Annuity P.I.G. (Portfolio Income Guarantee): Shootin' It Straight with Stan®
Today's topic is a unique one. I just thought, let's get down and dirty with annuities. It's called annuity P.I.G.S. P-I-G-S. Yes, like the pigs. Annuity P.I.G.S. “What's P.I.G. stand for Stan?” Good question. Portfolio Income Guarantees. Yes. It's trademarked so don't run to your lawyer.
What's a Portfolio Income Guarantee? Well, it should be an annuity. So, for the people out there they go, “I hate all annuities, Stan. This guy on the television said to hate all annuities, and if you bought an annuity, you'd be better off going to the gates of hell." Or your financial advisor's like, "Never buy an annuity because they're expensive." These people are fools. They're ignorant or they're calculating and doing something bait and switch, so you don't buy an annuity, which is good for you.
Now, for all of you annuity haters out there saying, "Well, you know what, Stan, I'm watching this just because I want to make fun of this whole thing because I hate annuities. I would never own an annuity. You could put a gun in my head, stick it in my ear and I would think you're going to pull the trigger and I'd still never buy an annuity of any type even though I know now, after watching you there are many types of annuities. I would never do it." You already own two, player.
So, the two that you own, the first one is the best inflation annuity on the planet, Social Security. If you really hate annuities, if you're really pounding the table and you're adamant about that and you're a principled human being that once you say you hate something, you're never going back, then call the Social Security office and tell them you're not going to get those lifetime income stream payments and you're not going to get those increases with inflation that's happening right now and will happen next year as well. You're going to avoid that because you hate annuities and you're not going to take that lifetime income stream annuity that's in place, called Social Security.
Now that I've kind of hit you in the forehead with a two-by-four of facts and you say, "Okay. Okay. I own an annuity, I own Social Security." You already own another one. You're saying, "There's no way, Stan, because, in the inventory in the back of my head, I know better than that." Let me explain what it is. Do you have an IRA? Yeah, you do. Nod your head. If you have an IRA, Individual Retirement Account, 401k, all those things that have been deferring taxes all this time, at age 72, the IRS goes, "Hey we need you to start taking money out whether you need it or not, and we need you to start paying taxes on that because you've been deferring taxes and we're the IRS and we love taxes and we want to collect the taxes." That's called a forced annuity, in my world. You say, "Wait a minute. Whoa, whoa, whoa. That's not an annuity, Stan." What's an annuity for lifetime income? You get a payment every single year or every single month, however, you want to structure it, for the rest of your life as long as you're breathing.
Now you can get down in the weeds and give me all kinds of crazy examples, but don't because I'll blow them up factually. But what you're getting with your RMDs is an annual payment from your IRA, which is a forced annuity. So…you own two annuities. That's part of your Portfolio Income Guarantees. If you're so fortunate to have a pension, which most people don't, most people have what's called a defined contribution plan. In English, that's a 401k, 403b those types of things that you have to then convert into a lifetime income stream. But there are some companies, less than 10% of the private companies out there offer a pension. If you work for the government or a state government, local government, or a very good labor union, you might have a pension as well that you're going to get payments from as long as you're breathing. That's part of the P.I.G. (Portfolio Income Guarantee).
If you have a pension, now you have three annuities: Social Security, RMDs (your forced annuity), and your pension. All of this comes into the income floor. “What's the income floor, Stan?” Very good question. The income floor is that amount that's going to hit your bank account every single month regardless of what happens in the world. With 10,000 baby boomers hitting age 65 every single day, that's important. That's what annuities really were put on the planet to do.
The original P.I.G. happened in Roman times. Yes, the Romans loved pigs. That was the original Portfolio Income Guarantee. When the Roman Empire said to the dutiful Roman soldiers and their families, "We are going to provide you an annual payment for your dutiful service to the Empire and laid it on the line," that was called, annua, which means annual payment. That's the original Single Premium Immediate Annuity back in the day from Roman times. That was the original P.I.G. (Portfolio Income Guarantee).
Now, the annuity industry has four P.I.G.S. You live on a farm, you walk out and you've got to feed the pigs. “How many pigs are there, in the annuity world in that pigpen?” Four. Single Premium Immediate Annuity, Deferred Income Annuity, Qualified Longevity Annuity Contract and Income Riders attached to either Indexed Annuities or Variable Annuities or sometimes MYGAs as well for lifetime income guarantees. You can attach it at the time of the application. So you have four Portfolio Income Guarantee annuity types that can provide income.
I always ask two questions to every single person. The first one is, "What do you want the money to contractually do, and then when do you want those contractual guarantees to start?" From those two answers, I can determine A, if you need an annuity, and B, what type would provide the highest contractual guarantee. So let's give some P.I.G. examples. Question. "What do you want the money to do?"
"I would like a lifetime income stream, Stan."
"When do you want those lifetime income streams to start?"
"I'd like it to start in a month."
"Great. That's a Single Premium Immediate Annuity."
Let's do another P.I.G. example. "What do you want the money to do?"
"I would like lifetime income."
"When do you want those guarantees, lifetime income, to start?"
"Great. Now we're down to two types, Deferred Income Annuities, and Lifetime Income Riders." Now, a Deferred Income Annuity can also be a QLAC, one and the same. The difference is that QLAC can only be used in your IRA or a qualified account. That's the P.I.G.
The income floors are the expenses and the amount of money you need to live chapter two of your life. There are no U-Hauls behind hearses. I say that all the time. You can't take it with you. But Portfolio Income Guarantees put all those things together: Social Security, RMDs (your forced annuity), pensions, if you're so fortunate to have one, and then you fill in the gap with the P.I.G.S. (Portfolio Income Guarantees) a DSB, a QLAC or an Income Rider.
Now, fortunately for you, on my site at theannuityman.com, you can run your quotes 24/7, 365. We have the best annuity calculators on the planet. So, you can run a SPIA quote, you can run a DIA quote, a QLAC quote, and an Income Rider quote. You can run it lump sum or you can say, "You know what? That income floor we have, we need an additional $2,275 a month. That's what we need." You can solve to see how much money it would take to contractually solve for that.
Let's finish with one last thing. When we talk about P.I.G.S, we also need to talk about the inflation of P.I.G.S. "Hey, Stan, this inflation thing's crazy. Janet Yellen's wrong. It's not transitory." How do you solve that with annuities? Well, if anybody else out there says, "I've got the annuity that will adjust for inflation. It'll increase your income as inflation blah blah blah.” They're lying. It's just that simple. Annuity companies have big buildings for a reason. They're going to significantly lower the initial payment if you attach any type of increase for inflation.
So, what I tell you to do in a smart world for inflation is when you need additional income to add to that income floor that you already have with the two annuities that you own, Social Security and forced annuity RMDs, and hopefully a pension and the annuity that fills in that gap. If you need additional income, what do we do? What we do is we go to theannuityman.com. We go to the SPIA calculator, Single Premium Immediate Annuity, and we run a reverse engineer quote solving for that contractual amount that you need to fill in that gap for inflation. If it happens five years from now, we do it again, and we do it again. That's how you solve for inflation using annuities and using the P.I.G.S that are in place.
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.