Table of Contents

Annuity Light Switch Income Guarantees: Shootin' It Straight With Stan

Stan Haithcock
December 20, 2023
Annuity Light Switch Income Guarantees: Shootin' It Straight With Stan

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 annuity light switch, lifetime income guarantees. I want you to envision a light switch. You just shut it on and off, right? When you need light, you shut it on. When you need it to be dark, you shut it off. There are annuity types out there that allow you to shut things on and off and shut income on and off. You say, "Wait a minute, Stan, what are you talking about? Why would I ever do that?" Tax laws may change in the future, and you need to shut down that income stream from the annuity at that time in order to avoid getting taxed and to wait for another administration to get it. Or maybe the income that you planned on you don't need anymore, so instead of taking the lifetime income, which is a combination of return of principal plus interest, and it's going to draw down on the asset, instead of continuing the income, you just shut it off, and you let it accumulate for a death benefit. There are many reasons why you would want to stop taking income. Not all the time. Most of the time, once you decide on income, you turn it on, and it's over. It's irrevocable. Three types of lifetime income products are irrevocable.

‌Three Annuity Types

‌One's a Single Premium Immediate Annuity, which is for income starting from 30 days up to a year. Then there's a Deferred Income Annuity, which is a Single Premium Immediate Annuity that you defer past a year. Then there's a Qualified Longevity Annuity Contract, which is a Deferred Income Annuity that you use inside of an IRA or qualified account.

‌All three of those are what's called annuitized products. All three of those are like ripping the knob off a water faucet, meaning income's coming whether you want it or not. It's an irrevocable income pension contract of which we can structure so that 100% of any unused money goes to the beneficiary. Still, as long as you're breathing and/or on a ventilator, it will pay. So, those are the three annuitized type products. But there are a couple more out here that you need to be aware of that I call light switch products.

‌Light Switch Products

‌The first one is a Multi-Year Guarantee Annuity. A Multi-Year Guarantee Annuity is a CD product. It's the annuity industry version of a CD. Don't make it any more complex than that, please, please, please. There's no triggering of anything. There are no market attachments and no annual fees. It's a yield, like a CD, that you lock in for a specific period of time, like a CD. There are no annual fees, like a CD. There are no moving parts, like a CD. There are no market attachments, like a CD. You can choose your duration, like a CD. It's called a Multi-Year Guarantee Annuity.

‌Now, many Multi-Year Guarantee Annuities allow you to take out interest. Let's say you're getting X percent interest on a five-year Multi-Year Guarantee Annuity. You can take the interest out and never touch the principal, so at the end of the five years, you've taken all the interest out on a monthly, quarterly, semi-annual, or annual basis. Your choice, by the way. Then, in the end, you have all your money intact, and you can do what you want with it. You can take it back, roll it to another one, etc. But let's say you choose one of those where you can take out interest penalty-free, and you do that; you can shut it on and off like a light switch.

‌In other words, you might take interest out for six months, and then something changes, or you don't need the income. You could shut it off and let it accumulate and compound. By the way, interest on money compounds with 99% of them. There are a couple of unicorns out there, 1% of which are simple interest, but 99% are compound interest. You can shut it on and off like a light switch. Think about that. You have banks, brokerage firms, and credit unions; those types of people who issue CD-type products and CDs. However, Multi-Year Guarantee Annuities, the annuity industry version of a CD, are issued by life insurance companies that issue annuities. So, the life insurance company's Claims-Paying Ability is very important, but we're talking about light-switch income with annuities. That's the first way. The second way is what's called Income Riders.

‌Income Riders

‌If you go to my site, I have the only site currently with Income Rider calculators you can run 24/7, 365. The consumer can. That would be you. This isn't for agents. We don't work with agents. We are the agent. Stan The Annuity Man. I'm the agent, but Income Riders are typically attached to either Variable or Index Annuities. We don't sell Variable Annuities because we don't sell anything that has the potential to go down in value. We sell Index Annuities, but with an Income Rider, we don't look at the index at all. We don't look at the CADs, the spreads, or participation rates. Upfront bonuses? No, we don't look at any of that. We look at the Income Rider. If you draw a line down a blank sheet of paper, the left-hand side is the index option side that every Jack Wagon agent out there is going to try to focus on and go, "Look, if you'd done this 10 years ago, you'd have got this, seven to 10% returns."

Wrong. We look at the other side of the ledger, which is the Income Rider, the contractual guarantee of the policy. Once you strip this down, in other words, if you look at Index Annuities with Income Riders and you're only focused on the Income Riders, which you should, because you only should own an annuity for what it will do, not what it might do, not some hypothetical or theoretical back-tested, unicorn chasing a butterfly nonsense. You're looking at the contractual guarantee of the Income Rider. Once you do that, then you've commoditized that product, and then we can shop all carriers for the highest contractual guaranteed income rider payment.

‌But here's the thing. Income Riders attached to Index Annuities are not annuitized. They're called drawdown products. Wait a minute, Stan, what does drawdown mean in Southern? It means subtraction.

That's what it means. You're taking income out, return of principal plus interest, and it's subtracting from the total. But with Income Riders, it's a light switch. You can shut it on and off. Now, here's the catch. When you shut it back on, it will turn back on at the exact payment level you shut it off. In other words, don't be Gordon Gekko out there, go, "I know how to play this game, Stan. I found the arbitrage moment. I'm going to shut it off. And then when I shut it back on, it will be more." No, it's not. It will turn back on at the same income level when you shut it off. But again, it might make sense for you to be able to shut it off. You might say, "We don't need the income anymore," or "I don't need the income anymore. I want it to grow as a death benefit." Or Johnny President gets in, and Johnny President goes, "All you evil annuity people out there that's scrimped and saved and planned, you're evil is what you are. You're evil, and we're going to tax your annuity income at 94% because you're evil, and you're rich, and you don't care about the common man." Hey, don't laugh. It could happen. So, if Johnny President does that or Joann President, then you shut that Income Rider off. You flip the switch. You call someone and say, "Flip the switch, Stan. Flip it, flip it, and forget it." Then whoever gets in next goes, "That Johnny or Joanne President, that was crazy talk, and we're going to lower it again." Then you flip it back on. So, the light-switched lifetime income is with Income Riders, light switch income, which is peeling off the interest with MYGAs, but both allow you to shut it on and off like a light switch.

‌If that detail and benefit is important to you, then you must let us know. But I wanted to tell you that it's available. The big thing about annuities is that I've made thousands of videos, and hopefully, we'll do thousands more. Most of the topics come from conversations that I have with people, and they ask good questions. I write the questions down, and we do videos and blogs so I can educate people, so that this is evergreen content that you can refer back to, because I talk a little fast, and you can go back and listen to it again and say, "Did he say what I think he just said, Martha? What'd that boy say? What'd that boy say? He talks so fast." This way, you can understand it.

‌Contractual Guarantees

‌There are annuities that aren't light switch annuities. SPIAs, DIAs, and QLACs, but there are annuities that are light switches for income. MYGAs, it's not lifetime income; it's just peeling off interest off a CD-type product and then Income Riders, which are lifetime income products. Not to get into the weeds, but some Variable Annuities out there have annuitized riders, but they're not on Indexed Annuities. We don't sell variable annuities. Again, I have nothing against them. We just don't sell them. We won't sell anything with the potential to go down in value. But for Index Annuities, when we look at the Income Riders, we don't look at the indexes at all. We don't look at the Index Annuity story. We only look at the income riders. Why? Good question.

‌It's the contractual guarantee of the policy, and we don't look at anything other than the contractual guarantee of the policy. Once again, I'm driving this point home every time I get a chance, when you buy annuities for contractual guarantees only, you then commoditize the strategy so that you can shop all carriers for the highest contractual guarantee. There are such animals and products and strategies out here for light switch annuity income. There are two of them currently that I believe in, and that's all that matters. What do you believe in, Stan? I believe that all people should buy annuities for the contractual guarantees. I believe that they should base their decisions on what it will do, not what it might do. Why am I talking like a bad politician? That's not good. Why don't politicians just talk? Why do they have to talk like this and have to intonate every word? Is that taught? Is there a school? Is there a camp? How about a guy or a galette getting up there and just talking? How about just talking? How about that? Maybe I run. No, I'm not going to do that. Stan The Annuity Man, the media would have a field day, but guess who else would have a field day with the media? That would be me. That would be something that they would want no part of. Trust me.

‌That's Shootin' It Straight with Stan. Light switch annuities? You didn't know they existed, did you? No, because I just named them that, and now they're going to be a category. Why? Because I'm Stan The Annuity Man. I'm America's annuity agent, and I'll see you next week.

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.

Learn More