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Joint and Survivor Annuity: Qualified and Non-Qualified

Stan Haithcock
February 27, 2023
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I'm glad you joined me for this blog. It's on joint and survivor annuity. And for whatever reason, that verbiage has survived. We're going to talk about it so that Martha and Chester can understand it. That's my fictitious people that you know tell you, "Hey, Stan, what's a joint and survivor annuity?" And I'm going to tell you, and by the way, Chester sounds like my uncle at the family reunion, that's over there eating all the potato salad: mayonnaise-based, of course, not that mustard-based. Mayonnaise-based potato salad because it's in the South. I'm going to explain joint and survivor annuity and why it's important for you to understand that, especially if you are attaching a significant other. This is a big-time thing that you need to put in the back of your head and implement.

I want you to know that I am the entertainer out here in the annuity world. Still, at the end of the day, we sell more annuities than anyone on the planet, but only if it's appropriate and suitable for your situation. Not everybody needs one, but annuities always tell people they are transfer of risk products, they're commodity products, they're contracts. Annuities are contracts. Don't believe it? Buy one, and you will get a policy in the mail. Policies are called contracts. So, it seems static, it seems non-emotional like: "Yeah, contracts this, contracts that. Boring, boring."

But joint and survivor annuities are emotional. Now I want you to think about your significant other, and let's use a good example. My wife has been married to me for 34 years. Bless her heart; she's a martyr. I mean, she has paid the dues, as they say. But I'm going to make sure that my lovely wife, Christine, when she drives back from the funeral when my Learjet hits the mountain and passes the bank. She's going to glance at the bank and go, "Yeah, that income's coming in, regardless if Stan's here or not. I miss him. I really do. But that income's coming in." That's joint and survivor annuity, in a nutshell, meaning that you're setting up that lifetime income payment for you and your spouse so that regardless of who's alive, regardless of who's breathing, that annuity's going to pay. There's no ROI until you die. Why? Because it's a pension.

Annuity Monopoly

Remember, lifetime income is a monopoly that only annuities can offer. And you go, "I hate annuities, Stan. Let me tell you right now, I'd lose all my money before I ever bought an annuity at any time." Heard that before. Hey, you already own one. It's called Social Security. It's the best inflation annuity on the planet. So don't be an annuity hypocrite, and don't think that you're a master of the universe. Don't think that you're Gordon Gecko, don't think that you're Elon Musk, don't think that you're Trader Joe. And I don't mean the store, I mean Trader Joe, like trading stocks. I'm really good. Of course, you are. It's a bull market, and you can throw a dart at it. You could be a monkey and make money in these markets.

But it's not about that. With 10,000 baby boomers hitting the retirement age of 65 every day, it's about chapter two of your life. It's about life. It's about your lifestyle. It's about living for the day and maximizing the day. And it's also about taking care of your significant other. Not being a trader, not being a master of the universe, not trying to buy the next Bitcoin, not trying to time Tesla or whatever the stock of the day is.

It's about taking care of your significant other. It's about giving up some opportunity and that fear of missing out in a raging bull market and setting an income floor, joint and survivor, so that both of you, as long as you live, will get that payment from the annuity company. You are transferring the risk to the annuity company to pay you and your significant other for the rest of your life. And if you die, the significant other will get the income, uninterrupted and unchanged, for the rest of their life. And we can set it up so that when the second spouse dies, whatever money's left in the account goes to the beneficiaries, and the evil annuity company doesn't keep a penny.

Emotional Aspect

That's joint and survivor. It's emotional. I can look at my wife and say when I die, and after you hold the party, that income will continue uninterrupted and unchanged for the rest of your life, as long as you live. And you can see the kids and the grandkids, party, and live the life you want to live. There's a lot of you like me, in my situation, where I've been in the financial business my whole life, and you've probably done stocks and bonds and ETFs your entire life, and you're in it, and you're good at it. You're a do-it- yourselfer. And your spouse could give a crap. My spouse could give a crap about any of that. She doesn't care. She came from a simple lifestyle in Nebraska, wholesome, good, love it. I wish America were like that now. But she doesn't care about stocks and bonds. She doesn't understand that. She's all about family. She's all about relationships. She's all about our children and grandchildren. She's all about that. She doesn't want to take over the portfolio that I have in place. She doesn't want that. She wants to know that that income stream's coming in: that she's going to have enough money to live her life comfortably and continue the lifestyle. That's a joint and survivor annuity. The question we have to figure out, and you can book a call with me, is when do you want that income to start? Do we need to use IRA, non-IRA, or Roth IRA assets? Do we need to customize it? Joint and survivor could mean a hundred percent: your spouse will get the same amount of money when you pass away. Or we could structure it joint and survivor with 75%, or whatever you want to come up with, meaning they're going to get 75% of that amount. I don't do that a lot. I always encourage people to do a joint and survivor annuity so that the income stream will be the same, whether you are alive or they're alive. And most of the ones that we sell are when the second spouse dies, and the money left in the account goes to the beneficiaries.

Life Expectancies

The primary pricing mechanism is your life expectancies, plural, at the time you take the payments. Interest rates play a secondary role. Do not call me and say, "Well, I'm waiting for interest rates to move." You're not smart, okay? Take that the right way, but you can't time it. If you're going to time it like that, you have to factor in the payments you miss while trying to be master of the universe and time it. It's the same situation where you go, "Well, Stan, should I take Social security at 65 or 70? There are no good answers. Because if you wait until 70, you have to factor in the 60 payments you missed while you're waiting to take the payments, and how long will it take to make up for that. I understand the math. Don't email me. I get it. I understand it. But the bottom line is it's not about interest rates but life expectancy. And bigger than that, it's about mortality credits. On an episode of Fun with Annuities® podcast: yes, the top annuity podcast on the planet, Fun with Annuities. I'm your host. Stan the Annuity Man®. I had a brilliant guy on named Tom Hegna. He's all about mortality credits, which is the pooling of risk with people of your own age group.

Think of a football stadium. Everybody in that football stadium is your age. Some of you are going to live longer, some of you will live shorter, and some will live right on the nugget for your life expectancy. But what he's saying now, Tom Hegna, is mortality credits at the time of the episode are a bargain: are a bargain in your favor, not the life insurance company's favor. Because of COVID, a lot of people have passed away. Life expectancy tables are probably going to change against you. Meaning they're going to predict that you'll live longer, which means the payments will be more, which means they'll be less. That's not a sales pitch, that's just reality. So, when you talk about joint and survivor, it's more about your spouse: your partner, that you're setting up that lifetime income stream for them. But you're also setting up that income floor for you: Social Security, RMDs, dividend stocks, joint and survivor annuity. The whole thing, I mean, that's your income floor. That amount will hit the bank account every single time, every month, regardless of what happens in the world. And guess what? Spoiler alert, when you put in that income floor, which includes this joint and survivor annuity, you're a better investor with your non-annuity assets. Why? Because you don't have to disrupt your investments if there's a market hiccup. You have that income floor in place every single time. So joint and survivor annuity, I need you to reposition that in your head. You're taking advantage of opportunities. There's no FOMO or fear of missing out as my daughters will type into their little text. What you're doing is you're being proactive, and you're putting a guaranteed lifetime income stream in place before your cognitive decline. That's going to be there, and that will pay as long as you breathe. It's a good thing. Transfer of risk is a good thing. When you click play for joint and survivor annuity, like, "Man, this is going to be boring." No, I went off, I went emotionally off, I went factually off, and I got down to it. This is the reason you love these blogs, with Stan The Annuity Man, up here as your edutainer of all things annuities.

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.

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