3 Questions to Ask Yourself Before Buying an Annuity
Hi there. Stan, The Annuity Man, America's annuity agent, licensed in all 50 states. What are the questions you ask yourself before you buy an annuity? What are the questions you ask yourself about annuities in general? I mean, do you need an annuity? Does an annuity fit? I hope I got a lot of annuity haters out there. People who are, "I hate all annuities. I saw that guy on television. He's right. I hate all annuities." I hope that's you because if that's you, then we will have an excellent conversation about the fact that you already own one. I know it's crazy, but it's called Social Security. It's the best inflation annuity on the planet. So, in combination with that, when you start considering annuities, what are those real questions that you need to ask to make a good decision whether an annuity type, and there are many types, is right for you.
The Two Questions
Okay, so when we're talking about annuities, I have made it very, very simple on how to determine if you even need an annuity. Two questions. First, what do you want the money to contractually do? Underline contractually, bold it. And then the second question is, when do you want those contractual guarantees to start? Do not ever buy an annuity for hypothetical theoretical back tested unicorns chasing the butterfly agent sales pitch nonsense. Never. You buy an annuity for what it will do, not what it might do. And the will do are the contractual guarantees of those policies.
The PILL Acronym
Now, the contractual guarantees that you need to look at to consider if one is right for you, I've made that easy as well. There's an acronym I've created called PILL. P stands for principal protection. I stands for income for life. L stands for legacy. And the other L stands for long-term care, confinement care. If you do not need to solve contractually for one or more items in that PILL, principal protection, income for life, legacy, or long-term care, then you don't need an annuity.
Not for Market Growth
If you're out there looking for market growth, don't buy an annuity. I know that all of the index and variable annuity people out there that have drank the Kool-Aid, they say, "What? Blah, Blah, Blah." Listen, just go with me on this one. I'm right. I used to work for Dean Witter, Paine Webber, Morgan Stanley, and UBS. I've been on that side of the table. Annuities of any type are not market growth products. End of story. Forget the debate. It's over. Period. So, when you're going to look at annuities and consider annuities, you're literally considering them in combination with the annuity that you already own, Social Security, or if you're so fortunate to have a pension from your employer, the second annuity that you already own, do you need more?
Do you need more lifetime income? Because there are four types of annuities, Single Premium Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, and Income Riders attached to Deferred Annuities that provide lifetime income. Do you need more income, or do you need principal protection? Most people are trying to solve those two primary things. Yes, some people buy annuities for long-term care. Yes, some people purchase annuities for legacy, part of that PILL acronym, but most people are either looking for lifetime income or principal protection.
Let's talk about people saying, "Well, I want both of those. I want it all. I want principal protection, and I want a lifetime income stream." I get it. I love the fact that you want that. I want six-pack abs, but that ain't going to happen, okay? Here's the thing. When you get lifetime income from an annuity type, those four types I talked to you about, that payment stream is a combination of return of principal plus interest. And if any Yahoo salesperson says, "Well, this one offsets it, so at the end, you got it all there." No, wrong; it's going to draw down. And the benefit proposition of that lifetime income stream is if that account draws down to zero, the annuity company's still on the hook to pay.
Peeling off the Interest
We have thousands of clients that have drawn down to zero, they've outlived their life expectancy, and the annuity company keeps paying. Hello? You're in their pockets. But the other way is taking the interest off a product like a MYGA, Multi-Year Guarantee Annuity, which is the CD version of the annuity industry. That's their version of a CD where you protect the principal, and then you can take the interest off if you want to or just let the interest grow and compound, whether it's in IRA or non-IRA account. It doesn't make it better than CDs. It's in that same category.
And the way I look at that category, if you're saying, "Stan, I'm only looking at principal protection; that's all I care about," then we're at CDs, treasuries, and MYGAs. I don't sell CDs and treasuries, I love those, but the way to make the decision there is if your duration is less than three years, you buy CDs and treasuries. If it's more than three years, you buy MYGAs, Multi-Year Guarantee Annuities, because you're going to get a higher contractual guaranteed yield historically. And at the time of this blog, that is exactly the way that happens.
So, asking yourself questions about annuities, do you need one? I think it's a bigger question. Instead of saying, "Do I need an annuity?" I'd rather you ask, "Do I need a contractual guarantee? At chapter two of my life, do I need contractual guarantees? Do I need a contractual guarantee for lifetime income? Do I need a contractual guarantee for principal protection? Do I need a contractual guarantee for legacy? Do I need a contractual guarantee for long-term care?" Throw the annuity curse word away because most people, when they hear the word annuity, they have baby vomit in their mouth. I don't know why. The annuity industry's blown it from a marketing standpoint, which is why I'm here to carry that banner of annuity.
I'm carrying it because the annuity category is fantastic. It's contractual. You know what's going to happen. That is a good thing in chapter two of your life. Chapter two is all about you. Chapter two is all about you. And because it's all about you, you need to know the questions to ask to determine if an annuity solution is right for you.
Please visit my site and schedule a call with us. Listen, we've trademarked the phrase, "Where annuities are bought, not sold." When you work with us, you're going to make your decision on your terms and your timeframe. You're going to go to our site and be able to run quotes 24/7/365. You're going to be able to download PDF owner's manuals. You'll be able to listen to my podcast, Fun With Annuities, and see my hundreds and hundreds of videos. We want to educate you first. I appreciate you joining me for this fun blog. I had fun with this. I really did. It was a good topic. But go to my site, hit the subscribe button on our YouTube channel, and I will see you next time.
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.