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Defer 2 SPIA (MYGA-2-SPIA): Shootin' It Straight With Stan (TAM Classic)

Stan Haithcock
June 26, 2024
Defer 2 SPIA (MYGA-2-SPIA): Shootin' It Straight With Stan (TAM Classic)

Welcome to Shootin' It Straight With Stan. I'm your host Stan The Annuity Man, America's annuity agent, licensed in all 50 states, absolutely including the one that you're sitting in. Today's topic is a very good one, and unfortunately, it's a unique one for the annuity industry, but hopefully, this strategy will spread like wildfire across the fruited annuity plane. I'm dreaming that the world will get along, I'm dreaming that Republicans and Democrats will work together, and I'm dreaming that Mr. Putin will have some sense, meaning that this topic will probably not catch on because it's a low, low commission idea. Now, the topic of today is MYGA 2 SPIA income strategies. So, MYGA, Multi-Year Guarantee Annuity, to SPIA, Single Premium Immediate Annuity, income strategies.


‌Let's talk about commissions first. All annuity types, Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, Index Annuities, and Variable Annuities, all those commissions are built into the policy, hidden from the client, and paid from the reserves of the annuity company so that you don't see them on your statement. In other words, if you buy a hundred-thousand-dollar annuity of any type, you'll see a hundred thousand dollars on your statement go to work for you.

Now, did the agent get paid? Absolutely. Do I get paid? Absolutely. Am I a capitalist? Absolutely. But commissions don't drive the train with my recommendations. And that's important because most agents out there, unfortunately, I'm finding commissions do drive the train. They're selling the highest commission product on the planet.

‌The Two Questions

‌I always ask people two questions every single time I talk to them. Number one, what do you want the money to contractually do? And number two, when do you want those contractual guarantees to start? Remember, my whole saying is you own an annuity for what it will do, not what it might do. The will do is the contractual guarantees, and the might do is the hypothetical, theoretical, back-tested, hopeful, projected, unicorns chasing the darn butterflies stuff you see out there. You never buy an annuity for that. You buy it for the contractual guarantee.

‌Returning to the two questions, if your answer was, "I would like lifetime income." That's the answer to your first question. And then the second question, when do you want that lifetime income to start? And you say, "I don't know, three years, five years, seven years, 10 years," whatever that number is down the road. Once you say that, we're down to two products. Two packaged products will achieve that, meaning you buy them right now, and then, on a future date, you know to the penny what that contractually guaranteed income will be. That's a great thing. I mean, you talk about planning and box-checking; that's fantastic. Those two products are Deferred Income Annuities, which are, in essence, an Immediate Annuity that you defer, no moving parts, no annual fees, no market attachments, etc.

‌The second way to do it is typically an Income Rider attached to an Indexed Annuity or a Variable Annuity. And historically Indexed Annuity Income Riders, those riders attached at the time of the policy, you don't have to have one, but if you attach it, you know what the future income stream will be. But historically, those Income Riders on Fixed Index Annuities are contractually higher than Variable Annuities. I have nothing against Variable Annuities. I don't sell Variable Annuities. I don't sell anything that has the potential to go down in value. And the other reason is the attached riders typically are not competitive.

‌So, those are the two products. You say, "Okay, should I buy a Deferred Income Annuity, or should I buy an Income Rider attached to an Indexed Annuity in this case?" Let's go through the negatives of each.

‌The Negatives

‌If you bought a Deferred Income Annuity with income starting at a future date, you know to the penny what it will be. You can buy it in an IRA, non-IRA, or Roth IRA. And that's going to determine the taxation of the income stream. However, the negative part of that is when you buy a Deferred Income Annuity now; there's no growth or trackable interest rate on that Deferred Income Annuity.

‌Let's just say you bought one and you said, "Okay, in four years, I want a lifetime income stream. I'm going to put a hundred thousand dollars in," and you die in a fiery Learjet crash year two. If it's properly structured, 100% of that money will go to your beneficiaries, but it will be a hundred thousand. In other words, there's not going to be any accrued interest.

‌Now, the annuity companies, the longer you allow them to hold onto the money, the higher the payment will be. But for a lot of people, that's a downside. The other potential downside is when you buy a Deferred Income Annuity right now; the annuity company is locking in current interest rates and current payout rates right now for it to happen four years from now. But don't think that you shouldn't buy one now and wait in the future because annuity companies understand what Stan The Annuity Man's getting ready to tell you about the MYGA 2 SPIA strategy, and they're going to price it so that there's no anomaly or sweet spot or arbitrage that you can take advantage of. So, really, the negative to Deferred Income Annuity is that it's an irrevocable choice, and you don't have any trackable interest.

‌I just ran one today for a gentleman, and we did a MYGA 2 SPIA comparison. It was pretty much the same, and he decided to go with the Deferred Income Annuity. That's one way to do what I call income later. Remember, you answer the two questions. What do you want the money to contractually do, and when do you want those contractual guarantees to start? I want income, and I want income later.

‌Then the other product out there that every jack wagon agent at the bad chicken dinner seminar will jam down your throat is an Indexed Annuity with an Income Rider. Nothing wrong with that. We sell more than anybody when it's appropriate. People understand that Indexed Annuities are CD products, and when you attach an Income Rider, the Index Annuity is nothing more than a delivery system for the income guarantee period.

‌Once again, you know what the future income stream will be to the penny. And looking at that product, if you draw a line down a blank sheet of paper, the left-hand side of that paper is the index option side, the right-hand side is the Income Rider amount, and two separate calculations. The Income Rider amount will always be higher, so you have to stay in the policy to use those benefits.

‌The negative side of attaching an Income Rider to an Indexed Annuity for future income needs is that there is a fee for that Income Rider that's taken out of the accumulation value for the policy's life. Annuity companies have the big buildings for a reason. So, that fee will be taken out for the life of the policy. It doesn't make it bad, but you have to understand that.

‌A lot of people come to me and say, "Stan The Annuity Man, first of all, nice hat." For the people that are reading this, it's a powder blue, Carolina blue Stan The Annuity Man hat. And they'll say, "Stan, I don't want to pay any fees, and I'm not sure I want to lock in annuitization rates right now." Remember, when you get lifetime income from any type of a lifetime income stream annuity, QLACs, DIAs, SPIAs, or Income Riders, the income stream is a combination of return of principal plus interest based on your life expectancy at the time you take the payment. But many people look at riders and say, "I don't want to pay the fee." I mean, they're Bogleheads. I love John Bogle, rest in peace, but he did set the precedent out there, let's look at fees.

‌So, what's the Boglehead-type approach to lifetime income? In my opinion, the best way to do it is by a Multi-Year Guarantee Annuity. Multi-Year Guarantee Annuity, MYGA, is the annuity industry's version of a CD. It's nothing more than that. Don't make it more complicated than that. Please don't overanalyze it. Don't say, "Well, are there market attachments?" No, there are no market attachments. There are no annual fees. You get a specific guaranteed interest rate for a time that you choose.


‌If you go to The Annuity Man , you can pull up a live MYGA feed of the best-fixed rates for your state; there are two drop-downs you have to click: your state and the duration you're interested in. But the good part about this is that you know what the guaranteed interest rate will be. And you say, "Well, why wouldn't I do an Index Annuity like my brother-in-law wants me to do?" There is nothing against Index Annuities. These are CD products as well, but there's no guarantee on what you'll get.

‌With MYGAs right now at these current rates, they will outperform the vast majority of Index Annuities. And again, do you want to own an annuity for what it might do? No. You want to own an annuity for what it will do. With a MYGA 2 SPIA strategy, you're saying, "Okay, I want income in five years. I'm going to buy a five-year MYGA. I know exactly what my guaranteed interest rate will be because it's just like a CD and functions like a CD. It's the annuity industry's version of a CD. I can buy it in a Roth, a regular IRA, or a non-qualified account. I can buy it in any account possible. And if it's in a non-qualified account, non-IRA account, that interest grows tax deferred."

‌Guaranteed Interest Rate

‌But at the end of that duration, let's take that example: at the end of the five-year term, we shop all Immediate Annuity companies, all Single Premium Immediate Annuity companies for the highest contractual guarantee on the planet, and we do a transfer, non-taxable event, transfer from the MYGA to the SPIA. Now, what have you done? You have a guaranteed interest rate, pay no annual fees, and then shop for the highest guaranteed Single Premium Immediate Annuity payout when you need income.

‌"Why does that make sense, Stan?" Good question. Think about this right now. "Well, interest rates might move, interest rates might not move, but I don't want to miss the move, Stan The Annuity Man." And remember, the Immediate Annuity lifetime income price is combination of return of principal plus interest and your life expectancy drives the pricing train. However, if interest rates do move significantly, that will move the needle a little bit.


‌The MYGA 2 SPIA strategy is somewhat of a no-brainer because, number one, you're stripping out fees period for the life of the policy; you're never going to pay a fee. John Bogle's high fiving me right now; he loves this. You're not going to pay any fees. And at the time the MYGA matures, then were shopping all carriers at that time for the best single premium immediate annuity rates and doing a non-taxable event transfer. So, the cost basis transfers to the Immediate Annuity, and it's a MYGA 2 SPIA panacea. How about that?

‌Let’s Break It Down

‌No one will talk to you about MYGA 2 SPIA income strategies because the commissions are so low. And under that premise, if the commissions are low, it's pretty good for you. I mean, think about it. It's simple. I always say if you can't explain it to a nine-year-old, then don't buy it. So, let's explain it to the nine-year-old. "Hey, nine-year-old. Here's what it is. You're going to buy a fixed-rate annuity, meaning you'll give the annuity company money. They will pay you a guaranteed contractual interest rate every single year, which will compound for the duration that you choose. Understand?" "Yes, we do. We do, Stan. We understand what you're saying." "Okay then, nine-year-old." After that, we'll shop for a lifetime income stream because annuities are the only product that will pay you as long as you're breathing for the highest contractual guaranteed lifetime income stream at that time. Now, understand we will shop those carriers for immediate annuities with the structure you want if it's life-only. That's great. If it's life with cash refund, life with installment refund, life with period certain or period certain, we'll shop for the highest contractual guarantees.

‌Remember that you can structure it so that 100% of the money will be paid as long as you're breathing. If it's joint with a spouse or loved one, as long as one of you is breathing. And when you die, we can structure it so that 100% of any unused money goes to a list of beneficiaries of the policy, and the evil annuity company doesn't keep a penny.

‌So, there really are three ways to do income later. Deferred income annuity, great product, no annual fees, no moving parts, it's a pension.

‌Number two Income Riders attached to an Indexed Annuity. That's fine, too. Once you do that, the Indexed Annuity is nothing more than a delivery system for the Income Rider. We will quote both of those DIAs and Income Riders for the highest contractual guarantee. And I'm going to explain the good and the bad, the limitations and the benefits.

‌But the last one is, and nobody but me is talking about this; hopefully, I'm going to change that because it's pro-consumer, it is MYGA 2 SPIA. You fully control the asset. And let's say in the example I gave that the person needs income in five years. We buy a five-year MYGA with the understanding that in five years, we will shop for Immediate Annuities. Let's say we get to that five-year time period, and they say, "You know what, Stan The Annuity Man? I changed my mind. I don't want lifetime income. Send me the money back in full or send it back to the account it came from." We can do that. Isn't that good? Don't you like controlling your money? Nod your head.

‌So, one strategy that you haven't heard and you will never hear at the bad chicken dinner seminar, expensive steak dinner seminar, the person that comes to your workplace and talks about annuity, you're never going to hear it because it's pro-consumer and it's low, low, low, low commissions, which are good. And that strategy is MYGA to SPIA. Yes, it's a Stan The Annuity Man original that's going to sweep the country because it's such a good idea.

‌Hey, thanks for joining me. See you next time.

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