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How to Buy an Annuity: Mortality Credits

Stan Haithcock
January 7, 2024
How to Buy an Annuity: Mortality Credits

Hi there, Stan The Annuity Man, America's Annuity Agent licensed in all 50 states. I am glad you joined me about how to buy an annuity, looking at mortality credits, and why that is so, so important. Mortality credits. Let's talk about it.

‌What’s a Mortality Credit?

‌What's a mortality credit, Stan The Annuity Man? It's the pooling of everyone in your age group, pooling you together and your life expectancy, and you taking advantage of the pooling of that risk with all of you.

‌A good friend of mine's name is Tom Hegna. And if you go to the Fun With Annuities YouTube channel, I have a podcast I do every other week. Tom has been a regular guest on the Fun With Annuities Podcast and has a great story to tell. He tells it better than I do, so I'm going to give my Southern version. So, Tom, if you're reading this, the credit's all you, but I'm going to provide the version you gave on my podcast. He explains mortality credits like this. There are five ladies, and they're all 80 years old, and they go on a road trip. And they get to the hotel and sit around drinking their really good glass of wine, probably Merlot. And they're saying to themselves, "Let's all put a $100 into this box, and then the survivor gets to keep all of it." So, they did that for $500. Then the next year, they went on this trip, and unfortunately, one of their friends passed away, but there were four of them sitting there, and there was still $500. So, they're all taking advantage of that $500. Next year they go on the same trip. There are three of them there. There's still the $500. Now Tom goes into the details and the percentages. But what I wanted to lay out to you is that's, in essence, what mortality credits are all about. You're benefiting from everybody, the life expectancy, from everybody your age, everybody's putting money in, and that's the reason the annuity company can pay out that amount for your life as long as you're breathing because they're factoring in everybody that's your age. Some are going to live longer than their life expectancy. Some will live shorter than their life expectancy, but that's the transfer of risk nature of a lifetime income stream when the pricing of that lifetime income stream is based on life expectancy, mortality credits.

‌That's the reason I say there's no ROI until you die. Up until that point, it is a transfer of risk. So, the typical call that I get from Chester, my favorite caller. And Chester's the uncle at the family reunion, everyone has it and he corners you in the corner and talks to you for three hours about politics. And Chester calls up and goes, "Well, I ain't going to buy this, sir. I'm not buying his lifetime income annuity because I'm waiting on interest rates to move."

‌Everybody does that. Chester's not alone. Everybody calls me and says something similar to that. "Well, I'd really like to buy the lifetime income product, the Immediate Annuity, Deferred Income Annuity, Qualified Longevity Annuity Contract, or Income Rider. I want to buy that lifetime income product when interest rates are higher. Stan The Annuity Man, America's Annuity Agent, number one, can you tell me when those interest rates are going to be higher?" The answer is no, but that's not a good question. The question is does that even make sense? And the answer to that is no.

‌Life Expectancy

‌Interest rates play a secondary pricing role. Mortality credits drive the pricing train. Lifetime income is driven by the life expectancy, mortality credits. That's what drives the train, the pooling of risk for people at your age and life expectancy. Now, what you have to understand with mortality credits, life expectancy, that does not equate into opportunity or market growth.

‌When you're looking at mortality credits and life expectancy for lifetime income, you're looking at transferring risk. You're looking at making sure that contractually, that income stream's going to hit your bank account every single month until you die. As long as you're breathing that income is going to continue. Sound familiar? It should.

‌Social Security

‌Social Security. Social Security is the best inflation annuity on the planet. I keep telling you that because I want you to understand that you already own an annuity. Even though you might say you hate annuities, you already own one. So, suppose you're adding to that income floor. In that case, you have the lifetime income from your Social Security, which is the best inflation annuity on the planet, and if you don't believe that at the time of this taping next year, that increase to your Social Security should be a doozy. It should be a good one, and it will prove that it is the best inflation annuity on the planet.

‌But when you're looking at lifetime income, add to that that income floor, and that income floor is that monthly amount hitting your bank account every single month, regardless of who's in the office or what's happening. Mortality credits drive the pricing train for lifetime income period. So, the younger you are, the lower the payment. Why? Because you have more life expectancy, which means there's going to be more payments, which means those payments are going to be lower. If you're older, then there's less life expectancy, which means there'll be fewer payments, which means the payments will be higher.

‌Here's the call I get all the time, "Should I take Social Security at 65, Stan The Annuity Man, or should I wait till 70?" As I always say, it's not a good answer; it's just bad sales pitches. At 70, the payments are going to be higher. Why? You're right because you're older. Should you wait until 70 or take them at 65? No good answer to that. Why? Because at 65 you're going to get payments. If you wait until 70, you have to factor in the 60 payments you miss to wait until 70. And how long is that going to take to make up?

‌Remember, annuities are math. It isn't emotional. Yes, I'm emotional. Yes, I'm gregarious and happy, and glass half full, I am. Because I think annuities can provide that lifestyle you're looking for, that guarantee you're looking for, that transfer of risk you're looking for. But there's no perfect answer to when you should buy a lifetime income annuity or when you should turn on your Social Security. There's no good answer. It all comes down to your goals, period. You need to consider how much money I need to add to my income floor. Should I start it now? Should I leave now?

‌There Are No U-Hauls Behind Hearses

‌Remember what I always tell people: all my clients know this. And I was on a conference call the other day with my team, and it's virtual, and everyone's all over the country because we have places all over the country. And one of my team members had a picture of a hearse pulling a U-Haul, and I always say there are no U-Hauls behind hearses. I say that for a reason. I want you to live your life. I want you to spend your money. If you ask me, should I turn on the income stream sooner than later? Unless you are popped into a higher tax bracket and that bothers you, I'm going to tell you to turn it on sooner than later. Why? Because I want you to live your life. I want annuities to provide that lifestyle for you.

‌I want annuities for lifetime income to provide that transfer of risk and income floor, and you are working those mortality credits to your favor because you're pooling that risk with everyone else who's your age. So, when you talk about how to buy an annuity and you're buying an annuity for income and considering life expectancy or mortality credits, I think it's an opportunity. And the opportunity is you're piggybacking off all those other people your age to get higher incomes because you're all pooling that risk and transferring that risk for that income.

‌Remember the story I told about the five ladies going on the trip, drinking the Merlot, and putting $100 in a box? That's the way you should look at mortality credits. You're pooling the money and will all benefit, period. Whether you live longer, shorter, or whatever, you're going to benefit because you're going to get lifetime income.

‌Hey, one last thing. Shout out to my friend Tom Hegna. If you don't know who that is, you need to know. Check out the Fun With Annuities episode, where we address retirement and being happy in the process. He's a guru of retirement planning. He likes annuities for the transfer of risk nature. He has excellent examples of mortality credits. Thank you for joining me today, and I'll see you on the next Stan the Annuity Man blog.

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