How Much Do You Need to Start an Annuity?

How much do you need to start an annuity? Promise me one thing. Do not ask anyone that but me, because that is a salesperson's dream. And you know, The Annuity Man is where annuities are bought, not sold.

‌Hey, I'm Stan The Annuity Man, America's annuity agent licensed in all 50 states. We will dig into this question and answer it appropriately and suitably so you can make a good decision.

‌So, how much money do you need to start an annuity? Just remember, in the annuity business, there's no good answer; there are just really bad sales pitches. It's customized to your specific situation. And depending on what you want to achieve, remember the two questions. What do you want the money to contractually do? And when you want those contractual guarantees to start? From that, you and I will figure out which annuity provides the highest contractual guarantee.

‌Annuity Types

‌Let's go over the different annuity types that are out there available to you. Number one is Multi-Year Guarantee Annuities, MYGAs. Those are the annuity industry version of a CD. Then there's the Single Premium Immediate Annuity. That's for income now. That's the granddaddy of all annuities started back in the Roman times. Now the sister product of the Single Premium Immediate Annuity is the Deferred Income Annuity. So, if you defer for 13 months, then you need to get a Deferred Income Annuity. That's the same structure as a Single Premium Immediate Annuity. It's a pension product like its sister product, the Qualified Longevity Annuity Contract, introduced in 2014 to use in your IRA and some employer-sponsored plans.

‌In addition to those types of annuities, there's also a Fixed Index Annuity introduced in 1995. Another CD product. Even though it's sold as a market product, it's not. It's a CD return product. It is not a security. And then there's a Variable Annuity, introduced in the '50s for tax-deferred growth where you have mutual funds; they call them separate accounts. They, meaning the annuity companies. But they're mutual funds inside the policy.

‌One more type that I want to mention that's not an annuity but it's an attachment that's very popular is an Income Rider that you can attach to a Deferred Annuity like a Fixed Index Annuity or a Variable Annuity for future lifetime income guarantees that starts at a future date.

‌What's the Minimum?

‌When we're talking about annuity minimums, when you put money into an annuity, "What's the minimum, Stan? What's the minimum for you at The Annuity Man ?" I'll give you an example. Like our Multi-Year Guarantee Annuity, the CD type annuity, our minimum at The Annuity Man is $20,000. But you have to think logically. Obviously, the more money you put in, say, to a lifetime income stream, the more money you're going to get paid. It just makes sense. But remember this: it's customizable, and I will work with your specific situation to make it work for you.

‌The Two Questions

‌I've come up with two very unique ways to determine if you need an annuity. And if you do, what type works best contractually for you? The first two questions that I have come up with and ask every single person that calls Stan The Annuity Man, is what do you want the money to contractually do? And when do you want those contractual guarantees to happen?

‌Examples

‌Let's take those two questions, and I'll give you a couple of examples. What do you want the money to contractually do? I want income. Second question. When do you want those contractual guarantees to start? I want income to start now. Well, then, we've determined that you might need a Single Premium Immediate Annuity.

‌Let's do it again. What do I want the money to contractually do? Income. When do I want those contractual guarantees to start? Seven years from now. Okay, we've narrowed it down to two product types: Deferred Income Annuities, QLACs, and income riders. From just those two questions, I'll quote all carriers to find the highest contractual guarantees and then we will discuss them.

‌Let's do it again. What do you want the money to contractually do? I want to protect the principal and get some interest. When do you want those contractual guarantees to start? Now. Okay, great. That is a Multi-Year Guarantee Annuity. That's the annuity industry's version of a CD.

See how simple that is?

‌Now, I've come up with an acronym called PILL. P stands for principal protection. I stands for income for life. L stands for legacy. And the other L stands for long-term care/confinement care. So, let's do it again. Principal protection, income for life, legacy, long-term care, confinement care. You do not need an annuity if you do not need to contractually solve for one or more of those items in the PILL acronym. There's no G for growth. There's no M for market. There's no S for stocks. It's PILL, principal protection, income for life, legacy, long-term care, and confinement care. You can contractually solve for those four items using annuities.

‌So, let's do it again, two questions. What do you want the money to contractually do? Then, use the PILL, principal protection income for life, legacy, and long-term confinement care. That's it. That's the way to determine if you need an annuity and what type. And even better than that, if you don't need an annuity.

‌Reverse Engineering

‌With annuities, remember, they are contracts. And contractual guarantees always tell the annuity owner what it will do, not what it might do. And the will do is the contractual guarantees. One of my favorite things to do when creating lifetime income stream plans for people is to reverse engineer the quote. Now, what does that mean? There are two ways to fund, say, an Immediate Annuity or Deferred Income Annuity. You can give a lump sum to the carrier, and then they can tell you how much lifetime income stream that will create. But what I like to do is use as little amount of money as humanly possible.

‌I know the annuity sales gods hate when I say that, but I love doing this. When you say, "Okay, Stan, I've got $200,000. I want to put it in Single Premium Immediate Annuity." What I'll ask you is this, "What's the specific monthly income amount that you're trying to solve for?" And let's say it's $1,900. Then we can reverse engineer the quote, solving for that contractually guaranteed $1,900 a month for the rest of your life or the rest of you and your spouse's life, and use as little amount of money as humanly possible to contractually solve for that dollar goal. That's reverse engineering the quote, and I'd be more than happy to do that for you.

‌Client Example

‌I got a call the other day and the guy is wanting to create a lifetime income stream for him, and his spouse and he didn't really know if he wanted to put a lump sum in or what he wanted to do. Now in my world, Stan The Annuity Man, America's annuity agent, I really like using annuities and using the least amount of money to solve for the specific goal. I know the sales gods are looking down upon me, going, "Don't say that, Stan." But it's true. So, with this person, what we did is I said, "Hey, what's the income gap? What do you need to fill?" And he said, "$2,100 a month. If we could get $2,100 a month, that'd be fantastic." So, what did we do? We reverse engineered the quote like we discussed previously, and I put in $2,100, and quoted all carriers to see who would provide that contractual guarantee using the least amount of money.

‌One of the biggest mistakes I see when people buy annuities or are looking to buy annuities is trying to put too much money into the annuity. Buying an annuity should be part of the overall picture. Remember, annuities are contracts; they're transfer of risk strategies. You need to make sure that the money that you're putting into the annuity is allocated properly and in proportion and fits and complements your overall portfolio. That's obviously where I come into play here. You need to schedule a call with me so I can walk you through it and ensure that you're not overfunding the annuity and are using the right amount for your specific situation.

‌Hey, thanks for reading along with me. How much money do you need to start an annuity? Good question. No good answers. It really comes down to you and the customized situation you're trying to solve. That's the reason that you need to go and schedule a call with me. I know I'm a little scary here, but I'm not on the phone. I'm very friendly and gentle. I'm not all wired like this. I'm just excited about annuities because they can provide the lifestyle that you're looking for. Thank you for joining me today, and I'll see you 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.