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Guaranteed Future Income Annuity: 4 Strategies to Know

Stan Haithcock
April 8, 2024
Guaranteed Future Income Annuity: 4 Strategies to Know

Hi, Stan The Annuity Man here. I'm America's annuity agent licensed in all 50 states. Did you know that I love lifetime income? That's what we're talking about today. I mean, I'm the only one that's wearing it on my sleeve, as they say. We will talk about guaranteed future income and go over the four products that address that, how they work, and what you need to know. We'll also go over all the details and all the little nuances that are never shared with you somehow in those really bad chicken dinner seminars or that sales pitch that's too good to be true, etc.

‌This is not six-minute abs. Remember that? Six-minute abs was all about buying the video, and if you spend six minutes a day, you can have six-pack abs. Which we all know is crap because after the six minutes are over, we all eat Cheetos and macaroni and cheese. But what does that have to do with annuities? That has much to do with annuities, meaning there's no quick fix. These are contracts; these are transfer risk products. They do what they say they're going to do in the contract. So, if you're going to buy one, understand the limitations and benefits.

‌The 4 Products

‌The four strategies that you need to know come down to the four products, but annuities are contracts, and they are strategies. Let's talk about them and their timeframes. So, what do we have? Single Premium Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, and Income Riders. All four of these can produce a lifetime income stream starting in the future.

‌What does the future mean to you? Good question. Immediate Annuities can start as soon as 30 days, and you can defer it up to one year. The future could mean a year from now. A future could mean six months from now. The future could mean 60 days from now. If that's what you define as future, then the Single Premium Immediate Annuity is going to provide the highest contractual guarantee payout period. Don't let anyone show you another type of annuity. That's called square peg into a round hole selling; it doesn't work.

‌The only winner is the annuity agent. If an annuity agent comes to you and says, "You need to buy my Index Annuity to start for immediate income," walk away, run away, yelling, screaming with your hair on fire. It's not good juju, as they say, right?

‌Deferred Income Annuities. That's a Single Premium Immediate Annuity that you can defer. And how long? It's 13 months as soon as you start it, up to sometimes 40 years with carriers. Some specific carriers will let you go out 40 years.

‌By the way, do you see the correlation between the year and 13 months? This is, in essence, the same product, strategy, and structure as a Single Premium Immediate Annuity. There are no moving parts and no annual fees. It's a straight transfer of risk for pension payments, but you can defer for 13 months up to 40 years. Most of the time, it's a 10 year, 15 year link for a Deferred Income Annuity.

‌I'll tell you a story about Deferred Income Annuities. I have people who buy them for their children, and I have people who buy them for family members, uncles, and aunts. Wondering ambiguities, as I call children sometimes.

‌My two daughters are great kids, but they're probably not going to make a lot of money in their lives. They're in their twenties. I bought a Deferred Income Annuity for both of them, with income starting in their fifties. I'll be long gone from here. I'll be in annuity heaven if there's such a place. There probably isn't. It's probably more like annuity purgatory. But they're going to be getting a lifetime income stream that I've put in place for them.

‌Qualified Longevity Annuity Contracts are the newest annuity type introduced in 2014 and can only be used in a traditional IRA. Some employer plans are also offering them as well, but not many. But with this, typically, you'll start it in your 70s, up to age 85. In other words, when you buy a QLAC inside an IRA, you must start the income at age 85. You don't have to defer that far, but the IRS will tap you on the shoulder and say, "Oh, by the way, you need income because the IRS and the Treasury Department put QLACs in place." Long story short, we're talking about future income annuities; that's how long you can defer.

‌And then Income Riders. Typically, with Income Riders, you can buy them in your forties. I don't recommend that for many people, but some will defer as short as one year. You can turn on the income stream, which I do not think is good, and some go as far as 20 years, but the typical is 10. That's the sweet spot for Income Riders from a deferral standpoint: 7, 8, 9, 10, and 11 years when you need future income. And if you said, "Hey, Stan The Annuity Man, you represent all carriers, and you're licensed in all 50 states, and you are the guy out here," you are right about that. You are so right about all of that. "I need income in eight years." To find the highest contractual guarantee, I will quote in a non-IRA account, Deferred Income Annuities, and Income Riders.

‌Now, those two products are different. They both get to the contractual guarantee goal. Taking two different contractual paths, but they both provide a future income stream. We'll quote both of those. But even though Income Riders, you can turn them on soon, I just wouldn't. Single Premium Immediate Annuities will provide 99.9% of the time, the highest contractual guarantee payout on the planet. So, those are the four strategies.

‌The Taxes

‌The only one that's got the little handcuffs on you is the Qualified Longevity Annuity Contract, which is fine. I put that on the board because the contractual guarantees will always be the same. They're never going to change. The difference is how that income stream is going to be taxed coming out of these specific accounts. Let's go over them. Roth IRA, if it's inside of a Roth IRA, tax-free income because you've already paid taxes on the Roth, which is a good thing. In a non-IRA account, Immediate Annuities and Deferred Income Annuities are annuitized products, so it's a combination of return of principal plus interest. You're only going to pay taxes on the interest portion of that.

‌With most Income Riders, those are what's called withdrawal products. You will pay ordinary income taxes last in first out gains first, on that. But all these are transfer-risk future pension products, and you don't know the ROI until you die. Rest in peace equals ROI. That's kind of the grim reaper approach to the whole thing, which I liked. It was kind of fun.

‌However, the bottom line is that we only know the return on investment in these products once you die. Up until then, it's a transfer risk. And remember that annuities are the only product on the planet that can provide a lifetime income stream you can never outlive. That's what lifetime means.

‌So, with that, please visit The Annuity Man and check out the quotes. You can always schedule a call with us if you have any questions. Thank you for joining along with me today, and I will see you on the next Stan The Annuity Man blog.

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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