Keep Your Powder Dry Annuity Income Planning: Shootin' It Straight With Stan

Welcome to Shootin' It Straight With Stan. I'm your host, Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Today's topic is a very good one, as usual. It's called Keep Your Powder Dry Annuity Income Planning. One of the biggest fallacies in annuity land is people getting different information from the internet, their advisors (who often know nothing about annuities), or financial journalists (who, in most cases, know nothing about annuities). They'll say, "Well, you don't buy an annuity because it's irrevocable. Once you've made that decision, it's over." They’re primarily talking about Single Premium Immediate Annuities, which are a form of pension. Pensions were put on the planet back in Roman times as a reward for dutiful Roman soldiers and their families. That’s where the word "annuity" comes from; "annua" in Latin means "payment." But you don’t have to do that. You don’t have to rip the knob off a water faucet for lifetime income. There are ways to keep your powder dry.

Lifetime Income Stream Planning

A lot of people say, "Well, Stan, I don’t really care. I want to lock and load and get that lifetime income stream coming, just like Social Security or a pension. I’m good with that. That’s fine." Depending on the type you choose, lifetime income from annuities is a guaranteed income stream for as long as you're breathing. If it's joint life with a spouse or significant other, as long as one of you is breathing—even if you're on a ventilator. But a lot of people don’t want to tie up the money until they have to.

Think of the Mel Gibson movie Braveheart. If you've never seen it, watch it. If you have, then you know what I’m about to say. There’s a scene where Mel Gibson, leading a ragtag group with only spears, faces the British. The British are charging, and Mel Gibson yells, "Hold, hold, hold!" When they get close, they stab and kill, and it’s glorious and gory, a cinematic masterpiece. But think about your lifetime income guarantees. Do you want to wait until the very last second to buy lifetime income? You can do that. Let me give you a couple of examples.

Flexibility with Lifetime Income Guarantees

Let’s say you’re doing well in the markets, have a good money manager, or are managing it yourself and are performing well. There’s no reason to lock up a lifetime income stream guarantee right now, regardless of the sales pitch. The primary pricing mechanism for annuities is life expectancy. The older you are, the higher the payment. So, you can hold, hold, hold, and then when you’re ready to transfer that risk for lifetime income, you can do so at that specific time.

Many people who are good in the markets don’t want to lock up their money irrevocably. They’ll ladder in that lifetime income, buying a hundred thousand every year for five, six, or seven years. But you don’t have to do that. Another way to keep your powder dry for lifetime income is by setting up something with your estate planning lawyer. Please, use a lawyer. You can set something up in your trust that says, "When I die, an Immediate Annuity will be purchased for my spouse to fill in that lifetime income gap for them." That’s keeping your powder dry. You’re not locking anything up now. The trigger to purchase the lifetime income annuity is when you pass away. Think about it. It actually makes sense, especially for all you A-types out there who are managing the money. You know annuities are a good idea, but maybe not right now. You can use a trust to ensure that something is purchased for your spouse.

Shopping for the Best Annuity Rates

Now, you’ve got to make sure to shop all carriers for the highest contractual guarantee. We’d love for you to use our site, The Annuity Man. I may not be around one day, but the site will be. I can guarantee that. The point is, you have to shop all carriers for the best contractual guarantee because annuity lifetime income products are commodity-type products. Don’t fall for, "This is the best one, sir." It’s nonsense. You’ve got to shop all carriers—just like you would shop for a plane ticket.

Alternative Options for Income Planning

Another way to keep your powder dry with income planning is if you say, "You know what, Stan? I don’t want to do lifetime income, but I do need some income." In that case, consider a MYGA, or Multi-Year Guaranteed Annuity, which is the annuity industry’s version of a CD. You don’t have to touch the principal, and you can peel off the interest—though not all MYGAs offer that, but a lot do. You take the interest off the top, never touch the principal, and at the end of your chosen duration, you still have all your principal intact. That’s keeping your powder dry.

Using Income Riders for Flexibility

Another way to keep your powder dry is with Income Riders. These are unfortunately mis-sold in the industry, but if you go to The Annuity Man, we have the only Income Rider calculator currently worth using. It quotes almost all carriers and helps you find the highest contractual guarantee in the future. Income Riders, when I ask two key questions: What do you want the money to contractually do? And when do you want those contractual guarantees to start? If you say, "I need lifetime income, but I want it to start in the future. I'm a planner, Stan. I’m a box checker. I need it to start in five, seven, ten years down the road," Income Riders are a great way to keep your powder dry.

The number you'll see on the quote for seven years or whatever your deferral period is is contractual, and it’s going to happen. But it’s typically attached to an Indexed Annuity, a Fixed Indexed Annuity. We choose that because historically, they outperform Variable Annuities with Income Riders. We don’t focus on the index side, the caps, spreads, and participation rate nonsense. We focus on the Income Rider contractual guarantee. The reason for the keep your powder dry strategy is that you buy an Income Rider attached to an Index Annuity with the goal of turning on the income stream in 10 years. Ten years from now, we’ll contact you and say, "Hey, player, do you still want to turn on the income from that rider? Remember the guarantee—it’s contractual. It’s separate from the accumulation value of the index side." You can say, "No, I don’t want to do that. Send me my money back. I kept my powder dry. I don’t need that income anymore."

Conclusion and Strategy Recap

Now, spoiler alert: that income value—the monopoly money, the phantom account money that calculates your first-lifetime income payment—is not something you can cash in. You can cash in the accumulation value, though. And that’s okay. It’s a keep-your-powder-dry strategy, meaning you go into it with a plan for future income. You’ll know exactly what that income will be, but if something changes along the way, you can get all your money back because the underlying value is the Fixed Indexed Annuity.

To sum it all up, in Stan The Annuity Man terms: If you’re looking for lifetime income, yes, you can do an irrevocable Single Premium Immediate Annuity, Deferred Income Annuity, or a Qualified Longevity Annuity Contract. Those are called annuitized strategies. But if you’re not sure you want to commit to that, if you want the guarantees but also want to keep your options open, there are ways to keep your powder dry.

So, go to The Annuity Man and schedule a call with us. You’ll get someone really smart who talks and acts like me. Tell them your situation and think about whether you want to lock and load with a lifetime income stream or keep your powder dry—or maybe a combination of the two. My name is Stan The Annuity Man, and that’s Shootin' It Straight With Stan. I’ll see you next time.

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