Are you tired of being fed annuity advice with underlying sales pitches? Let us walk you through what to look for to create a retirement plan that works the best for your specific situation.
There are many types of consumer annuities out there, including Single Premium Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, Multi-Year Guarantee Annuities, Fixed Index Annuities, and Variable Annuities. I would probably put them in a couple of boxes or categories. The first category includes income annuities and the Single Premium Immediate Annuities, Deferred Income Annuities, and Qualified Longevity Annuity Contracts. You can also throw in Income Riders.
Understand that all annuity types are commodities, meaning you have to shop all carriers for the highest contractual guarantee for your specific situation. The acronym PILL can explain the four types of annuities. P stands for principal protection. I stand for income for life. L stands for legacy. The other L stands for long-term care. If you do not need to contractually solve one or more of those items in the pill, you do not need an annuity.
In other words, if you're buying an annuity for market growth, you're making a mistake. You're better off not buying an annuity and buying actual market growth products like stocks, bonds, mutual funds, etc. My advice is to focus on the contractual guarantees and when you want those contractual guarantees to start. From those two answers, we can pair you up with the right annuity type to provide the highest contractual guarantee for your specific situation after we shop all carriers.
This is the number one question I get, but it's unanswerable unless I have specific information. To be legitimate, I need your date of birth, when you want the income to start, what type of account you are using, what state you live in, and how you want that account structured. You may want to structure your annuity life only, which means that the money goes poof when you die. But, most people structure a lifetime income stream so that 100% of any unused money goes to the listed beneficiaries of the policy.
By the way, the contractual guarantees of the policy are the same regardless of what type of account you use. It's just the income stream that is taxed differently. Fixed annuities are regulated at the state level, so not all carriers are approved in every single state. There’s not an accurate one size fits all answer.
It depends on the annuity type. Most annuity types are fixed annuities and underneath that are Single Premium Immediate Annuities, Deferred Income Annuities, and Qualified Longevity Annuity Contracts. Also, under the fixed annuity mantra would be Multi-Year Guarantee Annuities, which are the annuity industry version of a CD, and a Fixed Index Annuity, which is a fixed annuity. Let's take them one by one.
With Fixed Indexed Annuities and Multi-Year Guaranteed Annuities, you're not going to lose money, period, because they're fixed annuities. With the income products, the Single Premium Immediate Annuity, Qualified Longevity Annuity Contract, and Deferred Income Annuity, it comes down to how you structure the product.
You can structure it so that you're going to get a lifetime income stream, and the evil annuity company will not keep a penny. We can structure it contractually like that, but you can also structure it so that no beneficiaries are getting the money when you die. Under that scenario with income products, the policy could lose money depending on how you structure it. However, you don't have to lose money. You can contractually structure the policy so that 100% of any unused money goes to the listed beneficiaries of the policy.
The last type of commercial annuity that's popular is a Variable Annuity. Variable is the keyword. In this scenario, you can lose money because it is ultimately variable. You can attach riders to the policy, but you can lose underlying value within those mutual funds. That doesn’t mean that it's good or bad; it’s just is what it is. Mutual funds were put on the planet in 1955 for tax-deferred growth.
With the majority of annuities, the fixed annuities, you won’t lose money in an annuity. Still, if you want to structure it, especially the income annuities life only, there is a possibility if you die before your life expectancy, there will be money left on the table. But that's your choice. It doesn't have to happen that way.
Not everybody needs an annuity, regardless of what you're told. I always ask two questions when people are looking to see if they even need an annuity. What do you want the money to do contractually, and when do you want those contractual guarantees to happen? We can pair you up with the right annuity type to provide the highest contractual guarantee for your specific situation from those two answers.
Remember, market growth is not the reason you buy an annuity. It’s a good idea to buy an annuity if you want to transfer risk for either principle protection or income for life. Annuities are the only product on the planet that can provide a lifetime income stream that you can never outlive. And oh, by the way, yes, Social Security is an annuity.