Annuity Light Switch Income Guarantees

Welcome to Shootin' 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 an exciting one that’ll get you thinking—Annuity Light Switch Lifetime Income Guarantees.

So, when I say "annuity light switch," I want you to imagine a light switch. You turn it on when you need light and off when you need it dark. Similarly, annuity types allow you to “turn income on and off.” You might be asking, “Stan, what are you talking about?” Well, let’s dive into it.

Why You Might Need a Light Switch Income Option

You might want to turn off your income from an annuity for several reasons. Perhaps tax laws will change in the future, and you want to shut down your income stream to avoid higher taxes. Or maybe the income you planned on isn’t needed anymore. Instead of continuing with lifetime income, which is a combination of return of principal plus interest, you might decide to stop the income and let the annuity accumulate for a death benefit.

While most annuities are set up to give you income for life, some options allow you to “flip the switch” and adjust things according to your needs.

The Irrevocable Annuity Types

Most annuities, once you start taking income, are irrevocable. Let’s go over three types of annuities that are considered irrevocable:

1. Single Premium Immediate Annuities (SPIAs): These provide income starting from 30 days to a year.
2. Deferred Income Annuities (DIAs): A form of SPIA, but you defer the income start date beyond one year.
3. Qualified Longevity Annuity Contracts (QLACs): A form of DIAs used inside an IRA or qualified account.

These annuities are “annuitized,” meaning the income is guaranteed for life once you begin receiving it. It’s like turning on a faucet—the income keeps flowing whether you need it or not. And, if you structure it properly, 100% of any unused money will go to your beneficiaries when you pass.

Light Switch Annuity Products

Now, let's talk about annuities that allow for more flexibility. I call these light switch products. The first one is the Multi-Year Guarantee Annuity (MYGA). This is the annuity industry’s version of a CD. It’s simple: you lock in a fixed interest rate for a set period of time—just like a CD. There’s no market attachment, no annual fees, and no moving parts.

Taking Out Interest

Many MYGAs allow you to take out interest without touching the principal. Let’s say you have a five-year MYGA. You can take the interest out monthly, quarterly, semi-annual, or annual (your choice) without touching the principal. At the end of the term, you still have all your principal intact. You can then choose what to do with it: take it back, roll it into another MYGA, etc.

With this option, you can “flip the switch” on and off. For example, you can take interest out for six months, and then if you no longer need the income, you can stop it and let it accumulate again. Most MYGAs compound interest, but a small number of them offer simple interest. The beauty of this option is that you have flexibility.

Income Riders: Another Light Switch Option

The second way to get “light switch income” is through Income Riders. If you visit my site, The Annuity Man, we have the only Income Rider calculator that you can use 24/7, 365 days a year. Income riders are typically attached to Variable Annuities or Fixed Index Annuities.

While I don’t sell Variable Annuities—because I don’t sell anything with the potential to go down in value—I do sell Fixed Index Annuities. However, we don’t focus on the index option (the market-related part) with Income Riders. Instead, we focus on the Income Rider guarantee—the contractual guarantee of the policy.

How Income Riders Work

Once you strip down the extra stuff and focus on the Income Rider, you’ll see that it’s a way to transfer the risk of lifetime income to the annuity company. With an Income Rider, you know exactly what your future income will be, and that’s what we base our decisions on. We look for the highest contractual guarantee for your specific situation.

Income riders are often described as “drawdown products,” meaning they subtract from the total value. The income stream is a return of principal plus interest, and it’s designed to be flexible. You can turn it on or off like a light switch.

The Income Rider Fee

However, here’s the catch: when you turn it back on, it will start at the same level that you initially shut it off. Some people think they can game the system and turn it off and on to get more money. This isn’t how it works. The payment will restart at the same amount.

With that said, there are scenarios where you might want to shut off the income. Maybe you don’t need the income anymore or want it to grow for a death benefit. Or, as we joked earlier, perhaps a future administration introduces higher taxes, and you want to turn off your income to avoid paying them.

Summary

To sum up, both MYGAs and Income Riders offer light switch income options. With MYGAs, you’re withdrawing interest from a CD-like product, and with Income Riders, you’re using a lifetime income product that allows you to shut the income on and off as needed. If that flexibility is important, we can help you structure it properly.

The big thing is that with annuities, you buy them for what they will do, not for what they might do. We focus on the contractual guarantee because that’s the only certain thing. If you want a light switch income strategy, we have products that can help.