Annuity Examples: Single Premium Immediate Annuities (SPIAs)
Today, we are looking at Single Premium Immediate Annuities, the granddaddy of all annuity products. Very simple, you can explain it to a nine-year-old, no offense to nine-year-olds. This is a very good product, simple, and it's for pension-type payments. If you have a pension, you're lucky to have a pension from your employer; great. But the other 92% of us don't; that’s where immediate annuities come in.
Let’s go over a little bit of history on Single Premium Immediate Annuities. They were designed, developed, and introduced by the Romans in the Roman times as a pension gift for the dutiful Roman soldiers and their families because they were laying it on the line for the Empire. I didn't take Latin, but my smart people have told me that annual, A-N-U-A, is the root word for an annuity. But that's where it all started. And to this day, this has been sold in this country for hundreds of years, and it's just a transfer of risk.
A Single Premium Immediate Annuity is like your social security. The older you are, the higher the payment. Oh, by the way, social security is an annuity. It's a direct reflection of an annuity structure. So, that's what a Single Premium Immediate Annuity is. You can set up joint life, single life; you can use your IRA, your Roth IRA, non-qualified. I love people that go, "Never put an annuity instead of an IRA." That's crazy. And they need to stop talking this way. Yes, you can put one inside of an IRA. And a lot of people just have the majority of their assets are IRA-type assets.
I get calls where people say, "Well, I was looking at this Single Premium Immediate Annuity. So what does a hundred thousand dollars pay?” It depends on your life expectancy when you take the payment. My suggestion is always to quote all carriers for the highest contractual guarantee. We need your date of birth, or if it's joint, dates of birth. We need your state of residence because annuities, fixed annuities, and Single Premium Immediate Annuities are regulated at the state level. So they will be approved at that state, whatever state you're in. We need to know if it's an IRA, non-IRA, or Roth IRA. We need to know where that money's coming from. Then, we need to reverse engineer the quote. Always use as little money as humanly possible with annuities to solve for the contractual gold. It has to be in proportion and allocated properly in your portfolio. And if you can say, "We need this amount of money every month,” we'll contractually solve for it.
This leads to the next question, which is a very good one; I’m glad you asked, "Hey, Stan, the Annuity Man, America's annuity agent, how about inflation? Here is what we're going to do: at the time you need additional money because of inflation, we're going to reverse engineer the quote and solve for that amount. Any agent or advisor who tells you that they have the annuity type that will solve for inflation either hang the phone up, cut the Zoom call off, or get out of their office and walk out. That’s a lie. There is no such product. Listen, if there was that product, then that's all the fed would buy. So if inflation? We just solve for it when it hits, whatever that means to you. If your expenses go up, we'll solve for that specific amount.
Who's the Best?
The other question is, "What's the best annuity out there? Who's the best carrier? I represent all carriers. There's no best. The best, in my opinion, is because you own an annuity for what it will do, not what it might do... The "will do" is the contractual guarantee. We shop all carriers for the highest contractual guarantee for your specific situation. Now, once I send you that list and we go over that list, then we'll sift through the bodies of those carriers to find the one with the best claims, paying ability, et cetera. And remember immediate annuities; they’re like a gallon of milk. The quotes expire every seven to 10 days. So the only way to lock in that quote is to go through the application process. And no, that's not a sales pitch; that’s just reality.
Why are immediate annuities ever-changing from a quote standpoint? My favorite company finished first two months ago, and now it's finishing 10th. Why is that?" Good question. The reason is annuity companies are trying to attract age ranges. They have tranches of age ranges that they're trying to attract. So if they fill up that tranche, whatever that goal of premium is, they're going to make the quotes less inviting and attractive.
Then, two months later, that company you love is way low. Why? Because they filled that tranche. Another fear people have is when they die, will the annuity company keep the money? Financial journalists I respect say, "Well, you might want to think through buying an immediate annuity because when you die, the money goes poof.” We can contractually structure your immediate annuity so you’ll get a payment for the rest of your life. If you set it up joint, if you die, your spouse will get the payments uninterrupted and unchanged for the rest of their lives. Regardless of how long they live.
Then we structure it so that when you die, when that second person dies, or if it's single, you die, whatever is left in the account goes to the list of beneficiaries or the policy. The annuity company doesn't keep a penny. The annuity company, under no circumstance, keeps a penny, even though they are on the hook to pay you for the rest of their life. You've transferred the rest of them.
Immediate annuity payments are a combination of return of principal plus interest.
Are we clear about that? And if there are financial journalists, please write that down, because I'm tired of reading that. I'm tired of hearing "financial experts" say, "Well, you got to be careful with immediate annuities because you might lose all the money." Well, granted, life only. Which is that type of payment. Which is money goes poof when your Learjet hits the mountain. That's the highest payment, but most people don't structure it that way. Period. End of story. So just remember that. And also remember this, immediate annuity payments, and I've said this a million times, and I'll say it again, it's a combination of return of principal plus interest. And their true value proposition is when the accounts are at zero, and you're in the annuity company's pockets, and they're on the hook to pay, right?
What's the ROI on that? I don't know until they die because it's a risk transfer. This is not an investment. This is a transfer of risk pension product—Single Premium Immediate Annuities. I think annuities are fantastic if you buy them for what they will do, not what they might do, the contractual guarantees. I'm going to tell you the truth. Period.
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.