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401(k) Annuity: How Does It Work?

Stan Haithcock
November 20, 2023
401(k) Annuity: How Does It Work?

Hi there. Stan The Annuity Man, America's annuity agent, licensed in all 50 states. That's including yours. Today, we're talking about 401K annuities. Annuities inside of 401Ks, 401Ks going to an annuity. That's what we'll talk about, but let's digress a tad. The question I'm getting a lot of is not about annuities; it's about Stan. Does Adidas endorse you? Adidas on the hat, Adidas on the pants, and Adidas on the shoes. The answer is I should be. If anybody's reading from Adidas, hit me up with some gear. I will promote Adidas, Nike, whoever. I just want free gear. I digress.

‌Secure Retirement Act

‌All right, 401K annuities. Now, the Secure Retirement Act has been passed in our beloved DC, where everything happens so efficiently and well. Now, what does that mean for your 401K annuities? Your 401K will probably start offering annuities as a lifetime income choice in addition to the mutual funds and the other stuff you put your money in.

‌That's a good thing because Social Security was never put on the planet to provide all of your lifetime income for retirement. It's supposed to be a subsidy, an add-on, but not 100%. The government is tapping you on the shoulder to say, hey, if you're in a 401K, which they call defined contribution plans, and putting all this money in the mutual funds, they want you also to be thinking about putting some of that money, proportionally and within the allocation structure that you choose into annuities so that you have future lifetime income starting when you retire, to combine with your Social Security to create an income floor.

‌Lifetime Income

‌That makes sense, right? Nod your head. It does make sense. You need lifetime income. With over 10,000 Baby Boomers retiring or reaching retirement age every single day, people are looking for lifetime income guarantees. Oh, as a side note, if you're keeping score, and you should be, annuities are the only product on the planet that provides a lifetime income stream you can never outlive. That's what lifetime means.

‌Annuities have a monopoly on that. They're the only ones. I think that the government is saying, "Hey, we need people to start planning for their lifetime income." People are living longer. Transfer that risk to that annuity company to pay you for the rest of your life.

‌Transferring Your Money

‌We just talked about annuities inside the 401K. Let's talk about if you want to transfer your money from your 401K to an annuity. So, you've got 401K assets. You've put your money in the mutual funds. They've grown, they've grown, they've grown, they've grown, they've grown, they've grown in a bull market. You've been throwing darts at it, and everything's been working. I always tell people never to confuse a bull market with genius. Quote me on that because people think that they are stock market gurus. It's all going up, for goodness sakes. Of course, it's going up, but you're going to reach a time where you say, "Hey, forget this market volatility."

‌We all have that little person in the back of our head going, "Isn't it a little bit too high? We're having some volatility here, geopolitical events, et cetera." Maybe, but when you reach the finish line, when you go from the growth stage to what I call the principal preservation stage, where you're saying, "Hey, I don't want to lose any money. I don't have enough time to make it all back, and I want to transition from growth and markets and mutual funds and things like that to a guaranteed lifetime income stream." You can take that 401K asset and transfer it to a lifetime income stream annuity.

‌Now, annuities mean a lot of different products. You need to answer two questions. What do you want the money to contractually do, and when do you want those contractual guarantees to start? From those two answers, we'll pair you up with the right specific annuity that solves that situation. Let's just say you say, "Hey, I'm retiring in 60 days. I want to take my 401K assets. I want to roll them to an annuity, non-taxable event, 401K to a rollover IRA, and we want to buy an Immediate Annuity that pays a lifetime income stream for me and my wife that we can never outlive."

That's a very simple solution. We’ll go to The Annuity Man, and we will run through our proprietary annuity calculators, the best annuity calculators on the planet because we represent more carriers than everyone on the planet. In fact, we represent more than anybody, and if we don't, my staff reading this, get on it, we better. We're going to find the highest contractual guarantee for you. Now, I don't know who that company is. I just know this. We're going to quote all carriers to find the highest contractual guarantee. If you like it, if you like those guarantees, then we lock it in as we're going forward with the application. If you're just shopping, that's fine too, but understand that annuity quotes are like a gallon of milk, and they expire every seven to 10 days.

‌Is There a 401K Annuity?

‌Is there such a thing as a 401K annuity? Up until December 2019, no. Most 401Ks just had the mutual funds. In fact, in 2014, the government put out a product called a QLAC, a Qualified Longevity Annuity Contract that was supposed to be inserted into 401K plans, but what happened was the company sponsors, and the board did not want to do that. They felt they were liable if they didn't include all carriers. What happened was the government said, "Hey, we're going to hold you harmless from a fiduciary standpoint. You pick and choose the carriers that you think are the best for your plan, and then you can offer that annuity."

‌Is there a 401K annuity now? Yeah, there is. I've done another video called The Definition of a Deferred Income Annuity, which is pertinent because with these 401Ks that you now have that are starting to offer annuities, a lot of the annuities that they're offering will be Deferred Income Annuities, meaning that you're going to put money in it now, it's going to defer years down the road, and then you're going to get an income stream. It's probably a good idea to watch that video and understand.

‌I've written a book on Deferred Income Annuities, a Deferred Income Annuity owner's manual that you can get for free and under no obligation. Just click on this link, and you can download it for free. Also, go to The Annuity Man and use our annuity calculators to get the best quotes for your specific situation, listen to my podcast, and read my blog posts. Hit the subscribe button on our YouTube because I'm doing these videos Monday through Friday, every single day. Thanks again for joining us, and I'll see you on the next Stan the Annuity Man blog.

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.

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