Annuity Income: How To Set Up Your Payments
Stan The Annuity Man, America's annuity agent, licensed in all 50 states and that's including yours. And we're talking about annuity income and how to set up those payments; let's talk about that.
Brief History of Annuities
But first, let's talk about why annuities have a monopoly on lifetime income. And they do. You probably didn't know that. Annuities are the only product on the planet designed contractually to pay you for the rest of your life, regardless of how long you live. Don't believe me; Social Security is an annuity. What does Social Security do? It pays you for the rest of your life, regardless of how long you live. Pension payments are annuities. Why? Because they pay you for the rest of your life regardless of how long you live. And then we have annuities, which are the granddaddy of them all. They started in the Roman times to provide lifetime income for the dutiful Roman soldiers. When we're setting up lifetime income, understand you really only have one choice. Hold your nose. It's annuities.
Do You Believe?
"I hate all annuities. Annuities stink. The guy told me on the TV commercials to hate all annuities." Agenda much? There might be an agenda there. "My advisor told me that I should never buy an annuity. My advisor told me I should never have an annuity inside an IRA. My advisor said annuities are not any good. My advisor said that annuities are all expensive." Do you believe everything in the media? When you turn on the news, do you believe everything the media says? No. Do you believe every commercial on TV? No. Do you believe every radio commercial? No. Do you believe every print ad? No. Do you believe everything your advisor tells you? No. And you got to be saying, "Well, well, Stan The Annuity Man. You're an advisor. You're the top agent in the country." You are correct. And I'm glad you pointed that out. Do you believe me at the end of the day? No. You believe contract annuities are contracts. I'm going to tell you what the contract's going to do. I'm going to provide you with the best contractual guaranteed quotes using my proprietary annuity calculators. But should you believe me? No. You believe the contract. You believe the number. You believe the carrier's number on the carrier's paper. I'm just the delivery agent for that. And that's the way you have to shop for annuities.
So, when setting up annuity contracts, you can customize them and say, hey, I want it on my life, or I want it on my life and my spouse's life, or I want it on my life and my child's life. I want it joint life. Or I want it to pay for a specific period of time, or I want it to pay for my life and a specific period of time in case I die early. What am I trying to convey? Customize the quotes, every single time. And you can tell us exactly what you want to happen. Don't have an annuity agent or advisor say you should buy life in 20 or life with cash refund. Or you should buy life only. No. Ask yourself two questions. What do you want the money to contractually do? And when do you want those contractual guarantees to start? I'll add a third one there, which is how do you want it structured? Do you want your wandering ambiguities of children that are out there hanging out and surfing the beaches of Maui? Do you want them to get the money if you die? Or you say, screw that, I want the highest contractual guarantee for me. Either way works. You just have to tell us exactly how you want it to work.
Living the dream is not outliving your money, right? Yeah, that's good. I should take a magic marker and write that down, “is not outliving your money.” And then it would smear, and it would look like crap. But the point is this, when you're shopping for income, when you're shopping for lifetime income, understand that the payments are primarily based on your life expectancy or life expectancies at the time you take the payment, interest rates play a secondary role. The older you are, the higher the payments because there are fewer payments, and you have less life expectancy, which means the payments are higher. It's really that simple.
Now, you're transferring the risk to the annuity company to pay you for the rest of your life. That's cool. The payments are coming back to you as a combination of the return of principal plus interest. Regardless of the product type, Immediate Annuities and lifetime income guarantees can be held in traditional IRAs, Roth IRAs, and non-IRAs. The only difference is how that money is taxed coming out.
So, when quoting for lifetime income, understand the quotes are like a gallon of milk. "You said a gallon of milk. What are you talking about?" When you go to the store and buy a gallon of milk, it will expire and go bad every seven to ten days. My grandmother used to call it milk's gone blinky, Stan, it's blinky. I don't know what blinky means, but that's what she said, okay? Well, your quotes are going to go blinky, too. Every seven to ten days, the market changes. And so, you have the companies competing; it's a commodity quote. If you say, Stan, I really like this X, Y, Z company, they could finish first this week and they could finish 10th next week. When I go into a quote, people always say, "What's your favorite annuity, Stan?" It's the one that provides the highest contractual guarantee for you. And I am still determining who that's going to be. We're just going to shop all carriers to find out who has the highest contractual guarantee, and then we're going to send you that. And if you want to decide and move forward, great, we can lock that in during the application process. But you can't get a quote and then sit back and look at the quote for two weeks and say, "Well, that's the one I want."
I got a call the other day, and the markets have been volatile at the time of this blog. Very volatile. And so, the guy calls me up and says, "Stan, we've talked in the past. I've got your books, watched the videos, listened to the podcast, and all that stuff. You sent me these quotes a couple months ago, I'm ready to move forward on them. I like that number. I like that top number. Let's do it. I'm ready to put the money in." And I had to rain on his parade and say, "I'm sorry about that, Chester because it isn't going to work that way." And he was not happy. But reality is reality. And I had told him that. But we always tell people, hey, this quote expires. We'll give you the expiration date; when you get an expiration date from us, it doesn't mean you decide on that day. It means the carrier must have the application there at their company to lock in that quote.
So, when setting up your income payments using annuities, I think the best way to do that is to look at your overall income floor. "What's an income floor, Stan? It's not a wood floor or else my wife would buy it, right?" The income floor is this: What are the guaranteed payments that come in every single month that are not affected by markets, volatility, geopolitical events, or politicians? What's that amount? Social Security? Pensions, if you're so fortunate, if you work for a union or the governor or something like that, you're getting a pension. My parents were both at the end of the day after the basketball coaching stuff, they were teachers, they got a teacher's pension. So, that's coming in. That's part of the income floor. If you have dividend income, that's part of the income floor. If you have rental income, that's part of the income floor. Required Minimum Distributions from your IRA, the traditional IRA, is part of your income floor.
Now you have to say, okay, here's what's coming in. What's the total, and what do you need? There might be a gap that you want to fill, whether it's for right now or inflation potential in the future. You can say, "Stan The Annuity Man, the wife and I need $2,250 a month for the rest of both of our lives to fill in that income floor gap to reach the number that we need so that money's hitting the bank account every single month to cover basic expenses and the lifestyle needs that we've listed out." That's a really efficient way to use annuities for lifetime income - filling that gap for the income floor.
One of the things I see all the time that is not good, and I try to reel people in, is people put too much money into annuities. I know you're just saying, "Stan The Annuity Man, you're the number one agent in the country. The sales gods will shoot a lightning bolt down and kill you." That might be the case, but annuities must be suitable and appropriate for your situation. The one thing you do not want to do, and we will not let you do, is put too much money into an annuity without looking at your overall investible assets. Oh, by the way, the annuity industry really doesn't like you putting 50 to 60%, which is kind of the max. That doesn't mean you have to put it in there, but that's the max they like seeing. They want you to have liquidity; they want you to have investments in other areas. You shouldn't go all in with annuities or any other investment, for that matter. But remember the income floor example I gave you, add it all up, and then tell me, "Hey, this is the gap we need to fill." Then, we can reverse engineer the quote to find the best contractual guarantee.
All right, that's a lot to take in. I encourage you to go to The Annuity Man, get the best quotes on the planet, get my books, and interact with us. And by the way, if you book a call with us, I might pick up the phone. I'll see you in 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.