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Annuity Comparison: Lump Sum vs Reverse Engineer

Stan Haithcock
March 31, 2022
Annuity Comparison: Lump Sum vs Reverse Engineer

Let's talk about getting quotes on my site, reverse engineering the quote, or lump sum. By the way, I get all kinds of emails, and I respond to every one of them because I have no life, and I'm up until midnight every night responding to e-mails.

People call me all the time and say, "Hey, I've got $300,000. I want income five years from now; how much will that produce?" Or "I have $400,000 I want income in 10 years, how much income will that produce for my wife and I? Or me and the spouse or me and the partner." That's a typical lump sum quote.


Now, remember, with annuities, there are many types of annuities that we can quote for a lifetime income. In essence, what we're talking about is lifetime income quotes. Remember, annuities were put on the planet in Roman times, I'm not going to do any Latin for you, but my CEO tells me that the root word annual means either a payment or lifetime payment. But back in the day, when the Roman soldiers risked their lives for the empire, the Roman emperor said, "Hey, I appreciate you laying it on the line, and what we're going to do for you is give you a pension for you and your family that's going to pay you for the rest of your life as long as you're breathing." Guess what? That's where annuities came from.

Lifetime Income

Annuities are the only product that will provide a lifetime income stream for as long as you're breathing; it doesn't matter how long you live. If you're saying, "I hate all annuities, Stan, and this guy told me to hate all annuities, “ my father told me to hate all annuities." First of all, you're a hypocrite. Take that the right way because you already own Social Security, the best inflation annuity on the planet. I mean, that's, in essence, just like the Roman annuity. It pays you for life as long as you're breathing, and the older you are when you start the payment, the higher the payment because it's primarily based on life expectancy.

When we're talking about lifetime income, using annuities, I have set up this Annuity Man website as a utopia for annuities. No one will call you; no one will bug you; no one will show up at your doorstep. I mean, it's fantastic. You can run Immediate Annuity quotes, Deferred Income Annuity quotes, Qualified Longevity Annuity Contract quotes, and income rider quotes. Those are the four annuity types that provide lifetime income. The difference between all of them is that with Qualified Longevity Annuity Contracts, you can only use your traditional IRA qualified type money, but the others you could use in IRAs, non IRAs, Roth IRAs, and run lump sum or reverse engineer quotes.

Lump Sum

The lump-sum quotes are pretty standard, pretty straightforward. I've got this lump sum of money. I'm going to have it start the income start this specific date. It's either going to be on my life or joint life. Let's see what the pay is. The pay will be based on life expectancy or life expectancies when you take the payment interest rates per secondary role. What did you say? Do interest rates play a secondary role? What was that? Interest rates play a secondary role. Don't be the one out there saying, "I'm going to wait till low-interest rates move, and I'm going to bottom and time it." No, you're not going to time, and that's not some sales pitch.

I'll give you an example when you're going to take your Self Security payments, and you're trying to decide, and maybe you've already made this decision, should I take the payments at 70 or should I take the payments at 65? There's no good answer, just the best sales pitches. If you take their payments at 70, you have to factor in the 60 payments that you missed five times twelve. Twelve months in a year that you miss while you're waiting on the payments and then how long it's going to make those payments from 70 on to make up for when the payments you missed if you turned it on age 65, understand. Nod your head. It's the same thing.

With the lump sum, you can say, "Okay, I want to put in 100,000; I want to start in a year. What's it going to pay?" With the Single Premium Immediate Annuities and Deferred Income Annuities, there is a myriad of choices on how to structure those payments. That's one of the reasons that we need to talk one-on-one. We will quote all carriers, and we will list the top contractual guarantees for your specific situation.


With that being said, understand that annuity quotes are like a gallon of milk; they change every 7-10 days. Don't run the quote; put it on your desk, go to Bora Bora, get back from Bora Bora a month later, and stay, and that's the quote I want to go with, that one that I ran right before I went to Bora Bora. It's not going to happen because it will not be available. That's not a sales pitch. That's just reality. That's the facts. The way to lock in that quote is to go through the application process, get a policy number sign, and then that's when you lock in the quote. It's simple; that’s not the sales pitch; that doesn't mean we want you to go through that application process without fully understanding what you're buying, good, bad, limitations, and the benefits. I need to talk to you to make sure you're suitable and appropriate and not putting too much money in.

Often, people are putting way too much money into an annuity. The annuity industry frowns if you put more than 50 percent of your investable assets in an annuity of any type of annuities combined. Most agents will never tell you that; they will try to slam the whole thing.

The only way they could do that is to dock to the application, which is horrific. You might not even need an annuity, but you don't need to put too much money into an annuity. Lump summing the quote is an easy one. But what I encourage you to do is reverse engineer the quote. What's that, Stan? Good question, that's when you and I have the conversation, and I say, okay, tell me about your income floor? Hey, Stan, what's an income floor? Very good question, again.

Income Floor

The income floor is the income hitting your bank account every month, regardless of who's in office, regardless of the party that you like, Democratic, Republican, Libertarian; it doesn't matter. It's going to hit your bank account; that’s your pension. That's the other annuity that everyone owns if you have a Social Security number. It's called Social Security, It's the best inflation annuity on the planet. It's dividend stocks, whatever side hustle you have, but it's that amount hitting your bank account every month; that’s your income floor.

My question to you will be, how much is on your income floor? How much do you need to pay the bills? So you and your wife can live the life you want. Chapter 2 of your life, go out to eat, travel, see the grandkids, see the kids. See America. See the world. What amount do you need in that bank account to hit every month? Is 5,000, is 6,000, 7,000, is 10,000, and of that amount, you tell me how much has already been covered by a pension, dividend stocks, Social Security, how much is already covered?

I’ll give an example. I got called the other day, $5,000 was the number they needed every month, $60,000 a year, not factoring in inflation. We'll talk about that in a minute. Of that $5,000 amount, 4,000 was covered by a pension, Social Securities, dividend stocks. They needed a gap-fill of $1,000. So we did a reverse engineer quote, solving for a $1,000 joint life with him and his spouse. That's a reverse engineering quote. We're gap-filling for the income floor.

What do we do for inflation? We reverse engineer the gap fill for inflation.


Let's talk about inflation because we were, " What about inflation, Stan. Inflation's hitting. What are we going to do?" If anybody in the annuity industry says that they have an annuity product that adjusts inflation, get up and walk out, shut the Zoom call off, hang up the phone, yell at them and projectile vomit on them do something, just get out of it. There is not an annuity on the planet that adjusts for inflation. What do we do for inflation? We reverse engineer the gap fill for inflation.

Reverse Engineer

Let's take the $5,000 with reverse-engineered for 5,000. We put $1,000 a month in place contractually, meaning that we quoted all carriers to see which carrier would require the least amount of money to guarantee that $1,000 a month for both lives. We quoted all carriers. Annuities are commodity products; you quote all carriers for the highest contractual guarantee for your specific situation. But we're going to do the same thing for inflation. Let's just say down the road that $5,000, he calls me back and says, "Hey, Stan, The Annuity Man, America's Annuity agent, we need an additional $750." What do we do? We solve for the $750.

In my opinion, as Stan The Annuity Man, America's Annuity agent, that's the best way to address inflation. Because if you buy an annuity asset and inflation increase built-in, all the annuity companies will do is lower the payment than the annuity that doesn't have the inflation increase. Annuity companies don't give that away. Run the quotes, run the quotes, run lump sum, run reverse engineer, then schedule a call with me to go over them in detail, and I can explain the good, the bad, the benefits, and the limitations.

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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