Immediate Annuities: How to Find the Best One

Stan The Annuity Man, America's annuity agent, licensed in all 50 states. It's exciting, isn't it? You know what else is exciting? This T-shirt that reads "Senior Discount Please". I should give it to my mom. She's 81, lives in St. Augustine, Florida, and attends these bad chicken dinner seminars. She eats the food but never buys an annuity, which is great. I want to thank all the annuity agents in Florida for feeding her three to four times a week at really nice steakhouse restaurants.

What Are We Talking About Today?

Hey, what are we talking about today? The granddaddy of all annuities—Immediate Annuities. I’m going to tell you how to choose them, how to find them, how to shop for them, how to quote them, and how to use the annuity calculator to find the best deal for you.

A Little History Lesson

Okay, we're discussing how to find the best Immediate Annuity. Let’s go back in time a bit. Let me start by saying, "Hail Caesar!" What I mean by that is that in Roman times, Immediate Annuities started. You're like, "Really?" Yeah, that’s when they started. Back in the day when Roman soldiers were laying it on the line for the empire, Caesar and the boys said, "You know what? Let’s take care of these folks and their families for laying it all on the line for the empire." They provided a pension payment for those soldiers and their families. Those payments were called annuas (A-N-N-U-A-S), which means "payment" in Latin, and that's the only Latin word I know. But guess what that word translates to today? Annuity. And by the way, that Roman annuity, that first one, is pretty much the same structure as the Immediate Annuity today.

Immediate Annuities in the U.S.

Immediate Annuities have been sold in the United States for a long time—hundreds of years. They’re commodity quotes. You quote all carriers for the highest contractual guarantee for your specific situation, and you can do that at The Annuity Man using my proprietary annuity calculators. We can punch in your numbers and find the best quotes.

Customizing Immediate Annuities

Now, it’s a little more complex than that, as life always is. Immediate Annuities are not one-size-fits-all. I got a call the other day. The client said, "I'm looking into an Immediate Annuity, but I don’t like them because when you die, the money goes poof." And I’m thinking, no, that’s just one way it’s structured. That’s called "life-only," but there are 30-plus other ways to structure it.

You can have a lifetime income stream guarantee with a Single Premium Immediate Annuity, but you can also contractually guarantee that 100% of unused money will go to you and your beneficiaries if you die. So, the annuity company is on the hook to pay you for the rest of your life, regardless of how long you live. But when your Learjet hits the mountain… I don’t have a Learjet. You might. But when your Learjet hits the mountain and you die, whatever money’s left in that account goes to your list of beneficiaries. The evil annuity company doesn’t keep a penny, so poof to that misconception. It kills me when I get a call from a journalist from a prominent newspaper asking about annuities, and they were under the assumption that all Immediate Annuities were "life-only," and the money went poof. I mean, you’re writing about finance, and that’s what you know about annuities?

Customizing Immediate Annuities: Options

So, Immediate Annuities are customizable. You can have life-only. You can have life with a cash refund, meaning when you die, whatever’s left in the account goes lump sum. You can have life with installment refund, meaning that when you die, whatever’s left in the account goes in payments until the money's gone. Or you can say, "I want life with a period certain"—life with a five-year, ten-year, or twenty-year period certain.

What does that mean? "Life" means it will pay for the rest of your life. The period certain is the backstop. Let’s say you had life with a 20-year certain. What does that mean? It means if you lived 17 years and then died, there’d be three more years of payments. If you lived seven years and died, there would be 13 more years of payments. If you lived 21 years and died, no payments. The larger the backstop (the longer the period certain), the lower the payment. There are no philanthropists at annuity companies. They base payments on your life expectancy primarily at the time you take the payment. Interest rates play a secondary role. And with most Immediate Annuities, you can start the income as soon as 30 days from when the policy is issued, up to a year.

Joint Life and Cost-of-Living Adjustments

With Immediate Annuities, you can also do joint life—joint life with your spouse or partner, joint life with a kid, joint life with a friend, or joint life with anyone. The annuity company will primarily base that payment on the younger of the two of you. You can also attach what's called a Cost-of-Living Adjustment (COLA) increase.

Now, you already own the best annuity for inflation on the planet. You’re like, "I don’t own an annuity, Stan. I don’t own one." Yes, you do. It’s called Social Security. Social Security is an annuity, and Social Security is the best inflation annuity on the planet. Politicians just raise that increase when they want to.

When you do that with an annuity company, if you said, "Hey, Stan The Annuity Man, I want an Immediate Annuity. I want it joint life with installment refund with my spouse, and I want a 3% COLA on it," you’re adding a 3% increase every year for the rest of both of your lives. Sounds fantastic, right? It is. It’s great. But here’s the math. The same annuity with a COLA starts here. Without a COLA starts here. So, the annuity companies don’t give it away. There’s a gap in income. Let’s say it’s $1,000 with a COLA and $1,500 without. If you add a COLA to the policy, the annuity company is going to price it in and lower the payment significantly when you start the income stream.

Getting Immediate Annuity Quotes

When you come to The Annuity Man to get your Immediate Annuity quotes, understand that those quotes only last seven to 10 days. It’s like a gallon of milk. They expire. You can lock them in as you go through the process of filling out an application, but you can’t lock one in and then two weeks later say, "Yeah, I want to do that." No. It’s a fluid market. They change all the time. So, remember, they’re just commodity quotes based on your life expectancy or life expectancies at the time you take the payment.

Free Books and Education

Last but not least, I want to highlight the free PDF resources available on The Annuity Man. These downloadable owner's manuals are designed to educate you so you can make an informed decision on whether you need an annuity, and if so, which one. One of the books in these six manuals covers Immediate Annuities in depth. All of these resources are available at no cost to you.

So, with that, I will see you in the following Stan The Annuity Man blog.