Inflation Annuities: Should You Address It Now or Later?

Hello America. Stan The Annuity Man. America's annuity agent, licensed in all 50 states, including yours. Before we start talking about inflation annuities, should you address it now or later? Great question, and we're going to talk about it in detail. But let's talk about my books. You can download them for free. You'll be the talk of the neighborhood when you download them. That said, let's talk about inflation a bit. If any annuity agent tells you they have an annuity that addresses inflation, get up and leave the office. If you're on the phone, hang up the phone. If you're online, go to another website.

‌Social Security

‌There's not an annuity on the planet that perfectly addresses inflation. You already own the best inflation annuity on the planet. I know you're like, "I don't own an annuity." Yes, you do. If you're a United States citizen, you own a Social Security payment called an annuity. Social Security is an annuity. It's the best inflation annuity on the planet. Why? Because it pays you for life. And the inflation part of that is the beloved, wonderful, highly rated congressmen and women deciding to increase your payment. That's the best inflation annuity on the planet. So, for the rest of your money, when we're talking about inflation, I've got some ideas we'll cover on how to address that right now or down the road.

‌We're talking about inflation annuities. Should you address it now or should you wait and address it later? As I always tell people, there's no perfect answer in the annuity world; it's just bad sales pitches. There's no perfect way to address annuities, especially inflation because inflation is like this arbitrary gorilla in the room. No one really knows what it is and when it will happen, and everyone tries to plan for it. It's like nailing jello to a wall. It's just impossible.

‌Cost of Living Adjustment

‌Let's talk about why annuity companies have the big buildings. They have them for a reason. They don't give anything away. If you want to address inflation contractually and let's say you're buying an Immediate Annuity and want to use a Cost-of-Living Adjustment rider, COLA. You can dictate at the time of application what you want the income stream to increase by, say, by 3% or 2% or 4% or 5%. Now, stop for a second. Now you're saying to yourself, "Oh, that sounds fantastic. The income streams will increase by this much every single time." The annuity companies don't give that away. The disparity between the income strings is typically a six- to nine-year breakeven point, give or take. Don't email me with, "Well, mine was 7.4." The point is, when you add a Cost-of-Living Adjustment increase to an annuity like an Immediate Annuity, a Deferred Income Annuity, those types of pension-type annuities, very simplistic, the annuity companies ratchet down the payment.

‌Index Annuities

‌That doesn't mean you shouldn't buy one, but you need to know how they work, and maybe it will work for you. Let's say you had $200,000 and said, "I'm going to buy one with a Cost-of-Living Adjustment increase and one without." That would make sense. Is it perfect? No, but that makes sense. You just have to know that they're not giving that away. Now, what drives me crazy in the industry are agents who say, "I have the annuity that will increase your income stream with an index." Now that's an Indexed Annuity and Indexed Annuity; there's nothing wrong with them. We use them as a delivery system for Income Rider guarantees, but they're improperly sold in the industry. There are some Indexed Annuities that the index call option, and not going to get in the weeds, but whatever that grows at and locks in at for that year, then either all or a portion of that is applied to your income stream as the increase.

‌Now, again, I must stop you from salivating. You go, "Well, that sounds fantastic. That's fantastic. Every time the index goes up, I get an increase." Slow down there, Chester, because they're not giving that away. Just remember this. When someone's pitching you the index option increase or a COLA increase, always do this to them. Just look at the agent and go Heh! Just go Heh! And then he's going to, "What is that?" That's the disparity of the income stream because they're not going to give it away. Indexed Annuity companies that have that provision attached to the Income Rider that increases by the index growth, Heh! Got it? Heh! I just like doing that. But I'm driving the point home. If it sounds too good to be true, it is every single time with annuities. That doesn't make annuities bad, but what it does make them are contracts; annuities are contracts.

‌If you want to understand how an annuity works and what you're buying, read the contract and if you want to see it before you even buy, we'll send you a specimen policy. I encourage you, if you get in the weeds of all this, if you're thinking about, "Okay, I want to use annuities to address inflation in addition to my Social Security as I'm building that income floor, I probably need to talk to Stan to see if there's a customized way to do it." There's a lot of ways to do it. In fact, we'll talk about that.

‌Example

‌Once again, annuities don't perfectly do that, but for inflation in the future, it's best to have income streams starting at different intervals.

So, what I typically do if someone is saying, "Okay, I have $300,000, and I'm really concerned about inflation in the future. I don't need the income right now." What we'll do is buy three annuities at the same time and have the income stream start at different times. For instance, if someone's 65, we'll do $100,000 in each annuity and then have income starting at 70, 75, and 80. That's really the best way to address inflation: to have income streams starting at a different time period. Now, will it be more or less than what you need? I don't know that. The other way to do it, and I think the best way personally to address inflation, and this drives annuity companies crazy because they want to sell you an annuity right now. I mean, I'm brutally factual. I'm the walking middle finger of annuity truth. I'm proud of that. I am brutally factual. The best way to do it is when inflation hits, and let's say you have a guaranteed income floor, and it's producing $3,500 between an annuity you have Social Security and a pension. When inflation hits, and you need an extra $275 a month to fill in that gap for that income floor, that money hitting your account every single month that you and your spouse or partner do not have to worry about. It's that lifestyle money that's coming in every single month. So, that gap at that time we solve for by reverse engineering a quote with our annuity calculators for an Immediate Annuity. So, in essence, we're buying an Immediate Annuity at the time that inflation hits, and you need that additional money for that specific amount. And when we reverse engineer, the good news is we're going to use as little amount of money as humanly possible, contractually possible, because we're going to quote all carriers.

‌Quoting All Carriers

‌We're going to quote all carriers to say, "Okay, we need this extra 275 per month", and the carriers are going to quote it. We're going to choose the top-rated carrier, the one with good Claims-Paying Ability that will require the least amount of money to solve for that contractually. That's kind of a defer to SPIA strategy which I love, and that is really the purest form and the most efficient form to address inflation. So, the question from Chester is, "Well, what if inflation hits again?" Then we do it again. Then, we figured out exactly what the gap was going to be, and we reverse-engineered the quote using our annuity calculators. Then, we buy the Immediate Annuity with the best carrier we can find by quoting all carriers. It's really that simple. What I encourage you to do is not make annuities complex because they can be, and the agents will make them complex.

‌It's a simple contractual guarantee and that's the reason I encourage you to go to the site and set a time for us to talk one-on-one, The Annuity Man and you. You and The Annuity Man, nobody bothering us, just us talking for about 30 minutes about your specific situation. Then we can put it together; we'll listen to you. We'll get the details, which are obviously confidential, and then we'll put together a customized plan that hopefully can address inflation or future inflation to your satisfaction.

‌Never forget that there's never an urgency to buy an annuity. Just an urgency to understand what you're buying entirely. Thank you for joining me today. I'll see you on the following Stan The Annuity Man blog.

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.