Annuity Contractual Guarantees Are NOT Complicated: Shootin' It Straight With Stan
Welcome to Shootin' It Straight With Stan. I'm your host, Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Today's topic is Annuity Contractual Guarantees Are Not Complicated. I know what you're saying, "Yeah, that's probably true, Stan." Well, then, why is everyone getting complicated sales pitches from agents and advisors about annuities? I always tell people, "You should be able to explain the annuity that you're getting ready to buy or considering buying to a nine-year-old." No offense to nine-year-olds. "You should be able to walk into a second-grade class and explain the annuity type you're trying to buy, how it functions, and how it works, both limitations and benefits. And that entire second-grade class, including the teacher, should fully understand it."
I just did a video called, The Only Thing Complicated About the Annuity Industry Are the People Selling the Annuities and How They're Selling It. Annuities are simple. I've trademarked a lot of things, Annuities Made Simple, all of that stuff, because they are. And I'm always confused. Well, I know why, but the annuity industry could easily solve this. The products they're coming out with are complicated; the high-commission ones are complicated. We have nothing against them. They have their place. If you understand them, they'll work. If you understand how they work, they typically don't work how they're pitched. But they can be complicated.
I had a call recently, and he followed my instructions. He was buying it from a local agent. I think it was a family member that was trying to sell the annuity. He goes, "Well, I did what you said, Stan. I asked him for a specimen policy on this Index or Variable or RILA," or something that he was buying that was fairly complicated. He goes, "I didn't know there were..." He was a good old boy with a lot of money. There's a lot of them out there. But he said, "I did not know math problems had letters in them." I'm like, "Yep, they do." And some of these products require you to understand that, and the agents that are selling them certainly don't understand that. However, annuity contractual guarantees are simple and easy to understand. They're not complicated. I'll give you an example.
Multi-Year Guarantee Annuities, the annuity industry version of a CD, is a guaranteed interest rate for a specific period of time that you choose.
You can visit my site and see the life fee for your state. That's an interest rate guarantee. No moving parts, no market attachments, no gotchas, no nothing. It's a guaranteed interest rate. Single Premium Immediate Annuities, Deferred Income Annuities, and Qualified Longevity Annuity Contracts are annuitized and lifetime income payments.
In most cases, people structure them like that. They're very simple. There are no market attachments. There are no moving parts. There are no annual fees. It's a straight transfer risk pension, a personal pension. You already own the best pension on the planet, Social Security. And if you're with the government or a good trade union or somebody like that, you might already have another pension. So, Social Security is one, your job is two if you have one like that, and if you're trying to buy one on the open market, SPIA, DIA, QLAC, Income Rider, that's your third or fourth pension. Depending on how many you buy. But those are simple products. There's nothing to them. They're primarily based on life expectancy at the time you take the payment or life expectancies, if it's joint with a spouse. Interest rates play a minor role.
A Cake With Two Ingredients
It's like having a cake with two ingredients. Lifetime income is life expectancy and interest rates. Some people want to factor in longevity risk, and there are some formulas for that. But at the end of the day, it's a two-ingredient product. But then, we get to the complicated ones, Variables, Index and RILAs. I'm not even going to go into detail with them, but my question is, why are you trying to be so fancy with annuities? Why are you trying to be a master of the universe with annuities? Why are you trying to be Gordon Gekko with annuities? Why are you trying to thread the needle and be as Svengali with annuities? Why are you trying to outdo your neighbor? Who cares about your neighbor? Why are you trying to be the smart guy?
Annuities are Contracts
Annuities are contracts. You buy them for what they will do, not what they might do. You buy them for the contractual guarantees of the policy. So, when you're looking at an annuity type, that the person trying to sell it to you is only talking about what it did 10 years ago and hypotheticals and theoreticals and back tested numbers, which are illegal in some states to show, you've got to ask yourself, "Well, if we're looking at that, why am I just not buying stocks and mutual funds on my own?" Good question. And there's your answer; that's what you should be doing. There is no market upside with no downside.
There is no market participation with principal protection. If all that was true, that's all Goldman Sachs, and everyone would buy. By the way, spoil alert, they're not buying it. It's a great sales pitch, but you need to look at the contractual guarantees. It is without exception if someone is pitching you something that sounds too good to be true. But I want you to say to the person, "Hey, that's fantastic, Fred or Fredette, but can you show me the contractual guarantees? Can you show me Armageddon? Can you show me the worst-case scenario? Can you show me actually what the policy will do, not what it might do?"
Flush it out. It's your money, it's retirement. You've been working all this time, and you will believe some person and their sales pitch? Really? Come on, you're smarter than that. But I see mistakes made all of the time. "Well, he showed me this, and I thought it was true, and I thought the upfront bonus was real money, and I thought, and I thought, and I thought." Come on now. Annuity contractual guarantees are simple. They're simple, and they're easy to understand, and they're easy to decide on, and they're commoditized. What I mean by that is, when you're looking at the contractual guarantees of the policy, which you should only look at, you can shop all carriers for the highest contractual guarantee. Then, the only filtering mechanism is the company's rating and the Claims Paying Ability of the carrier offering that contractual guarantee.
Check Yourself Before You Wreck Yourself
It's that simple. It really is. If you're making your buying decision on any annuity type, there are many different types. Still, suppose you're making your buying decision on an annuity type, and you're making that buying decision on a back-tested, non-guaranteed, hypothetical, or projected return number. In that case, you need to check yourself before you wreck yourself, as the rapper says. You don't do that. If you're looking for real market returns, then don't buy an annuity. Go into the markets so you can get a real upside. That's where you get the real market upside.
I used to work for Dean Witter, Paine Webber, Morgan Stanley, and UBS. When I decided to come out to the annuity space and only sell Fixed Annuities over a decade ago, I was flabbergasted then, as much as I'm flabbergasted now, by the industry continuing to try to lure clients in with growth stories, potential growth stories, non-guaranteed growth stories. I literally, to this day, don't get it. I don't understand it. It doesn't make sense to me, and if the industry would adopt my message and go in this direction, the industry would triple. I'm convinced of that. It's going to happen, if I have to triple it myself. Many people are latching onto what I'm saying, because I'm national. I'm Stan The Annuity Man, and I'm out here telling the truth.
However, annuity contractual guarantees are simple and easy to understand. It's the non-guaranteed part that gets people confused and making bad decisions. So, remember that. Make your decision on what an annuity will do, not what it might do. And if it's not simple to you, then all that means is the person trying to sell it to you, they're trying to sell non-guaranteed hypothetical returns. That's when it gets complicated. When all the moving parts and the shiny things, tell them, "No moving parts, no shiny things. Tell me what the contract's going to do, period." Ask for the specimen policy.
If they won't give it to you, then that's not your person. Obviously, we'd love to have you as a client, but you're going to make your decision on your terms, on your timeframe, and on the contractual guarantees only. So, be careful out there. There's a lot of sales pitches. The mailboxes are flooded, mine too, with bad chicken dinners, expensive steak dinner seminars, with catchphrases like "inflation" and "economy" and "war pending." And then, you'll see the buzzwords in there. They'll never say the word "annuity." You'll see "lifetime income" somewhere or "market participation."
The Simple Annuities
They'll code word it in there, and then, all of a sudden, every single person in that room is going to try to be sold the same Index or Variable product, whatever. Okay? The simple annuities, the SPIAs, the DIAs, the QLACs, the MYGAs, there will never be bad chicken dinners or expensive steak dinner seminars on those because the commissions are so low. And all commissions on annuities are built-in, so the commissions are so, so low. Now, we sell many Fixed Index Annuities, but as a delivery system for the Income Rider, we quote all Income Riders for the highest contractual guarantee for income later.
We commoditize that product. We don't get caught up in the caps, spreads, and participation rates at the time of this blog. We just don't, for a myriad of reasons, and if you want us to explain those to you, we can. But that sets us apart as well because every single person, if you deal with them on a local basis, 99% of the time, they're going to try to jam an Index Annuity or Variable Annuity down your throat. And you have got to be careful.
That might not be what you need. If you're looking at market growth, that's not what you need, period, end of story.
Hey, thanks for joining me. My name is Stan The Annuity Man. Be careful out there. Go to my site and schedule a call. You might get me, or you might get somebody even smarter; that would be my team. And we will listen to you and try to provide the answers you need. Take care.
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.