How Annuities Address Social Security and Inflation
Hi there, Stan The Annuity Man®, America's annuity agent®, licensed in all 50 states, talks about only one word today, inflation. Inflation, Stan The Annuity Man, let's talk about inflation. Let's talk about how annuities and social security can address inflation, the gorilla in the room, what everyone's talking about.
When it comes to inflation, you need to think about, "Hey, what happens when you need a little bit extra money on that income flow as I talk about all the time? How do I address that, and how do I look at social security and annuities and combine those two to get ahead of inflation hopefully?"
Let's start off talking about social security that no politician wants to touch. Why? Because people that receive social security payments do something very important to politicians across the fruited plains of this country. Now, what do they do? They vote. If you mess with social security, you aren’t going to be in the office too long-player, and the politicians know that. Now, if you have a social security number, you can't say you hate annuities. The people who are out there say, "I don't know it, Stan. I hate them." Then you turn to Martha and go, "Hey Martha, did the social security hit? Did that hit the bank account?" That's an annuity. Social security is the best inflation annuity on the planet.
Social security, fantastic, the best annuity ever.
As you know, social security has this formula, CPIU, and they got this formula that they raise, or don't raise, or how much they raise. They play with it. I have a podcast called Fun With Annuities®. Can you believe there's such a podcast called Fun With Annuities? Of course, there is, and I'm the host. It's the number 1 annuity podcast on the planet. If you listen to podcasts, you get Spotify and iTunes or those things. You can listen to it. I had a social security expert the other day, and his name is Jeff Miller.
He is a Professor Emeritus from the University of Delaware. What he was talking about is some of the calculations that he's seen at the time of the taping. If they stick to the formula that they use, the increase will be a big one coming up. I think that's good except that we have to pay for it, but it is what it is. We have to pay for everything as a country. But I think you're Going to get an increase, and that is good because they're going to increase those payments.
How do annuities work in conjunction with that? Well, the annuity industry isn't as philanthropic as our government. They just can't print money. They're looking primarily at your life expectancy at the time you make the payments, and with annuities depending on the types, and at the time of this taping, there's four primary types or strategies with annuities that provide lifetime income, like social security, single premium immediate annuities, deferred income annuities, qualified longevity annuity contracts, and then the fourth isn't an annuity, it's something you can attach called an income rider, but it provides a lifetime income stream.
All you need to know about inflation and those four types of annuity strategies that provide lifetime income is that if you add a cost of living adjustment increase, an increase to the payment that you, that's what you want to have. We all want that to happen. That makes sense. Nod your head. Annuity companies don't give that away. Typically, they lower that initial payment by 20-30 percent or more depending on the age at the time you make the payment to make up for that increase. In other words, they don't give it away. They have significant buildings for a reason.
However, that doesn't mean that you can't use annuities to address inflation in addition to your social security. The other thing out there, people that have pensions, if you're a government worker or have a part of a perfect union that set something up for you from a pension standpoint, a lot of those pension payments have increased for inflation already built-in.
A lot of those were done a long time ago, and the assumptions are in your favor, meaning they're going to increase by a lot. The problem is less than 10 percent of us out here in the hinterlands of the United States do not have a pension. We have a 401k or 403b, or 457 or some retirement plan for accumulation. Then the lifetime income stream is called decumulation because you're getting your money back with interest, but the annuity comes on the hook to pay for as long as you live.
Social security, fantastic, the best annuity ever. You're going to get a lifetime income stream. Just think of it like this too because there's a direct correlation between social security, how to take it, and annuities, how to set it up. The older you are, the higher the payment. I got a call the other day, and the guy said, "Hey, should I take social security at age 70, or should I take it at age 65?" Well, just like an annuity business, I always say there's no perfect answer; it’s just bad sales pitches.
I told him, I said, "Hey, you're going to get a higher payment at age 70 because you're older, which means your life expectancy is less, which means the payments are fewer, which means that you're going to get more income paid, more income, the higher income level because you're not going to live as long. But that doesn't mean you wait till 70. You have to factor in the payments that you missed. Let's say you turn them on at 65, and you're thinking about it; factor in those 60 months of payments five times 12, five years times 12 months. The 60 months of payments and then how long it will take for you to make up for those payments.
Money in the bank. You're getting the money now instead of waiting for later. Does that make sense to you? Again, there's no perfect answer for that. The older you are, the higher the payment, and with annuity lifetime income stream, the same thought process. The older you are, the higher the payment. A guy called me the other day; he said, "Should I wait to buy the immediate annuity? Will the immediate annuity payout be higher five years from now?" Yes, it will be higher. Why? You're going to be older, which means you're going to have less life expectancy, which means there will be fewer payments, which means that the payments will be higher.
It's that simple. But inflation is a tough one too. It's like nailing Jello to a wall. I encourage everyone out there to make Jello, which by the way, if you didn't know this is a side fact, it's made from horse hooves. Did you know that? If that's not accurate perfect my mom told me. I guess she didn't want me to eat the Jello, but anyway, take the Jello and nail it against the wall; that’s inflation. You can't. You can't predict it. You don't know.
I would tell you that when you need more income, you probably need to look at maybe buying a single premium immediate annuity at that time, solving for the income gap you need. Does social security get adjusted for inflation? Yeah, every year, they look at the CPIW, the consumer price index of clerical workers, and the CPIU, which is the consumer price index of urban consumers. It's a lot of nonsense involved there,
There are many details that there is no reason to go into, but the bottom line is that the government looks at that and looks to increase it every year. That's a good thing for you. That's the best inflation annuity on the planet. Will it keep up with inflation? Will it keep up with potential hyperinflation? Maybe, maybe not. That's where annuities on the commercial side, my side, Stan The Annuity Man side shopping all the carriers, that's when it comes into play.
Just remember, no annuity type’s better than any other. It comes down to two questions. What do you want the money to do contractually, and when do you want those contractual guarantees to start? Then we shop all carriers for the highest contractual guarantee. Remember, no quotes are better than the other. The only quote that matters is the highest contractual guarantee for your situation. Annuity quotes change like a gallon of milk. Every 7-10 days, we're quoting pretty much all carriers out there for you to find that highest contractual guarantee. Don't be misled by someone saying, well, this one's the best one for you. That is not the case.
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.