Retirement Income Planning Using Annuities

Stan The Annuity Man, America's annuity agent, licensed in all 50 states. And yes, this is not a drill—we're talking about retirement income planning using annuities. This is not a drill. It’s a hammer.

The 4% Rule and Retirement Planning

AA guy called me the other day, and this is a call I get a lot. See, in my previous life—and yes, I did have a previous life, no one makes themselves Stan The Annuity Man out of thin air—I worked for large brokerage firms, all the names that you know. I won’t name them because they already do too much advertising. So, I’ve been on that side of the table, doing holistic planning and all that.

Now, the common theme out there in the world of retirement planning is this: "With your investments, we can just peel off 4% for income and have the investments grow and offset the 4% that we're taking out." Well, that’s great in a raging bull market, Fred. But when the bull goes to bear and things start going down, that 4% rule goes out the window. It’s crap. As I always say, you can’t polish a turd, but you can roll it in glitter. Think about that for a second. That’s the 4% rule in a down market. You can’t polish a turd, but you can roll it in glitter.

This means that you’re taking 4% out and losing money at the same time. It doesn’t work. So, my comment to all these people who call is, why wouldn’t you have annuities as a portion of what you do? As a portion of what you do? Because it’s a guaranteed income. It provides that income floor. I’m not sure he will listen to me because he’s pretty attached to this advisor, but when markets get volatile, people start thinking. And my phone starts ringing with all these seeds that I’ve planted: "Hey, you might need a transfer-of-risk retirement income annuity as part of your retirement income plan so that you have guaranteed income.”

Social Security: The Best Inflation Annuity

Guess what? You already have a little bit of that in place, and you’re saying, “No, I don’t, Stan The Annuity Man. There’s no way. This isn’t a drill, Stan. This is a hammer. No, I would never buy an annuity.” You already own one, Chester. It’s called Social Security. Everybody in the country owns one. It’s the best inflation annuity on the planet.

And you say, “No, Stan, I don’t own one.” I just told you Social Security is an annuity. Why? It pays for life. It’s a lifetime income payment. And that’s what annuities do. You already have part of your retirement income plan in place. You might need to take a look at how to put annuities inside of that retirement income plan so that it makes sense.

Retirement Income Planning with Guarantees

So, we started this, and then my producer said, “You’ve got to write thicker.” Okay, thicker. 4% rule. How’s that? Is that better? Is that better? Okay, the 4% rule—peeling off 4% from your portfolio, which is perfect in a bull market. Never forget this: don’t confuse a bull market with genius.

Then you’ll have the person say, “Let’s do a pie chart, Fred. You’re 60 years old, so 60% needs to be in equities and 40% in bonds.” The old napkin rule. I’ve been around a long time, player. I’ve seen all of this.

Stan The Annuity Man’s Take on Retirement Planning

So, what’s Stan The Annuity Man’s take on this? There’s nothing wrong with that when the markets are going up. There's nothing wrong with that if it’s managed properly. But let’s put in some guarantees. With 10,000 baby boomers retiring—well, reaching retirement age every single day—10,000. How about that? They’re looking for guarantees. The more volatile the market gets, the more guarantees people are looking for.

Here’s what I’m saying. Retirement income planning comes down to your income floor. What is that income floor? What’s that dollar amount that comes in every month that you need to live, pay the bills, live your lifestyle, and set your spouse or partner up? So, if something happens to you, is that monthly amount coming in? What’s your income floor? You need to add all that up.

Factors to Consider in Retirement Income Planning

Let’s just say you have Social Security as part of it. You have a pension as part of it. This might surprise you, but part of your retirement income must factor in Required Minimum Distributions because that’s a guaranteed amount you must take out of your IRA when you turn 73. New rule. So, what’s the total amount? If that’s sufficient from a lifetime income stream, then you don’t need any type of annuity. But if it’s not, or if you want to plan for future income to solve for things like inflation, you can do a contractually guaranteed quote that has income either starting right now to fill in that gap or, in the future, to fill in that gap.

You need to think about how much risk you are willing to shoulder. Right here, you’re shouldering risk—100%. You’ve got it right here. Do you want to shoulder risk, or do you want to transfer risk? Not everybody’s the same. Some young cats out there want to transfer risk. Some 80-year-old futures traders don’t want to transfer risk. It’s customizable. I don’t agree with putting people in a pie chart or a specific thing. Everybody fits. There’s not a one-size-fits-all in anything.

Income Now or Income Later?

But what you need to talk about with your spouse, significant other, partner, or family, is risk transfer and the income floor with retirement income planning. So, retirement income planning using annuities comes down to two things: you either need income now or income later. My producer’s saying, “Wait a minute. Wasn’t that like a candy in the store you could get?” Yeah, there was "Now and Laters." Remember those? They were like taffy. Our parents used to let us eat it, which is crazy. I would never let my kids eat that. They probably do anyway. But income now, income later. Income now means income will start between 30 days and a year. So, Stan, I need income to start immediately. Or income later, which is 13 months up to 40 years.

And you’re saying, “Hold on, wait a minute. What in the heck are you talking about with 40 years? Who in the heck would buy a 40-year deferral?” Me. This is not a drill; it’s a hammer. My two daughters in their twenties may never make a living—I take that back; they might, but I’m guessing they won’t. One’s a dancer, the other’s a writer, kind of an artist thing, whatever. I bought them an income-later strategy, a Deferred Income Annuity, with income starting in 40 years. Why? Because I’ll be long gone. I’ll be in annuity heaven if there is such a place. It probably isn’t, but let’s say there is. I’m there. They’ll be getting a lifetime income stream. That’s called handcuffing your beneficiaries, by the way.

Income Now: Single Premium Immediate Annuities

So, income now, income later. Income now is a Single Premium Immediate Annuity. Now, that’s the quote. You go to The Annuity Man, and we run it through our calculators. We quote Single Premium Immediate Annuities. It’s the purest form of annuity—the one from Roman times. A pure transfer of risk. Now, what’s happening in the hinterlands of annuity sales is you have people trying to sell Variable Annuities and Indexed Annuities (FIAs) as income-now products. Total crap. I say this because the Single Premium Immediate Annuity provides the highest contractual guaranteed income—99% of the time. I’d say 100%, but someone will probably pull something out of midair and say, “No, this 1%.” 99%.

It’s a very simple product. There are no annual fees and no market attachments. It’s easy to understand.

Income Later: Three Options

Now, income later comes down to three products: Deferred Income Annuities, Qualified Longevity Annuity Contracts (a Deferred Income Annuity used inside your IRA), and Income Riders. All of these can be quoted in this timeframe—from as little as 13 months to 40 years. We’ll quote them all. Depending on the type of account you’re looking at—IRA, traditional IRA, Roth IRA, non-qualified, whatever—we’ll quote them all and show you the highest contractual guarantees for each one, then give you the benefits and limitations on how they work and what might fit best for you.

Retirement Income Planning with Annuities

So, with retirement income planning, think of the taffy we used to buy called "Now and Laters." Either you need income now, or you need income later. And from those two decisions—30 days to one year, 13 months to 40 years—we can quote all annuity carriers for the highest contractual guarantee for your specific situation.

Also, I’m an author—Stan The Annuity Man, author of seven of the best annuity books on the planet. You can download them for free, under no obligation. Make sure to visit The Annuity Man for videos, podcasts, and other great stuff, and to use my proprietary annuity calculators to find the best quote on the planet for your situation. See you on the following Stan The Annuity Man blog.