4 Legs Of The Retirement Income Stool (SPIA, DIA, QLAC, Income Rider)
The Foundation of Annuities
Today's topic's a good one. What are the four legs of the retirement income stool? Think of a stool, a retirement income stool with four legs. When you're talking about, "I need income, Stan, and I need lifetime income. I need a pension-type income, and I need an income floor. What four types of annuities can provide those contractual guarantees for lifetime income to pay me as long as I am breathing? And how do I choose between those four annuity types of that retirement income stool?" Those are all excellent questions, and I'm going to cover every single one of them. The four legs for annuities that provide lifetime income are:
- Single Premium Immediate Annuities, also known as SPIA.
- Deferred Income Annuity, which is the acronym DIA.
- Qualified Longevity Annuity Contracts or QLAC.
- Income riders.
Here's the good part about all four of those. We're quoting almost every carrier for the highest contractual guarantee for your specific situation. Using our calculator, you can run it two ways. You can say, "Okay, I have this lump sum. An IRA, non-IRA, Roth IRA. What will that create?" Well, it doesn't matter, as contractual guarantees are the same. Then, you could also say, "Well, the misses and I or the husband and I need $2,500 a month. How much money will it take to create the $2,500 a month for the rest of our lives, et cetera?" Hopefully, at the end of the process, you'll schedule a call with me, Stan The Annuity Man®, America's annuity agent®. I will review the quotes with you and weigh in and customize those quotes further. On a side note, if you ask, "I wonder what the best contractual guarantees would be." Guess what? We provide that as well.
Now, let's go through each product type and how it fits. I use two questions to solve all annuity-type situations. What do you want the money to do contractually? And when do you want those contractual guarantees to start? I have an acronym, PILL, that tells you if you even need an annuity. Principal protection, Income for life, Legacy, and Long-term care. P-I-L-L. We're focusing on the I of PILL. I, meaning income for life. SPIAs, DIAs, QLACs, and income riders contractually transfer various solutions for lifetime income. They will pay as long as you're breathing, and there's no ROI until you die. But let's go through where they fit. Immediate annuities it is what it is — Single Premium Immediate Annuities. If you need the income to start 30 days from the policy issue as soon as possible, that's an immediate annuity. If anyone else is trying to sell you anything else, then it's a square peg in a round hole, and they're trying to go on a trip to Bora Bora with a girlfriend, boyfriend, and/or wife or husband. They're trying to qualify. They're trying to sell you something.
SPIAs and DIAs, QLACs, Income Riders
SPIAs are for immediate annuities. Immediate Single Premium Immediate Annuities. Deferred income annuities are an SPIA from a structuring standpoint, with no moving parts, no annual fees, and no market attachments. It's a straight transfer of risk pension product that once you defer past, say, 13 months, then an SPIA turns into a DIA.
A QLAC, which can only be used in a traditional IRA setting, is a Deferred Income Annuity that you can use with IRA assets. Again, you can defer it for a lifetime income stream and add your spouse as a joint lifetime income participant.
Income riders are typically attached to variable and/or indexed annuities; or fixed annuities. And what we have found is the highest contractual guaranteed income riders in most situations are attached to fixed annuities. When you visit my site at theannuityman.com and run income rider quotes, you'll see the highest contractual guaranteed income riders available. While we're focused on the income rider side, let's go back to the two questions, what do you want the money to do contractually? If you say, "I need lifetime income," these are the four legs of the retirement income stool we're talking about. The second question is the defining one: Which product are we looking at? And if you say, "I need income immediately," then it's an immediate annuity. Now, if you say, "I need income down the road," we have to look at deferred income annuities, Qualified Longevity Annuity Contracts, and whether it's IRA money or income riders. In either circumstance, we shop them all for the highest contractual guarantee. If you say to me, "Hey Stan, I need income in the future. DIAs, QLACs, and income riders fit that income later® strategy. Which one's best?" There's no good answer to that — just bad sales pitches.
Shopping All Carriers
At The Annuity Man®, we shop all carriers for the highest contractual guarantee. You and I can talk one- on-one to decide which one makes sense, a combination of one or two or all three of those income later-type products. So, when you're thinking lifetime income, you have to think about annuities because annuities are the only category product on the planet that provides lifetime income as long as you are breathing. There's no ROI until you die, so don't ask me, "What's the return on that set?" I don't know until you die. Tell me when you're going to die, and I'll tell you.
Suppose you don't look at these products, SPIAs, DIAS, QLACs, income riders, and the four legs of the retirement income stool. If you do not look at them as pensions, as transfer of risk pension products, and you're trying to compare them to investments, then don't buy an annuity. "Well, Stan. I ran the numbers and will do® better if I do six to 7% on my investments." That's crap. That's stupid. That's uninformed. That's dreaming. That's like having a mirror in your house that when you look at it, it shows you with six-pack abs, but you don't have six-pack abs. You'd have a gut. That's crazy. Of course, your investments will do better in an annuity because an annuity is not an investment; it's a contract. I saw a quote from one of these guru guys the other day, and he said, "Well, you should never buy a QLAC because you could do better with investments instead of your IRA."
That's the dumbest thing ever. Ever! Because he's saying, "Well, a QLAC's like an investment. You could do ETS and mutual funds in a raging bull market and do better than a QLAC." Dumb, stupid, and uninformed. And what he's doing is malpractice because people need guaranteed income. People need to transfer risk. People only need some money in the markets when looking for lifetime income. Remember the 4% rule? "You don't need an annuity. Just peel off 4% from your portfolio, and it'll work." Wade Pfau shot that down like a duck flying over. Shot it down. Doesn't work anymore. You cannot depend on that, and anyone that's pitching either has yet to see a down market or they don't know any better. Or they need to be informed because the 4% rule no longer plays out.
The four legs of the retirement income stool have to be contractually guaranteed, have to pay you as long as you live and as long as you're breathing, and have to be there for both you or you and your spouse if you set it up joint. And yes, we can contractually set it up so that 100% of any unused money goes to the beneficiaries, not the evil annuity company. People say, "Well, I never bought an annuity because when I die, the annuity company keeps the money." That's one of 40 different ways to do it, and you can structure it in one of 40 ways.
If you say, "Stan, we've worked hard. We never, ever, ever want the annuity company to keep a penny, but we want them to be on the hook to pay us for the rest of our life as long as we're breathing. And when one of us dies, the income stream continues uninterrupted and unchanged for the spouse's life." We can do that contractually by shopping all carriers. So, get all the myths out of your head, get all the misinformation out of your head. Whatever your financial advisor or whoever you're reading on the internet said, strip it away because this is the truth on retirement income planning and retirement in the four legs of the retirement income stool. We might add a fifth leg to that just for stability, and that's social security, which is the best inflation annuity on the planet that you already own. So, do you need other annuity lifetime income guarantees to supplement and add to and complement that social security income or that pension-type income you're getting?
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.