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Can I Buy A Pension Annuity With Cash

Stan Haithcock
January 20, 2022
Can I Buy A Pension Annuity With Cash

The question is, can I buy an annuity with cash? The short answer is yes, but there’s more to it. Pensions are the albatross that no one talks about because less than 10 percent of the private companies even offer pensions anymore. If you work for the government, something like that, or a labor union, you probably do have a pension, and that's great because guaranteed income for the rest of your life is a fantastic thing to have.

Fortunately, all of us have that in the form of social security, which is the best inflation annuity on the planet. But when you're looking to buy a pension annuity for yourself or your spouse or partner, realize the pricing of that pension annuity. When people ask me, Hey Stan the Annuity Man®, how much will pension annuity pay? When you make the payment, it comes down to your life expectancy or life expectancies. Interest rates play a secondary role. Let me repeat that. Interest rates play a secondary role. It's all about life expectancy, period. End of the story. When you say, well, if I wait five years to buy my pension annuity, will it have a higher payoff? Yes, because your life expectancy is less, there'll be fewer payments, which means those payments will be higher. Just the taxation of how the income will come out is going to be different, but the guarantees are the same.

The Process

When you decide to buy, I’m going to need a couple of things for you. I'm going to need where you've lived, your state of residence, and your date of birth. If you're going to set up the joint with a spouse or partner, their dates of birth, then I can run the "all carriers to find the highest contractual guarantee" for your specific situation, and you have to understand that these quotes are like a gallon of milk. They expire every 7-10 days, and the only way to lock them in is to go through the application process. The lump sum is the best way to buy a pension annuity. Yes, you can take a deferred income annuity in some cases and add money over time. Still, I believe just lump sum into the annuity or the pension annuity, typically that's a single premium immediate annuity, that's the best way to do it.

Now, understand that Pension Annuities, Single Premium Immediate Annuities, can be structured the way you want them to be structured. They can be customized.

Pension Fund

Do you have to buy the annuity with your pension fund? I'm starting to get a lot of these calls because many people are retiring or being forced to retire, or the company is making an offer to either pay them a lump sum or pay them a pension-type payment. The call I get and this happens a lot is, Hey, Stan, XYZ company, they're offering me $450,000 lump sum or they're offering me X amount per month for the rest of my life, for the rest of me and my spouse or partner's life. Which one's the better deal? Well, a pension annuity is a Single Premium Immediate Annuity in most cases; it pays for your life regardless of how long you live. It's a transfer of risk; an annuity is the only product on the planet that can provide that lifetime income guarantee.

What I told this person was, "What's the quote? Send me the quote, and I'll make an apples-to-apples quote comparison to see if the pension payment that the company's offering you is better than what you can get out here on the street by quoting all annuity companies." Spoiler alert, about 85 percent of the time that we found the company's offering the pension payment will be higher than when I quote all carriers. Why? Because the company that you're leaving, XYZ Corp, wants to hold onto the money and then pay it back to you over your life expectancy. They don't want to come up with a lump sum, so they're making that offer very sweet for you to stay there.

Contractual Guarantee

Now, it's not a perfect decision on your part. Well, I'm just going to take the highest contractual guarantee because if you say, well, they have the highest payment, I'm going to go with them. You have to factor in the claims-paying ability of XYZ corporation, your former employer. Can they back up the claim? Period. This was an interesting situation because the person didn't need the income to start right now. I advised them to take the lump sum, roll it into an IRA, manage the asset, and call me when they needed income. But if you're the person that's getting that offer and you need a lifetime income stream and the lifetime income stream guarantee offer from XYZ corporation, your former employer, is higher than what I do at apples to apple comparison quote for, then you have to take into account can that company, can your former employee backup those claims for the rest of your life? If you don't think so, then let's go out here in the hinterlands of the annuity world. Let me quote all carriers and find you a highly rated carrier, a double-A plus a rate of the carrier, that will back up those claims you feel comfortable with.

Cashing In

Can you cash in an annuity-like a pension annuity, at any time? The answer is no. Think of it like this. I'm from Carolina; some people say, I can hear some twang in there; I can twang if I want to because that's what I do when I go back to the family reunions, but typically I try not to do that. But back in the south, we went out to the water spigot, which is the fixture outside the house. Think about ripping the knob off the water faucet, the water spigot, and water just flowing; you can't stop it; that’s a pension annuity. When you turn on the income stream with a pension annuity, a Single Premium Immediate Annuity structure is a pension annuity structure. That income's going. It's this flowing. It's coming. People say, am I ever going to get my money back? Yeah, but you're going to get it in the payment form.


Now, understand that pension annuities, Single Premium Immediate Annuities, can be structured the way you want them to be structured. They can be customized. The two questions, what do you want the money to do contractually? When do you want those contractual guarantees to start? Those are the two questions I asked everybody. If you said, I want a lifetime income stream, but I want to make sure that evil annuity company doesn't keep a penny when I die if there's money left over. We can structure it like that, but you can't pivot and say, I've got five years of payments from my pension annuity, my immediate annuity; I’d like to stop that and just send me the balance. Not going to happen, Chester. That's not the way the product is designed, Period. That doesn’t make it a bad thing. You just didn't need to know that going in and make sure that the money you're putting into a pension annuity, a Single Premium Immediate Annuity, is allocated property and in proportion.

One of the things I see a lot is people try to put too much money into an annuity. I know the annuity god is like, don't say that, Stan, the Annuity Man. We want all money into annuities. No. When it comes to pension annuities, I like to use as little money as humanly possible to solve the contractual guarantee.


By the way, just to address inflation, with pension annuities, you can attach what's called a Cost of Living Adjustment increase, COLAs. You can say, Stan, I want the percentage, I want my income to increase by 3 percent every year. Now, before you get all excited; annuity companies don't give that away, understand that. You’re buying a pension annuity, a Single Premium Immediate Annuity. Here's the same annuity without a cost of living increase. Here's the one with a cost of living increase. Annuity companies don't give that away. If you want that, fine, but what I typically do is show you the same annuity with and without so you can make a decision that makes sense for you.

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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