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How Much Do You Need To Pay Yourself With Inflation

Stan Haithcock
August 4, 2022
How Much Do You Need To Pay Yourself With Inflation

What’s Your Number?

So how much do you need to pay yourself? How much will an annuity for lifetime income pay using our calculators? Good question.

So if you're looking for a monthly annuity calculator, what will an annuity pay me for life per month? How do I calculate that? Now, there are four types of lifetime income strategies: Single Premium Immediate Annuities, SPIAs, Deferred Income Annuities, DIAs, Qualified Longevity Annuity Contracts, QLACs, and then there are income riders that aren't annuities, but they're attachments, and a lifetime income benefit attachment that you can attach at the time of the policy, typically to either variable or Fixed Index Annuities. I don't sell variable annuities because I don't sell anything that has the potential to go down in value. So we attach them to Fixed Index Annuities. And what we found too is that the income riders attached to index annuities typically provide a higher contractual guarantee most of the time when compared to variable annuities.

SPIAs and DIAs

Let's take SPIAs and DIAs first. First thing, let's talk about lifetime income. Lifetime income is primarily based on your life expectancy, or if it's joint, life expectancies when you take the payment. Interest rates play a secondary role. You need to understand that interest rates don't drive the pricing train. It's life expectancy. It's what they call mortality credits at the time you take the payment. You're pooling risk with all the other people your age for that lifetime income stream, and you can't time it. I know that you think you can, but you cannot.

I got a call the other day, and he goes, "Well, I'm going to wait for about six to nine months before I buy my immediate annuity because I think rates are going up." And I said, "Well, great. That's fine, but you need to factor in the nine payments you’ll miss while you're waiting to become and prove that you're master of the universe." And then you have to factor in how much time it will take to make up for that. The bottom line is you can't beat the life insurance company. Why? Because they know you're going to die, period. You can't beat them. So if the guarantees make sense, they make sense. Single Premium Immediate Annuities were put on the planet in Roman times as a gift for the dutiful Roman soldiers and their families as a pension-type gift.

Running Quotes

We have SPIA and DIA calculators. DIAs, Deferred Income Annuities, are immediate annuities that defer. Once you pass a year, an immediate annuity becomes a Deferred Income Annuity. When you run a quote, you put in your name; you put in your email. Why do you put it in your email? Because not only are you going to see the quote in real-time once you punch in all the information, we're going to email you that quote as well for you to look at later and put into whatever file you need to put into as you're making your decision on your terms and your timeframe.

So, you put in your state and your date of birth, if it's joint, dates birth. You put the type of account, IRA, Roth IRA, and non-IRA. You put in how long it will be until the income starts, 30 days, a year, two years, whatever. That's a dropdown as well. But then this is the key, though, with the Deferred Income Annuity and the Single Premium Immediate Annuity. There's a dropdown that says, and I'm going to look down and read it because I want to get it right. So here I go, looking down at the first one.

Annuity companies have the big buildings for a reason.

I had a call the other day, and the gentleman said, "I need $2,000 per month, every single month for the rest of my life and my wife's life." Okay, great. We’ll quote all carriers to see which carrier will guarantee $2,000 per month using the least amount of money contractually. That's a reverse-engineered quote. I love that because I always tell people to use as little money as possible to solve the contractual goal. But then most people won't have just put in, well I've got 100,000 or 400,000 or 700,000 or 300,000. How much lifetime income will that create? So you get two choices with the Single Premium Immediate Annuity and Deferred Income Annuity.

By the way, that same choice is on the income rider quotes as well. It's not on Qualified Longevity Annuity Contracts because the IRS and the Department of the Treasury introduced that product, and that's a little messy. So all you get to quote is a lump sum, whatever lump sum you want to put in up to $135,000 at the time of this taping. But for the other types of lifetime income quotes, income rider quotes, Deferred Income Annuity quotes, Single Premium Immediate Annuity quotes, you can do a reverse engineer quote, solving for that monthly income amount, and you can also just solve for the lump sum. What's this lump sum going to pay? A lot of people say, "What's $100,000 pay? What’s a million dollars pay? What’re half a million dollars pay?" It depends on your life expectancy or life expectancies when you want to start the payment, et cetera.


What about inflation? My Social Security increases with inflation typically, which is the best inflation annuity on the planet. If you want to see an increased cost of living adjustment quote, you need to schedule a call with me. Why? Because I need to explain how that sausage is made. It sounds great in theory for everyone to say, "Well, my annuity increases every year forever and ever as long as you're breathing. Every year, it increases." That sounds great, but annuity companies have the big buildings for a reason. They do not give that increase away.

It's a very common but misleading pitch in the index annuity world; if you buy this index annuity, it increases with inflation. No, no, no, no. The annuity company typically does lower than the initial payment, which says 25 to 40% in that range; they’ll lower it to make up for that increase. I'm not sure that's a good deal. It can be combined with other annuities that don't have that increase, but in most cases, it makes sense mathematically to buy that static. I know what you're saying, "But how about a hybrid? How about that? How about inflation? How about that?" No annuity on the planet, regardless of the sales pitch, can address it, period—the way to address inflation because I know what’s in your head. I'm using your calculator, Stan, but we're not talking about inflation. We're talking about it right now. The way to do that is when you need to solve for more lifetime income, you do a reverse engineered quote, an immediate annuity reverse engineered quote, solving for that monthly income amount.

Let's talk about inflation broadly. Inflation affects all of us differently. It affects us differently than if you have kids, et cetera. So inflation is the gorilla in the room, but to factor it in for your specific situation is customized based on your situation. And that's something that we need to talk about. So when I put the calculators on the site, you can run them all day long. We do not put inflation in there because it's a customized thing you and I need to discuss.

Our Conversation

But the point is I'm going to have a conversation with you. We're going to talk like this. I'm not going to be in sales pitch mode and try to say, "Well, we should fill out the paperwork right now." No. No. We're going to have a good conversation. If you know any of my clients, and I should probably put them on these videos, they'll tell you, "Listen, I'm going to shoot it straight." I’ll tell you if I don't think you need an annuity, I'll tell you. I’ll tell you if I think you're putting too much money into an annuity, I'll tell you. If I think you're making a mistake buying an annuity based on a fraudulent sales pitch, guess what? I'll tell you. But the point is interaction. You need an advisor. I will never be your friend ever, but I will be the best advisor you've ever had because it will be a brutally real conversation.

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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