How to Buy an Annuity: How much money do you need?
Okay. So how much money do you need? That's a loaded question because how much money do you need from the standpoint of how much money do you need to work with The Annuity Man®, the minimum, and then how much money you need if you need to put in an income floor, also, if you need to fill in a gap for income, et cetera. So let's talk about how much money you need from the standpoint of a minimum. With theannuityman.com, our minimum is $20,000 to open an annuity account, annuity type, regardless of the type, all right. But that doesn't mean you need to buy an annuity. It also doesn't mean you need to do the minimum. That's just our minimum for a lot of reasons.
However, we need to go a bit deeper than that. So 20,000 is the minimum, but when we talk one-on-one, we're going to talk about your specific goals and your specific needs and how to solve them contractually. Typically, the $20,000 question comes up with us with multi-year guarantee annuity contracts, which are the annuity industry's version of a CD. It's a fixed annuity rate. It's an annual yield for a specific period. A lot of people say, "Well, how much money do I need to buy one of these CD types of fixed-rate products?" and it's $20,000.
In other words, how much money do you need? Well, I have a rule about annuity purchasing. You should use as little amount of money as humanly possible to solve the contractual goal. Let me give you an example. I got a call the other day; it was a scheduled call, so I called the person, and I said, "Okay, tell me what you're trying to do." I ask the two questions, what do you want the money to do contractually, when do you want those contractual guarantees to start?
My advice is to think about how much money you need, typically from a lifetime income standpoint
They needed income; they needed it to start immediately, so we decided on immediate annuities. Then I went one step further, and I said, "Okay, are you thinking lump sum? Like what's this lump sum going to create, or do you need a specific income amount?" And they needed a specific income amount to start right now. And it was like $1,275 for him and his spouse, and they wanted to ensure that the kids got any leftover money. So we ran it communal life with a cash refund and communal life with installment refund, which guarantees contractually that any unused money will go to the beneficiaries and the annuity company doesn't keep a penny under any circumstance, even they're on the hook to pay that amount. So what we did is we reversed engineered that quote, and I said, "Okay, here's exactly the amount of money needed."
He was happy about that and said, "I was thinking I was going to have to put more money in." We used a tiny amount of money to solve that contractual goal. My advice from that point is to invest the rest. The income floor could be social security, a pension, if you're so fortunate, dividends, real estate type income, and then a lifetime income stream with an annuity; you’re going to be a better investor because that income floor is in place.
Here's another version of how much money do you need. Many people aren't aware of this, even people in the business, and I've had calls from agents who question this rule. Ultimately it's a fact that the annuity industry does not want you to put more than 50% of your assets, investible assets, into an annuity or annuities encompassing of all types.
Now, can you go a little bit more than that? Yes, we can make a case with the annuity company, but they like to see no more than 50%. That doesn't mean you have to put 50% of what you have in annuities, but once you get up to that line, then we're going to have to have a conversation. If it's way above that, and your brother-in-law sold you an annuity and tried to put 75% of your assets into an annuity, they're going to red flag it and probably not approve that transaction. An agent or advisor can only manipulate that if they mess around with the application and don't fill it out appropriately. So be careful there.
My advice is to think about how much money you need, typically from a lifetime income standpoint, when you want the income to start, how much of that income you need at a specific time. So, how much money do you need? It's a loaded question, but it's also a question that when you get to that point of asking that, that's the time that we need to talk.
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.