How To Choose An Annuity
Good topic today, how to choose an annuity. I'm going to tell you how to go about it, and guess what? You might not need one, we're going to go about how to find out whether you need one, or you don't need one, and the best type of annuity for retirement. Hang in there with me. We're going to go through how to choose an annuity. What we're going to cover today is what actually is an annuity? What kind of types are out there?
I'm also going to cover a brief history of annuities and then go over the only two questions you need to ask yourself and answer to find that if you need an annuity or you don't need an annuity, and also I'm going to tell you a really neat acronym that Stan The Annuity Man® came up with that you can use to understand whether an annuity fits in your portfolio. Speaking of portfolios, at the very end, I'm going to tell you if it fits, how it fits, why it should fit, and again, go over the two questions in the acronym that tells you how to even determine if you need one. By the way, it's okay at the end if you don't need one. That's what this video is all about. It's called information, facts.
Annuities are simple when you break them down because of their contracts.
What is an annuity? If you listen to the radio, I hate all annuities. Annuities are all bad, annuities are expensive. That's insanity. To say that you hate all annuities is to say that you hate all restaurants, you hate all shoes, you hate all trucks. There's different types of annuities. Are they all bad, are they all good? No. Are they improperly sold a lot of times? Of course they are. I mean, in any type of sales environment, there's some crazy person out there saying crazy things. At the end of the day, an annuity, the word annua, A-N-N-U-A is Latin for payment.
Where did annuities come from? In the Roman times, annuities were developed for the dutiful Roman soldiers that went to war and went out there and kicked butt for the Roman Empire, and what they did is they put in place lifetime income streams for those soldiers and their families. Guess what those are called? Annuities. Guess what your social security is called? An annuity. Guess what your pension's called? An annuity. If anyone says "I hate annuities", just go. "That's stupid", because it is.
Primary Types of Annuities
Let's go over the primary types of annuities out there and I'll tell you what they solve for in generally. Single Premium Immediate Annuities, they solve for income now®, Deferred Income Annuities, they solve for income later®, Qualified Longevity Annuity Contracts, they solve for income later inside of your IRA. Multi-year Guarantee Annuities, they solve for principal protection. Fixed Indexed Annuities, they solve for principal protection. Variable Annuities, they solve for market growth, tax-deferred market growth, and then you, it's not an annuity, but it's attached in an annuity, then you have Income Riders, and that's an income later guaranteed. In the world of annuities, those are your choices, those are the types.
Let's dig even further. Now this gets simple. You're saying Stan The Annuity Man, there's no way annuities are this simple. Annuities are simple when you break them down because of their contracts. There are only two questions that you need to ask yourself if you want to buy an annuity, and from these two answers, then I can match you up with the right annuity type. First question, write it down. What do I want the money to contractually do? I want you to underline and capitalize the word "contractually". What do I want the money to contractually do?
Annuities Are Contracts
Number 2, when do I want those contractual guarantees to start. Underline "contractual", capitalize it. Let's do it again. What do I want the money to contractually do? When do I want those contractual guarantees to start? Now, in my world, Stan The Annuity Man, which is a pure, clean, wonderful world of contractual guarantees. I always tell people, you want annuities for what they will do, not what they might do®. They will do® as the contractual guarantee part, they might do as the hypothetical theoretical, a unicorn that's chasing the butterflies, hopeful return scenarios that you're going to see. Never, ever make a decision to buy any type of annuity, except on the contractual guarantees. If you do that, then when you buy the annuity, you're going to get what you signed up for it and you'll be happy with that transfer risk product.
Do You Need an Annuity?
Long story short, I've come up with a very neat acronym that you can use to determine if you need an annuity at all. Guess what? It's okay if you don't, I mean, if you don't need to solve for what I'm getting ready to tell you, then you don't need an annuity. Here's the acronym PILL, P-I-L-L. P stands for principal protection. I stands for income for life, L stands for legacy, the other L stands for long-term care. Let's do it again. PILL. Let's talk about that. MYGAs, Multi-year Guarantee Annuities, FIAs, Fixed Indexed Annuities, Principal Protection, right? Income for life, Single Premium Immediate Annuities, SPIAs, Deferred Income Annuities, DIAs, Qualified Longevity Annuity Contracts, QLACs, and income riders attached to either verbal or indexed annuities, that's the I for income for life. L, legacy.
The best legacy product on the planet is life insurance, I don't sell life insurance, I have a lot of life insurance on me, but it's life insurance. I always tell people, life insurance is the best return on investment you'll never see because you're dead, but it's a great product. Some people can't qualify for life insurance because you have to go through medical testing. With annuities, it's guaranteed issue. There are some income riders that all serve as a death benefit rider as well. That's the legacy part and then long-term care, all right, there are annuities that are designed for long-term care. Long-term care is kind of a weird topic. I mean, in my opinion, the best long-term care strategy is traditional long-term care. But a lot of people don't want to do that, they want to keep their principal intact and still have some long-term care. Some income riders solve for long-term care. So P-I-L-L, principal protection, income for life, legacy, and long-term care. If you do not need to solve for one of those four, then in my opinion, Stan The Annuity Man, you do not need an annuity.
All you people out there saying, "But how about the growth part, how about the market growth part?" Okay, I understand that, in my opinion, annuity should not be purchased for market growth. Now, there's an argument with my friends in the variable annuity side that that side is legit. You should do it for market growth. I hear you player, I hear what you're saying, and you're right. But that's not how I think annuities should be used because even in the variable annuity world, you have limitations on the choices of the mutual funds inside.
When it comes to market growth, the word limitation shouldn't be there. Same thing for index annuity. There's limitations, it's not a market growth product, it's a CD type product principle protection. So PILL, remember PILL, that's the way you can understand whether you need an annuity or not, and by the way, there's no G for growth. Okay. Where do annuities fit, if at all, in your portfolio? They're not one-size-fits-all, and, by the way, the only protection you have out there in the ugly world of annuity sales and all the pitches you hear. If someone's pitching you something that sounds too good to be true, write down every single word, how you understand it, sign and date it at the bottom, flip it around and have that agent and advisors sign as well. They're either going to eagerly sign it and it's all factual, hopefully, or that pen is going to weigh 1000 pounds.
So does annuity fit for you? Ask yourself the two questions. What do you want the money to contractually do and when do you need those contractual guarantees to start?
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.