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How Annuities Address Social Security and Inflation

Stan Haithcock
December 17, 2023
How Annuities Address Social Security and Inflation

Hi there. Stan The Annuity Man, America's annuity agent licensed in all 50 states, talking about one word and one word only today, inflation. 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. And when I see media people talk about inflation, I want to go because they have no clue what they're talking about. It's all political, football nonsense. But when it comes to inflation, you need to think about it. You need to think about, hey, what happens when they need a little bit extra money on that income floor, 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 hopefully get ahead of inflation? We're going to talk about all that in Stan The Annuity Man speak, which is fantastic because everyone can understand it because it's simple. Even a nine-year-old understands it. All you nine-year-olds out there, nod your head.

‌Social Security

‌So, let's start off talking about Social Security, which no politician wants to touch. Why? People who receive Social Security payments do something that's very important to politicians across the spectrum of this country. And what do they do? They vote. And if you mess with Social Security, you aren't going to be in the office too long player and politicians know that. Now, if you have a Social Security number, you can't say you hate annuities; you just can't. Or you're an annuity hypocrite and an idiot to boot, and you have no clue what you're talking about. But I don't want to be that mean to you. The people out there that are saying, "I hate annuities, Stan, I hate them." And then you turn to Martha and say, "Hey, Martha, did the Social Security hit the bank account?" That's an annuity. Social Security is the best inflation annuity on the planet.

‌As you know, Social Security has this formula, CPI-U, and they got this formula that they raise or don't raise or how much they raise. They play with it. We know that's kind of a game. I just had a guest on my podcast. 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, and it's the number one annuity podcast on the planet. If you listen to podcasts or get Spotify and iTunes or those things, you can listen to it. I had a Social Security expert on, and his name's Jeff Miller. He is a professor emeritus from the University of Delaware. Really smart guy. I encourage you to listen to that podcast.

‌4 Annuity Types

‌But he was talking about some of the calculations he saw at the time of this blog. If they stick to the formula that they use, that increase is going to be a big one coming up. And that's good, except for the fact we have to pay for it, but it is what it is. We have to pay for everything as the country, but I think you're going to get an increase, which is good because they will increase those payments. So, 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 take the payments and with annuities, depending on the types. At the time of this blog, there are four primary types or strategies with annuities that provide lifetime income: Social Security, Single Premium Immediate Annuities, Deferred Income Annuities, and Qualified Longevity Annuity Contracts. And the fourth isn't really actually 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 and increase to the payment, that's what you want to have. We all want that to happen. That makes sense, right? Nod your head. Annuity companies don't give that away. Typically, they lower that initial payment by 20 to 30% or more depending on the age at the time you take the payment to make up for that increase. In other words, they don't give it away. They have the big buildings for a reason. They meaning the annuity company. But that doesn't mean that you can't use annuities to address inflation in addition to your Social Security.


‌The other thing out there is people who have pensions. If you're a government worker or part of a very good union, that sets something up for you from a pension standpoint. Many of those pension payments have increases for inflation already built in. And a lot of those were done a long time ago. And the assumptions are in your favor, meaning they will increase by a lot. The problem is less than 10% of us out here in the hinterlands of the United States do not have a pension. We have a 401k, 403B or 457, or some retirement plan for accumulation. The lifetime income stream is called decumulation because you're getting your money back with interest. But the people or annuity companies are on the hook to pay for as long as you live. So, Social Security, fantastic. Best annuity ever. I mean, you're going to get a lifetime income stream.

‌The Older You Are, the Higher the Payment

‌And 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 in the annuity business, I always say there are no perfect answers, just bad sales pitches. I told them, I said, hey, you're going to get a higher payment 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, 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 miss. Let's say you turn them on at 65; you're thinking about it, factor in those 60 months of payments, five times 12, five years times 12 months, those 60 months of payments, and then how long it's going to take for you to make up for those payments, money in the bank, right? 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. Just the older you are, the higher the payment. And with an annuity, lifetime income stream, it's the same exact thought process. The older you are, the higher the payment.

‌A guy called me the other day and said, "Should I wait to buy the Immediate Annuity? Will the Immediate Annuity payout be higher five years from now?" I can carte blanchely, say, pound the table, yes, it will be higher. Why? You're going to be older, which means you'll have less life expectancy, which means there will be fewer payments, which means that the payments will be higher. It's really that simple.

‌Nailing Jello to a Wall

‌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 true, that's what my mom told me. I guess she didn't want me to eat 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. When you need more income, you probably need to look at buying a Single Premium Immediate Annuity at that time, solving that income gap you need. So, does Social Security get adjusted for inflation? Yeah. Every year, they look at the CPI-W, which is the consumer price index of clerical workers, and the CPI-U, which is the consumer price index of urban consumers.

There's a lot of nonsense involved. There are a lot of details that there is no reason to go into, but the bottom line is every year, the government looks at that and looks to increase it, and 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. And that's where annuities on the commercial side, my side, Stan The Annuity Man side shopping all carriers, that's when it comes into play. Just remember, no annuity type's better than any other. It really comes down to two questions. What do you want the money to contractually do, and when do you want those contractual guarantees to start? And then, we shop all carriers for the highest contractual guarantee.

‌Remember, no quote's better than the other. The only quote that matters is the highest contractual guarantee for your situation. And annuity quotes change like a gallon of milk every seven to 10 days. We're quoting pretty much all carriers out there for you to find that highest contractual guarantee. So, don't be bamboozled by someone saying, "Well, this one's the best one for you." That is not the case. Go to our site, use our proprietary annuity calculators to shop around, and see what those lifetime income streams look like for you and your specific situation. And I want you to join me on the following 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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