Are Multiple Annuities A Good Idea For Retirement Income?

Today we're discussing retirement income and whether multiple annuities are a good idea. I recently received the question: "I have 60% of my portfolio in an annuity. My wife (still working for four more years) has two-thirds of a portfolio my size. Would a second annuity with hers down the road be a good idea? Just a percentage of it." That's a good question. I mean, right now, you have a lot of annuities. The annuity industry has a guideline of 50% of your investible assets in annuities total. That doesn't mean you can't put more if you make a good case for it. If you talk to me, say we need this and can make the case with the carriers, but it might make sense from a retirement income standpoint. Let me go through a couple of ways that we could ladder specific types of annuities for income.

Customize Your Plan

Now, everyones situation is unique, and annuities are customizable. We need to talk one on one. I'll put a custom plan together for you. You can go to my site at theannuityman.com. In the top left-hand corner, you'll see the three magical words, book a call. You click that. You access my schedule, and you set a time. I will call you on the dot every time, and we will take 30 minutes to discuss your situation confidentially. But let's talk about multiple annuities and how that works. If you just wanted to protect the principle, never touch it and then maybe peel off the interest as you did with CDs, or maybe you've done that with bonds. A product type in the annuity world is called a Multi-Year Guarantee Annuity, MYGA. It's a fixed-rate annuity, the annuity industry version of a CD of which you could buy multiple durations, and then you could just peel off that interest rate.

There's not a one-size-fits-all when it comes to annuities.\

MYGAs

Not all MYGAs allow you to peel off the interest rate, but we would choose if that was your goal. If you said, Stan, I want principal protection. We want to peel off the interest and never touch the principle and use that interest as some type of income stream for us; we can do that. I got a call the other day, and a gentleman said I want to do an MYGA ladder. I have $300,000, and we did a three-year, four-year, and five-year MYGA, three different companies, $100,000 in each. And they just were going to peel off the interest during those durations. And then when each one of those Multi-Year Guarantee Annuities matured and hit that, yeah, it was at the end of the surrender charge time period, they have the option to get the money back in full. Or we can transfer it to another Multi-Year Guarantee Annuity non-taxable event, and then they can continue to take the interest out.

And you can do that in a non-IRA setting. You could do that in an IRA setting. But when you take money out of an annuity like that, a Multi-Year Guarantee Annuity, it's taxed at ordinary income levels. So that's a principle protection type ladder to peel off the interest for income. Discuss lifetime income products like single premium immediate annuities, deferred income annuities, and qualified longevity annuity contracts. And then the fourth is an income rider, which is an attachment to either a variable index annuity for lifetime income needs. Now you can ladder those as well. You can have multiple products and multiple strategies in play. And what I mean by that is, let's just say you had the $300,000 example again, and you wanted income to start at your age of 70. You wanted income to start at 75, 80, and 85. Then we would shop for the highest contractual guarantees for those specific durations.

Income Stream

When you want to turn on that income stream and have income starting at those specific durations, which by the way is the best way to combat inflation, you can buy a cost of living adjustment rider to increase the income, or there are some indexed annuities that the sales pitches your income are going to increase with the index increase. But understand that the initial income you’ll get will be lessened by, say, 30 to 35% ballpark average if you choose an increase instead of a static payment. But with lifetime income, you can do it a couple of ways. You can buy all three products simultaneously and have income starting at those intervals like the example I gave 75, 80, and 85. Or you could say, I'm going to buy an immediate annuity this year, an immediate annuity next year, and an immediate annuity the following year for a lifetime income.

Laddering

At the end of the day, and when you get to chapter two of your life, which is retirement, there are 10,000 baby boomers hitting age 65 every single day. A lot of people want to transfer risk, they want to protect the principle, or they want lifetime income. You can structure it so you can ladder that income to start at different intervals, or you can ladder the purchase date, or you could do both. You could ladder the purchase date for future laddered intervals, customization, or anyone. I mean, at the end of the process, when you run quotes on my site, and you get some feel for what the contractual guarantees are, then you're going to schedule a call with me, and I'm going to go through the specifics, of what you're trying to achieve and ask you the two questions. What do you want the money to do, and when do you want those contractual guarantees to start?

You might say, I want to protect the principle, but I want to peel off the interest. Then Multi-Year Guarantee Annuities are a very good solution for that. And we can ladder those. Or suppose you say we need a lifetime income stream. In that case, we need a pension, like a social security payment, which is an annuity or a pension you're getting from your company, we need an additional lifetime income stream that the spouse and I can never outlive as long as we're breathing. We need to put that in place. But we might want to ladder those start dates. And just remember, with lifetime income, the primary pricing mechanism is your life expectancy. At the time you start the payments. Interest rates play a secondary role. Let me repeat that. Interest rates play a secondary role. So if you don't like the guaranteed payment, then you probably don't like your age.

Can You Time It?

You probably think you're too young, but you can't time it. I know that sounds like a sales pitch, and I'm not saying, hey, you need to buy it now. I'm just saying you can't time the purchase because life expectancy drives the income train and the income pricing train. You have to be careful about timing it because if life expectancy tables change against you, meaning that they're projecting you to live longer, the payments will be lower. So getting back to the original question, is multiple annuities a multiple-annuity strategy, does that make sense? It might. And in this specific situation, I would encourage him to schedule a call with me because what I would do is I would take a look at the annuities that they currently own. If his wife owns annuities, we will look at those as well, and we'd look at the contractual guarantees. If those contractual guarantees were the best you could get, you'd stay there. If you can exceed those contractual guarantees elsewhere, we would entertain that thought, and I'd show you why.

But in most cases, we’ll take the annuities that you own. Then we're going to combine them potentially with newer contractual guarantees and annuity purchases to get you to the goal you want to reach, period.

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.