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Annuity Decisions Should Be Simple & Contractual: Shootin' It Straight With Stan

Stan Haithcock
March 13, 2024
Annuity Decisions Should Be Simple & Contractual: Shootin' It Straight With Stan

Welcome to Shooting It Straight With Stan. I am your host Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Today's topic is Annuity Decisions Should Be Simple and Contractual. They have to be both. They can't be one or the other. They got to be both. And let me explain that to you. Now, when we talk about annuities as a category, if you don't know this by now or haven't watched any of my previous 1000-plus videos, annuities are contracts. They should be owned for what they will do, not what they might do. And the will do is the contractual guarantees of the policy.

‌Not a hypothetical, not a theoretical, not a backtested number, not a, "Hey, Mr. Jones, if you'd owned it 10 years ago, look at what you'd have got with this upfront bonus." And by the way, the upfront bonus is what I call candy for the stupid because there's not a CEO at a life insurance company that issues annuities that wakes up in the morning in their 10,000 square foot house and says, "You know what? I think I'm going to give money away today." They don't do that. They're for-profit organizations. So, upfront bonuses are just part of the overall contractual guarantee. Please do not put any weight on that. It's just part of the overall contractual guarantee.

‌Contractual Guarantees

‌When you're buying annuities for the contractual guarantee, then that's part of the contractual guarantee. A lot of times, bonuses don't enhance anything except the fact that it makes you think you're getting something for free, which means you buy more than you need to, and you buy the dream of the agent that's pitching it.

‌But when I say that you have to make it simple and contractual, there are two questions I always tell people to ask every single time, and if you book a call with us, to speak with me or one of my team members at The Annuity Man , we're going to ask these two questions. What do you want the money to contractually do, and when do you want those contractual guarantees to start? We will never, ever talk about hypothetical returns, what happened in the past, cap spreads, participation rate buffers and all that stuff. We're not going to do that. We're just not. If that's why you are considering buying an annuity, then don't buy one.

‌If you're considering buying an annuity based on caps and spreads, participation rates, Buffer Annuities, what I call copay annuities, etc., then don't buy an annuity. Put your money in ETFs, good stocks, and mutual funds, and get a good money manager. I mean, do those things. Go to Vanguard or Fidelity, or whoever you like, TD, or all those people that sell that stuff, and you can make your own decision. There are a lot of people who would manage your money for that market growth, but annuities are not market growth products, which leads me back to the simple and contractual. I'm pounding the table right here to say you have to only look at contractual guarantees.

‌Annuity Types

‌Now, there are many types of annuities out there. If you don't know that, you're getting ready to. Single Premium Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, and Multi-Year Guarantee Annuities are all contractual. There are no moving parts. There are no annual fees; there are no market attachments; there are no possibilities, potential, hypothetical, or unicorns chasing the butterfly; the contractual guarantee is the contractual guarantee.

‌There are some products, Variable Annuities, which we don't sell. Buffer Annuities, which we don't sell at this point. Fixed Index Annuities, we sell them, but for the Income Rider attachment, so when we attach the Income Rider, it makes it a commodity. Still, we don't look at the caps, spreads, and participation rates because there are hundreds and hundreds of choices out there, of which, most of the time, these companies can change how those calculations are administered, which means it affects your returns. We can go down that rabbit hole if you want to go down that rabbit hole with Index Annuities and all that stuff; I've made a zillion videos on them.

‌Annuities Are Commodities

‌So, I pounded the table on the contractual side. Contractual, contractual, contractual. Will do, not might do, will do, not might do. You own an annuity of what it will do, not what it might do. But let's go to simplicity because, remember what I said, annuity decisions should be both simple and contractual. The simple is, in my opinion, as important as contractual. Once we have convinced you, hopefully, I'm doing this now, that contractually guaranteed annuities, looking at only those contractual guaranteed numbers, once you do that, then the good news is you've, in essence, commoditized that product. This means you shop all carriers for the highest contractual guarantee for your specific situation, knowing that annuity companies' quotes change like a gallon of milk every seven to 10 days because of capacity issues. If they want somebody in your age range, then they're going to feel if they've raised enough money, they're going to lower the guarantee not to attract you. It's really that simple.

‌A Policy is a Contract

‌The contractual part is a no-brainer. Why? Because you're going to receive a policy, which is a contract, and because of that, you should base your decision primarily on the contractual guarantees. But the other part is that simplicity part. Now, I have fun with that many times, and I say, if you can't explain it to a nine-year-old, don't buy it. No offense to nine-year-olds, but I'm dead serious. I was conversing with one of my twenty-somethings daughters and we're talking about finance, and she does what the typical 20 something does. "Well, I don't know anything about that." I said, "Well, I can explain it to you." I said, "Just bear with me. I know I'm annoying. Dads are annoying; the way we talk and the way we do Ss and Ts, I get that. I'm annoying. But just listen to me." And I explained to her Multi-Year Guarantee Annuities, and I explained to her Single Premium Immediate Annuities, even though she was rolling her eyes, but she was listening.

‌But in the end, she got it. She goes, "Okay, Dad, I got, that's pretty simple stuff." Yeah, it is. I was telling her that because I'm trying to prepare her for what will happen when my Learjet hits the mountain and what will be in place for her, so she understands it. The same thing is important for you. Whoever your significant other or others are, whether it's a spouse or beneficiaries, you need to be able to explain to them exactly what's happening and how the annuity that you've selected, and how those contractual guarantees work.

‌Client Example

‌With the hypothetical products out there, it's impossible. You can't do it. I'm going to go out on a limb and say you might not even know what you bought if you bought those products because they're so complicated. I tell the story about a really good client of mine who was being pitched a Fixed Index Annuity. And for the record, we have nothing against Index Annuities. They're CD products; they're not market products; they're CD products regulated at the state level. They're not a security, and we primarily use them as a delivery system, a very efficient delivery system for the Income Rider guarantees if you need income in the future.

But what he said was funny, he goes, "I did what you said, Stan. I had them send me all the information, et cetera." And I said, "So, what'd you think?" He goes, "Well, they had a lot of mathematical formulas in there, Stan." He goes, "I'm a smart guy, and I got lots of money, but I didn't know many of these mathematical formulas had letters in them." I said, "Yeah, that's calculus." That's like advanced math. And a lot of these products are so complicated and so convoluted. And even when I don't sell anything but Fixed Annuities. I'm Stan the Annuity man, America's annuity agent, as you know, but my previous life was at Dean Witter, Morgan Stanley, Payne Webber and UBS, Union Bank of Switzerland. I understand that side, but even in those places, I think back to my career. I've been doing this for three decades plus, and I always lean on the side of being able to explain it to a nine-year-old, even when I was on that side of the business, and certainly, it carried over to this side.

‌The Complexity

‌I've seen some of the most complex products I've ever seen in my life and all from the other side: Dean Witter, Payne Webber, Morgan Stanley, and UBS. Some of the most complicated things I've ever seen are on the annuity side. It takes an advanced degree and finance background like I have to understand it truly, yet these products are being packaged and sold to the masses, and the masses have no idea what they're buying. They're buying hopes and dreams, they're buying hypotheticals, they're buying stories. They're buying 30,000-foot views. And the problem is those typically don't work out. The problem is the pie in the sky sounds too good to be true; hypothetical numbers never come true.

‌When you're looking at annuities or determining if the annuity is right and what type of annuity is right, that's really easy. Listen, we've made that easy. It's the two questions: what do you want the money to contractually do, and when do you want those contractual guarantees to start? Looking at the acronym 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. When you don't need to contractually solve for one or four of those items in the PILL, you do not need an annuity. And when you answer those two questions, when you go to my site at The Annuity Man and set up and book a call with us, we're going to ask those two questions. We're going to tell you if you don't need an annuity. We're going to tell you if your thoughts and ideas on what you want even exist contractually. We're not going to fit a square peg into a round hole. We're not a hammer looking for a nail. We're going to tell you the truth.

We're also going to tell you the truth if we think you're putting too much money in. I always tell people to use the least amount of money to contractually solve for a specific goal that you have. Which leads us into an off lane here, that's a great segue into the whole inflation thing.


‌People say, well, Stan, aren't there annuities for inflation? Listen, annuity companies don't give anything away. If you have a Cost-of-Living Adjustment increase or a potential hypothetical index increase, all the annuity company does is severely and drastically lower the initial payment when compared to the same annuity without that potential increase. Annuity companies don't give that away. In my opinion, to make it simple and to make it contractual, let's do an example. If you had $5,000 coming in every single month and three years from now, you needed an additional $500, how do you solve for that? You buy an Immediate Annuity at that time, reverse engineering the quote to solve for the $500 using the least amount of money possible and contractually.

‌And if you need a hundred dollars two years after that, you do the same thing. You reverse engineer the quote to solve for the hundred dollars. There's not a floating product that solves everything for you, even though that's what you're going to hear after they feed you the steak dinner at the place you'd never go to anyway, except for you got this postcard in the mail and you're now showing up to it. Those products do not exist.

‌This is very important. And I'm talking to not only consumers but all those industry types listening to me because we need to do this as an industry. We need to make the decisions for the consumer contractual and simple. We need to make it very, very transparent. We need to tell them everything, and they need to be able to turn to their loved ones, spouses, beneficiaries, and nine-year-old grandkids and explain it and understand it. If it doesn't pass that sniff test, if you can't explain what you're considering buying in the annuity world, do not buy it. If you can't explain all of the moving parts pitched to you, do not buy it. But if you can explain it, if you fully understand the contractual guarantees, that's a win, not only for you, but that's a win for your family, your spouse, your beneficiaries, because they're going to understand what you have, they're going to understand how it works, and they're going to understand the contractual guarantees and the simplistic nature of annuities. I've trademarked annuities made simple because annuities are simple. I trademarked so much stuff that I forgot how much I've trademarked. The point of the matter is that it's important to me that annuities should be simple. Annuities, when looked at from a contractual guarantee standpoint, are simple. The Annuity Man is set up to allow you to run quotes and see live MYGA feeds and things like that, and everything we show and quote with our calculators, everything, every single number, is contractual.

‌Take that to heart. I mean, I'm not playing around here. Retirement is not a game. We have to be very, very specific in chapter two of your life to make sure that you've lived the lifestyle that you've earned. Nod your head, please. So, that's it. That's Shootin' It Straight. My name is Stan The Annuity man. 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.

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