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How Much Money Do You Need for an Annuity?

Stan Haithcock
April 24, 2023
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How much money do you need for an annuity? That's the question, really? That assumes that you need an annuity. Don't assume. You might not need an annuity. I know Stan The Annuity Man, the number one agent in the country, who sells more annuities than anybody on the planet, and I'm telling you you might not need one. That's right, and they're not for everybody.

Today we're going to talk about how you determine if you even need an annuity and how much money you need, etc. In my opinion, it doesn't come down to money; it comes down to what you're trying to solve. Now, money plays a role because the guarantees are based on how much money you put in. The more money you put in, the more guarantees you're going to get, etc. But if you don't have a ton of money out there, that doesn't mean you can't own an annuity, and you can't have an annuity that benefits your situation. The reverse is also true: if you're like Johnny Big Bucks out there and have a zillion dollars, an annuity might fit as well, not all the time, but some of the time.

Do You Need an Annuity?

Let's throw the money part out for a second. Let's dig deeper into whether you even need an annuity. And this'll be quick and informative. I'll try to drag all that information out of my head. Now let's get down to little basics. Let's do quick basics here on what an annuity is. It's a contract. It's a transfer risk. Annuities started in Roman times to pay the dutiful Roman soldiers a pension-type payment for them and their families. But let's talk about how you even determine if you need an annuity. I've come up with some easy-to-remember things that can help you in that process. Number one is the acronym P.I.L.L, Principal protection, Income for life, Legacy or leaving money to your heirs when you die, and Long-term care confinement care. In my opinion, Stan The Annuity Man, if you do not need to solve for one or more of those specific things contractually, then you do not need an annuity, pretty simple.

In a perfect world, people looking for real stock market growth, like whiz-bang Apple growth, you don't need an annuity. There are some annuities out there like Variable Annuities, that address market growth, and there are some good ones out there. If you want to dig, dig. But in my perfect world, you should own annuities for what they will do, not what they might do. And the will do are the contractual guarantees.

Questions to Ask

Now, the other thing I've come up with is a very easy-to-understand two questions you need to ask yourself and answer, either verbally or in your head. Here's the first question, what do you want the money to contractually do? And then, when do you want those contractual guarantees to start? Let's do a couple of examples. "Okay, Stan, what do I want the money contractual to do? I want income to start in five years." Okay, great. So you answered both at the same time. You want income; that's the first one. And then, second, you need it to start in five years. Well, that comes down to two types of annuities. Deferred Income Annuities or Income Riders. Here's another one. "What do you want the money contractually do?" "I want to protect my principal." "Okay, when do you want those contractual guarantees to start?" "Now." Okay, those are the two. Now you're down to two products, Multi-Year Guarantee Annuities, which are Fixed Rate Annuities, or Indexed Annuities, which are CD-type annuities. That's how it works, and that's how simple it is. Remember the acronym P.I.L.L and the two questions to decide if you need an annuity.

I got a call the other day. Some guy watched one of my YouTube videos and was so excited that he booked a call with me. I ran the quote for him, and it was a big quote. This was a multiple, multiple hundred thousands of dollars, approaching a million dollars. And so I sent him the quote, got him on the phone, and we talked about it. He said, "Hey, that's a good guarantee." And I'm like, "Well, tell me a little more about your situation. How much income do you need?" And he told me. He had a pension from a previous employer, and he's getting social security. He had some income coming in, and he had some rental properties. I said, "What's the gap?" And he goes, "It's like $4,222 a month that I need to fill." Well, the quote I just ran for him was for way more than that on a guaranteed basis. So my question to him was, "Why are you solving for more income than you need?" And his answer was, "That's a good question." What happened at the end of the day is we did less. We filled in that gap. He kept the rest of his money in other investments and kept the powder dry. And if there's inflation in the future, then we can go back and buy an Immediate Annuity to address that inflation at that time, if there is inflation. But he was happy because he went from saying, "Hey, let's put in $800,000," to me asking one question and saying, "You know what? It might be more prudent to do $400,000 because we're trying to fill an income gap." Remember, it's a transfer risk, lifetime income stream, based on your life expectancy or expectancies at the time you take the payment. But reverse-engineering the quote might be a better solution than going lump sum. We can show you both and have a conversation, and then you can make a good decision.

How Much Money Do You Need?

All right, so how much money do you need for an annuity? There are no good answers. I always tell people there are no good answers with annuities, just bad sales pitches. These are contracts and don't get pitched. You're going to buy an annuity for what it will do, not for what it might do. So how much money do you need? It really comes down to what you're trying to solve. We talked about the P.I.L.L, and we talked about the two questions. Understand also that an annuity, regardless of type, can be put inside any type of account. IRA, non-IRA, non-qualified, which is another word for non-IRA, and then Roth IRA; it depends. Whatever you want to use, we can quote that. Those are taxable accounts. It comes down to how that money will be taxed when you take it out. But you can use any type, and we can quote all carriers based on your specific situation. So how much money do you need? Don't ask anyone but me that, okay? If you ask a lot of people that, they'll say, "Well, you need this much." No, you don't. There's no perfect answer to that. You need to ask the two questions, think of the P.I.L.L, and decide if an annuity's right for you.

Class is about over. I would encourage you to watch this video. I did an interesting video on how interest rates affect annuities because everyone's like, "What's happening with interest rates? I shouldn't buy one." That's my client voice. Anyway, watch that. That's a good one, how interest rates affect annuity. I like that one. I did a lot of work on that one. I do these videos every single day, every single day, which is what happens when you're married for 31 years. You do videos and just wave to the wife while she says, "What are you doing?" "I'm doing videos." "Oh, okay. See you later." Also, don't hesitate to contact us, schedule a call with us, get a quote from us, and interact with us.

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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