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How To Set Up Your Own Pension
It's all about income, isn't it? I mean, isn't it all about income for all of us? We all want more income. I don't care how much income you have; having more for most people would be nice. I have those occasions when people say, "No, I have enough income." That's surprising to me. So, the question is, how do I set up a pension income? It is a really good one because with 10,000 baby boomers retiring every day, a chief demand I get is, "How do we set up this pension income? We need more income guaranteed like Social Security." That's what annuities do, and we will talk about that. One of a couple of things I'm going to share with you as well is how to structure this pension annuity and how to shop for it. Those are the two primary things you need to know, and I am Stan The Annuity Man, America's annuity agent licensed in all 50 states; I'm just the guy to tell you.
Roman Times
Let's start talking about how to set up a pension annuity, which you're probably saying, "Hey, we, as a couple or me individually, we need more income." First of all, you have to understand that annuities were put on the planet for income. In Roman times, the dutiful Roman soldiers who were laying it on the line for the emperor, the emperor decided, "Hey, let's create annuas," A-N-N-U-A, is the Latin word for payment. "Let's create payments for the dutiful Roman soldiers and their families." That's where annuities started. That's it.
Single Premium Immediate Annuities
In this country, for the last couple hundred years, Single Premium Immediate Annuities have been in the same form as those Romans. They're transfer risk pension products providing a lifetime income stream you can never outlive. Isn't that kind of what you're looking for? I would think so. Now, the good and the bad about annuities from the standpoint of lifetime income is they are transfer risk contracts. They're not investments. You have to get your arms around this. It isn't an investment, this is a pension that's coming in every single month, like Social Security. You can't have your cake and eat it too. You can't have growth and pension income. Even though someone will tell you you can, you can't. When you're trying to set up a pension annuity and a lifetime income stream, you've got a couple of things you need to ask yourself.
The Two Questions
There are two questions. What do you want the money to contractually do? You've already kind of answered that, you need income. Then the second question is, when do you want those contractual guarantees to start? That's what you need to tell us so we can run the quotes for you. You might say, "Hey, we need the income to start now," or "We need the income to start in five years," etc.
Life Expectancy
The other thing that you need to keep in mind is that income with annuities is primarily based on life expectancy, not interest rates. I know everyone's stuck on interest rates, but it's life expectancy. The older you are, the higher the payment, and you can customize those quotes. And after I grab my notes and ensure they cover everything, we will review some of those customization quote choices.
The Structure
How do you structure them? You need to make the decision. Is it either going to be on your life or you and another person's spouse, partner, etc.? Understand if it's just on your life, it will be a higher payment than if it's joint life. Common sense, annuity companies would guarantee one-lifetime income instead of two. That doesn't mean one's better than the other. It all comes down to what you want to contractually solve for. One of the misconceptions I always get about annuities is, "Stan, I'd never buy an annuity in my life because if I die, the annuity company keeps the money." If you set up an annuity, life only, and your Learjet hits the mountain, then the money goes poof. But that's only one of 30 different ways to structure it. If you said, "I want the lifetime income stream, but I want to make sure that every single penny when I die that's left in the account goes to my beneficiaries," we can also structure it that way. Everyone thinks, "Hey, I'm not going to buy an annuity because when I die, money goes poof," or "When I die, the annuity company keeps the money." No, it doesn't have to be that way.
You can say, "I want to make sure that 100% of the money goes to the beneficiaries." In a second, I'll tell you a great story about a guy who called, and we structured it to handcuff his beneficiaries. You're saying, "Stan, wait a minute, you said handcuff the beneficiaries? Isn't that a little harsh?" These are loving handcuffs.
Client Example
So, the guy calls me, saying, "Hey, I want to structure this Immediate Annuity payout so it pays me and the wife for life." He wanted to make sure that when he died, the money continued uninterrupted and unchanged for his wife, which I said, "Yeah, that's joint life." But he also wanted to make sure that his kids, who it sounded like, were waiting for him to die, maybe that's you. I run into that a lot. People are successful, they work their rear ends off for this money, and then the kids wander around waiting for them to die.
Joint Life
He wanted to make sure that they weren't going to get the lump sum. My joke to everybody is, "Hey, your kids will come to your funeral in a Ferrari anyway. We just want them making payments, right?" What we did is what's called joint life. This is the structure: joint life with installment refund. What does that mean in English, Stan? What that means in English is, let's say, the payments for joint life for him and his spouse were $2,500 a month for the rest of their lives. When one died, it continued uninterrupted and unchanged for the second spouse. But when the second spouse died, whatever money was left in that account was paid to the beneficiaries at $2,500 a month until the money was fully exhausted. Now, that is what I call controlling it from the grave, right? You're not letting the annuity company keep a penny. Still, you're handcuffing the beneficiaries to make sure that they're getting the money back that's left in the account, whatever's left, but they're getting it in payment form instead of lump sum form.
They might cuss at your funeral, but who cares? You're dead. The point is you have handcuffed your beneficiaries, and sometimes those beneficiaries need to be handcuffed. Agreed?
Thank you for following along with me today. I hope you got a better understanding of how to set up your own pension. If you want to see quotes with no obligation, no pressure, or no cost, let us run them for you using our proprietary annuity calculators. And while you're there, you can download my books for free. There are six owner's manuals that cover all types. There's an Immediate Annuity, Deferred Income Annuity, Income Rider, Fixed Index Annuity, Multi-Year Guarantee Annuity, and Qualified Longevity Annuity Contract manuals. Again, you can download all of those books for free.
With that being said, I hope to see you next time. Thank you for joining me today and take care of yourself.
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.