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Getting Retirement Cash Flow From SPIAs

Stan Haithcock
May 16, 2022
Getting Retirement Cash Flow From SPIAs

The Ancient Pension

Let's talk about Single Premium Immediate Annuities, acronym SPIA, S-P-I-A, the oldest annuity type. They were introduced in the Roman Times as a pension gift, a lifetime income stream gift to the dutiful Roman soldiers and their families for laying it on the line for the empire. And that's kind of the same structure you'll see with the immediate annuities today. They are a pension product. The pricing is primarily based on your life expectancy when you take the payment. At the time the payments start, interest rates play a secondary role. Don't call me and say, "I want to time interest rates," because you're falling for whatever pitch is out there or think that that's the primary pricing mechanism. It's not.

Life Expectancy

When you go to take your Social Security, is the income stream higher when you're 70 than opposed to when you're 65? Of course, it is because you're older, which means you have less life expectancy, which means there are fewer projected payments, which means the payments will be higher—the same thing with immediate annuities. You already own an annuity; it’s called Social Security. It's the best inflation annuity on the planet. Why do I say that? Our friends in DC will increase the payments if they need your vote because they can print money at will, as we've all found out.

Some people's sites, not mine, write immediate annuity quotes; they put a percentage beside the payment to mislead you to think that you're getting that rate of return. For instance, when you write a quote with the Annuity Man® and I'm quoting all carriers for the highest contractual guarantee, you will see the monthly number. We list what that monthly number will be, and we list the carriers from top to bottom. The top one is going to be the highest payout.

Some people are bending the truth and trying to get you to believe it's something it's not. If someone has besides the payment, 5.6% or 6.1% or 7.2% or whatever that percentage, that does not yield; that reflects your life expectancy numerically. That's all it is. What they're doing is they're saying this 5.6 later, 6.1%. They're trying to make you believe that it's a bond. It's not a bond. Do not make that correlation. I've managed bonds before. I understand bonds with Morgan Stanley and all those I used to work for. They're not bonds.

Their percentage can be used if you're looking at multiple immediate annuities and want to see the difference. But even then, I don't like it because it's misleading, and people don't know what they don't know. With bonds, you have a percentage that you can peel off and not touch the principal, correct? The income stream is the return of principal plus interest with immediate annuities. You're getting your money back.

Immediate annuities are commodity products. There's no one better than the other.

The Value Proposition

What's the value proposition of immediate annuity? When it gets to zero, you're in the annuity company's pockets, and it will pay for you for the rest of your life, regardless of how long you live, and there's no ROI until you die. These are contracts. Immediate annuities that are primarily based on your life expectancy, if you run it joint life expectancies when you take the payment, period.

When you buy a bond that says 5%, you're getting a 5% coupon, and you're not touching the principal. When you get an immediate annuity, it says 5% beside it; that's misleading. What is it? It's the return of principal plus interest. Also, remember this, immediate annuities are commodity products. There's no one better than the other.

Quotes expire every seven to 10 days. It, meaning the quotes, every seven to 10 days. And the only way that you can lock in that quote is to go through the application process, and no, that's not a sales pitch. That's just reality. You can run your immediate annuity quotes at my site and never have to talk to anybody. You can run them 24/7/365. You can. Now I do; at the end of that process, I encourage you to schedule a call with me because there are about 35 to 40 ways to structure an immediate annuity. And we can put together a customized plan.

Cash Flow Percentage

Getting back to the cash flow issue, that cash flow percentage is a reflection of your life expectancy numerically. Should immediate annuities be part of your retirement cash flow strategy? Because it's a transfer risk contractual guarantee, a lifetime income stream. We can structure it contractually and shop all carriers so that you're going to get a lifetime income stream or, if you set it up joint, lifetime income streams for the rest of your life, regardless of how long you live. Whatever money's left in the account goes to the beneficiary when you die. Whatever money is left in the account goes to the beneficiaries.

Are Single Premium Immediate Annuities the best strategy within the annuity world to fund retirement? Suppose you need income to start right now, 30 days from when the policy is issued, up to a year, then yeah. If you need income right now, Single Premium Immediate Annuities are your best and almost only choice from the annuity world, and it's a transfer risk. You're transferring the risk to the annuity company to pay you regardless of how long you live.

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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