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Annuity Income Increases for Inflation: Shootin' It Straight With Stan

Stan Haithcock
August 16, 2023

Welcome to Shooting 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 a hot one. It got your attention, and you want to hope and believe it's true, and the topic is Annuity Income Increases for Inflation. Does that exist, Stan The Annuity Man? This local guy keeps telling me that his annuity will increase with inflation and that it just tracks inflation. No such product exists. Now, let's talk about lifetime income for a second. Lifetime income is primarily based and priced on your life expectancy or, if it's joint, life expectancies at the time you take the payment.

Life Expectancy

Interest rates play a minor role in the pricing, its life expectancy, but when you attach a potential or contractual increase for inflation, the annuity company doesn't give that away. They just severely lower the initial income amount compared to the exact annuity without that increase. Annuity companies have the big buildings for a reason. They have the logos on the plane for a reason. They're sponsoring sports stadiums and sports arenas for a reason. They know when we're going to die. They don't give things away. And anyone that says that they have this annuity that increases with inflation, you're the sucker at the table, as they say in Vegas. You're the rube. If you don't know who that is, it's you. They don't give it away. It's math.

A Similar Correlation

A similar correlation, this is one you'll understand. Social Security, is the payment higher at age 70 or is it higher at age 65? It's higher at age 70. Why? It's because you're older. So, if you say, well, what if I took payments at 65 instead of 70, or what if I waited till 70? Does it make more sense than turning on a 65? It's math. You have to factor in the 60 payments you missed while waiting to age 70. The same thing with Cost of Living Adjustment increases, or Index Annuity increases on the money. You have to factor in how long it will take you to make up for that lowering of that initial amount. Now, there are two ways to increase cost of living inflation currently at the time of the blog.

Cost of Living Adjustment

With annuities, some years ago, some Immediate Annuities would have CPIU, Consumer Price Index for Urban consumers, one of their little indices, and it would increase by that, etc. But again, they lowered the payment. But now, with Immediate Annuities, Deferred Income Annuities, etc., you can attach what's called a COLA, Cost of Living Adjustment. That's what COLA stands for, and you could choose the percentage amount that it's going to increase by. Sounds great, huh? Yeah, you could do that, and they'll give you that increase for the rest of your life as long as you're breathing, but they will factor in your life expectancy. They will ratchet down that initial payment severely to make up for that increase. Typically, it's a six to nine-year breakeven point.

So, the question is, does it make sense for you to do that? I don't know, it's math. You have to figure it out. Or do you do a portion in the Cost of Living Adjustment and the rest, just a static payment, because you already own the best inflation annuity on the planet, and that's Social Security, right? High five, yes. Now on the index or variable side or whatever is being pitched to you, they're saying, well, on the accumulation side, if that increases, that increases the Income Rider amount. Well, that sounds great in theory, but the fact is, once again, the annuity companies don't give that away. They just severely and drastically lower that initial payment compared to an Income Rider that doesn't have that increase, period.

It's Just Math

The bottom line is that if it sounds too good to be true, it is every single time. Annuities for lifetime income, SPIAs, DIAs, QLACs, and Income Riders are not set up to track and address inflation regardless of what you're told or heard at the bad chicken dinner seminar. It just doesn't exist. It doesn't work in its current form. Maybe some genius will figure it out in the future, but now annuity companies don't give anything away. There's no philanthropist annuity company that wakes up in the morning and goes, you know what? I'm going to price this product against us and actually have it track inflation for the consumer. No, they don't do that. They just lower the payment. It's just math to them, the annuity company, and it should be math to you.

What's Your Income Floor?

Again, if it sounds too good to be true, it is every single time. So, you're saying, okay, wait a minute, Stan, so you've popped the inflation balloon for annuities. Yes, I have, and I've done it factually and brutally, but in a nice way. So, what's your solution, Stan? You talk all this stuff, and now, what do you do then? What do you do about inflation? Okay, here's what you do. You have an income floor in place: your Social Security, the best inflation annuity on the planet. You already own an annuity, hypocrites, anyone, pensions, if you're getting that, dividend stocks, whatever is creating that income floor that's coming in every month, rental properties, etc. Find out what's that income floor need. What is it? Let's say it's $5,000 a month that you're getting now, and you say, Stanley, that's not my name, but you could say it because I'll let you. Stanley, I need an additional thousand dollars to get us to $6,000 a month, which would make us happy, and my wife would be happy, my spouse would be happy, and we would be happy, and we could see the grandkids and grandkids and give the grandkids back when we're done with them. Then what we do is we run a reverse engineer quote solving for that thousand dollars a month when you want that income to start, and that's how we do inflation. That's the smart way to do inflation. That's what really smart people do to inflation, and they do not buy a prepackaged product out of the damn blue, excuse my French, and say, oh, it's going to track inflation. My agent says it's going to track inflation. No, it's not.

Transfer of Risk Products

So, the way to do inflation is at the time you need that gap filled, is to do a reverse engineer quote to solve for that specific gap at that specific time, buying an Immediate Annuity, and we can structure it so it's going to pay as long as you're breathing. And when your Learjet hits the mountain, 100% of any unused money does not go to the annuity company, it goes to your beneficiaries. The money doesn't go poop, it goes to your beneficiaries. We could structure it as a lump sum to them or in payment form, but that's inflation when it comes to annuity income. Don't buy the sales pitch. Don't buy the dream. Don't buy all that nonsense too good to be true stuff out there. These are contracts; annuities are contracts. They're transfer risk products, and its pure math straight up, and you have to shop all carriers for the highest contractual guarantee period. And those quotes change like a gallon of milk. That's the reason I represent pretty much every single company. Why? Good question. When some companies reach capacity, they lower their guarantees not to attract you, and some need to attract you, so they raise their guarantees. That's the reason that buying annuities is like buying a plane ticket.


Regarding inflation, I'm going to close with two things. Number one, I've told you how to solve it: reverse engineering the quote when you need that gap filled for your income floor. But here's the second one. I need you to listen very closely and lean in. If you have a lot of money, stop bitching about inflation, okay? If you have a lot of money, realize six out of 10 people in this country have $400 in their checking accounts. Don't be arrogant about it. If you have worked hard, you still have those scars of scarcity and act poor, but you're not poor. I need you to get real with yourself and realize you can afford the eggs and you can afford the gas, and this is cyclical. You're going to make it, and don't obsess about inflation. But the way to solve it is to reverse engineer it when needed. And that my friends is Shooting it Straight with Stan, with one cuss word, which I totally apologized for, but it flowed. It wasn't offensive; it was the D-word. My wife is going to get on me about that. I understand, but that's Stan The Annuity Man. I'm riffing, baby. I'm telling you the truth. I'm shooting it straight because this is called Shooting it Straight with Stan. I'll 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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