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Annuity in Financial Management

Stan Haithcock
October 8, 2023
Annuity in Financial Management

Hi there. Stan The Annuity Man. Americas annuity agent licensed in all 50 states, talking about annuities or annuities in financial management, annuities in your financial plan, and annuities in your financial portfolio. Does it fit? Why does my master of the universe, stockbroker, wealth architect person almost do a projectile vomit when you bring up an annuity? Well, number one, that's not how they get paid typically. And number two, most of these people don't really understand the intricate world of annuities and the many types of annuities. That's the reason that you hear a lot of times, I hate all annuities, Stan. You're going like, "All? Really? Every single one of them? An Immediate Annuity, a Deferred Income Annuity, a Qualified Longevity Annuity Contract, an Index Annuity, a Variable Annuity, a Multi-Year Guarantee Annuity, a charitable gift annuity, you hate all of those? How is that even possible?"

‌It's not possible. So, when people say, "I hate all annuities," that's a sales pitch. There's an agenda behind that. They're pushing something. Or if your master of the universe advisor is saying that, they just don't know what they're talking about, and they shouldn't be talking about that. That's like me commenting on ballet. Yes, I could do ballet. It wouldn't be pretty to watch, but I'm not going to comment on it because I don't really know anything about it. The bottom line, annuities in financial management, in financial planning, and in your financial portfolio can be a good thing because they provide peace of mind, transfer of risk income floor, and principal protection, things that most normal people want. And if most people want that, then you should be looking at annuities as a possible transfer of risk opportunity for your portfolio to solve for a specific goal. We're going to talk a little more about that now.

‌If You Believe It's the Truth, Then It's Not a Lie

‌So, I was reading an article the other day, and some person got into the weeds and was talking about annuities, present value, future value, and all this minutiae, all this nonsense. I'm thinking, why are they splitting the atom? Why are they doing that? I don't know why. They were, in essence, trying to look at annuities versus investments or why you should probably use investments instead of annuities and all that stuff. It's such an old, worn-out argument nonsense that as George Costanza always said in Seinfeld, if you believe it's the truth, then it's not a lie. Many of these people are like, well, this is the way it is. This is the way life should be. Yet, when they go and do their financial plan for their clients, they're always including that Social Security lifetime income payment.

‌Commissions on Annuities

‌Isn't that a bit hypocritical? If you're a master of the universe out there, and you say, "I hate all annuities." Still, that Social Security lifetime payment for as long as you're breathing is part of your financial plan as well as it should be because it is what it is: a transfer of risk, lifetime income stream. Or if someone has a pension, they're putting that pension in the plan, then why wouldn't you look at a lifetime income stream annuity as part of that plan if additional income is needed? There's no good answer to that. The answer to that is the reason that advisors in the financial world don't embrace annuities is because they can't get paid over and over and over and over and over again if their clients own an Immediate Annuity. Commissions on annuities are built-in and part of the administrative cost of an annuity, but you see a hundred percent of your money go to work for you on day one on your statement.

‌Annuity Types

‌You put a hundred thousand dollars in an Immediate Annuity, and you see a hundred thousand dollars go to work, period. But in the financial fee only, I got to put a wrap fee on everything I'm going to recommend. They can't do that on Immediate Annuities. They can't do that on Deferred Income Annuities. They can't do that on Qualified Longevity Annuity Contracts. They can't do that on Multi-Year Guarantee Annuities. They shouldn't do that on Indexed Annuities, and typically they don't. But there are some that are trying to put a wrap fee on Index Annuities, which is insane, but that's the reason that you don't see it as part of the overall conversation.

‌The other reason you don't see it is that the annuity industry has done a very poor job of promoting the monopoly that they only have. Of course, if that's what they only have, it's a monopoly. And the monopoly is lifetime income. The annuity category, and remember, there are many different types. Still, there are at least four that provide lifetime income as long as you're living and breathing, it's going to pay, Single Premium Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, and Income Riders attached to some Deferred Annuities provide a lifetime income pension. We live in a pension less world. Less than 10% of private companies offer pensions. Unless you're working for the government, you'll have to figure out how to create a lifetime income stream pension plan.

‌The 4% Rule

‌You're going to be forced to look at an annuity transfer risk lifetime income stream unless your master of the universe says, "Hey, let's use the 4% rule. Let's just peel off 4%, and everything's hunky-dory with your portfolio." Well, that works in a raging bull market, but it hiccups when the market adjusts. I did a recent Fun With Annuities podcast, and yes, I do have a podcast called Fun with Annuities. I would encourage you to go to my site, and I want you to listen to the podcast that I did with Wade Pfau, P-F-A-U, and he talked about the 4% rule in detail. I encourage you to go there because it's not what you think. According to him, the 4% rule only works in the United States, and he's done the research. He's got his doctorate in economics from Princeton. Smartest guy in the room, and he did the research.

‌It doesn't work as well in Europe. It doesn't work as well in Japan, but it has performed in the United States. But it seems that the 4% rule is what every stockbroker, master of the universe, fee-based, fee-only person is saying; well, it'll just be below 4%. In a reasonable market, that works well. You can throw a dart at this thing at this point, at the time of this blog, but we all know that it goes in cycles, and with 10,000 baby boomers reaching the age of 65 every single day, that's a demographic tidal wave of people like you that are watching this that want guarantees. They want to protect their principal. They want a lifetime income stream. They'll give up some growth from the stock market just so they don't have to worry because when you turn 65 years of age, or whenever that retirement age is for you, you're in chapter two of your life, and for a lot of people, chapter two means, I don't want to watch this crap anymore.

I don't want to check in and see what the Dow finished anymore. I no longer want to check in with my advisor to see how good or bad we did. I want to make sure that I have enough money to live, period. I want an income floor and might want to protect a lot more principal than I was thinking about previously. By the way, spoiler alert: I have a myriad of stories of clients who have told me that they are better investors because they have the income floor in place. They are better investors with non-annuity assets because they protected much of their portfolio using Fixed Annuities. That's not some sales pitch. That's just a flat-out fact. And remember, I used to sit on the other side of the table. I was one of those masters of the universe people at Dean Witter, Paine Webber, Morgan Stanley, and UBS.

‌Annuities Are Contracts

‌I've done that, been there, forgotten more than most people will ever know, and been in the financial business for decades. So, there's no sales pitch that I haven't heard. I've heard them all. Good and bad, and one of the things that I think separates me from everybody else is that experience and for me to brutally and factually tell you when someone is BSing you and when someone's just trying to sell you, or someone's saying something about the annuity category that's uninformed and uneducated and misleading and has an agenda behind it. Annuities are contracts. Annuities are put on the planet for four specific things. I have an acronym. It's PILL. Principal protection, Income for life, Legacy, Long-term care, confinement care, income care, whatever you want to call it, PILL. If you don't need to solve for one or more of those things in the PILL, you do not need an annuity.

‌Live Your Life

‌If you want pure market growth, and you're 82 and writing covered calls and buying futures, go and do it. But many people out there laid it on the line, that's done without, that's scrimp and saved. That checked the boxes, and that might be you out there. It's time to transfer some of the risk. It's time to go live your life. There's no U-haul behind hearses, and if you see one, take a picture and send it to me. Live for the day. I'm not telling you to have a strategy that your last check bounces, but I want you to get pretty close. You've earned it, and if COVID has yet to do one thing for anybody, it's done this. It's made us live life for today, like we're dying tomorrow. It's made us maximize now because we don't know about the future. It's done that for me, and that's the reason I'm so urgent with this message.

Do not allow people to poo poo annuities in general. They have no idea what they're talking about. Just ask yourself this. Do you need lifetime income? Do you need income in the future to address inflation? Do you need principal protection? Do you need to transfer some risk for legacy or long-term care? And if one of those answers is a yes, then we need to talk. You need to click on this link and download my annuity owner's manuals for free. You need to watch more videos. You need to listen to my podcast and get educated on the annuity space. Educate yourself. Just don't listen to the garbage that's out there. Don't go to a bad chicken dinner seminar or a good steak dinner seminar and listen to the one size fits all sales pitch. Learn about the category. This is a big decision. This is your money. This is your life. This is your retirement. This is your financial plan.

And annuities, financial plans, financial management, or financial portfolios in that space can work for you. You just have to understand they are contracts. You're buying a contractual guarantee and transferring the risk for that annuity company and carrier to provide that guarantee you're looking for. It's really that simple.

Hey, thanks for listening to the rant. As you can tell, I'm passionate about this stuff, but I know what I'm talking about and hope to talk to you about it. Thank you for joining me today, 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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