive. That's like going to the froufrou restaurant and you say, "I'll have the biscuit. I want a biscuit." They bring you the biscuit and the biscuit is expensive. It's expensive. It's just a biscuit, but it's expensive. "How much for the butter?" "Well, that's more." "Well, how much if I want jelly?" "Well, we got to charge more for that." "Well, how about if I want gravy?" "Well then, we really got to charge you for that." That's a Variable Annuity biscuit. I'm not putting it down, but the majority of Variable Annuities sold out there has an average annual expense of 3% every year. That's an expensive biscuit.
And then the newest biscuit is these Buffer Annuities. Buffer Annuity biscuits. I call them copay biscuits, meaning that you share in some of the downsides. That sounds great in the bull market, but when it gets to be a bear market and choppy, and that person calls you up and says, "Oh, by the way, we're going to take a little bit of money out that account because you have to share on the downside." You're going to be like, "I don't like that biscuit." That's like chewing the biscuit and then the agent and the advisor say, "Whoa. Before you swallow that, spit that up. Get that back to us. You can't swallow that yummy biscuit because the market went down and you got to share in it."
So when it comes to annuities and biscuits, I like the simple biscuit. If we have to add butter and jelly to them, then great. If you want the full Monty with the gravy, I'm going to fully explain what that means to get the gravy-smothered all over the biscuit. You might want that. You might want, "Hey, this rider here and this rider here," but understand that with biscuits, you're looking for the simple buttermilk biscuit that Grandma made that you love. You don't want a fancy biscuit with all kinds of kale put in it and things like that. You want a simple biscuit that you understand. You want a simple annuity that you understand.
Never forget to live in 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.