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Retirement Income Strategies: How Annuities Fit

Stan Haithcock
January 8, 2024
Retirement Income Strategies: How Annuities Fit

Hey there, Stan The Annuity Man, America's annuity agent, licensed in all 50 states, and that does include yours, by the way. I encourage you to go to The Annuity Man but I digress. Let's talk about my books really quick. Let's get them out of the way. You can go to my site or click this link to download them for free. Let's discuss why you're here, which is retirement income planning, and if annuities fit and how they fit. Should they fit? Would they fit? Might they fit? Are they fit? Let's find out.

‌What Do They Solve For?

‌I understand annuities are like the hated word. I get that. So, the question is, why are you Stan The Annuity Man? No one plans to be this. I'm just out here selling contractual guarantees. They have their place, but they're not for everybody. So, in the retirement income world or retirement planning world, the question is, do you need an annuity? And my answer is no. Not everybody needs annuities. Some people do. It depends on what you're trying to achieve. The four primary things that annuities solve for is an easy-to-understand acronym called PILL. Let's go through it. P stands for principal protection. I stands for income for life. L stands for legacy, and the other L stands for long-term care and confinement care. If you don't need one or more of those to contractually solve for, you don't need an annuity.

‌Will Do, Not Might Do

‌The other two things you need to ask yourself are what do you want the money to contractually do, and when do you want those contractual guarantees to start? Now, from those two questions, let's look at retirement income planning and how annuities fit. All right, so we're going to go over the two questions. Again, what do you want the money to contractually do, and when do you want those contractual guarantees to start? Key word here, everybody, is contractual. Annuities are contracts. Always say you own an annuity for what it will do, not what it might do. The will do is the contractual guarantees of the policy. The might do is the hypothetical, theoretical, projected, back-tested, nonsense, hopeful agent, return scenario, pie-in-the-sky, better-than-sliced-bread crap that you're going to be pitched. So, we're going to buy the will do, correct? Nod your head. We are because an annuity is a contract.

‌Product Types

‌You don't believe it? Buy one; you're going to get a contract in the mail. It's a whole other level, right? All right, so what do you want the money to contractually do? Let's go through some scenarios of what the product would be. Contractual will do; I want income, and I want income to start now. What is that product for income planning? That's a Single Premium Immediate Annuity. That's what that is, period. Let's do it again. I want income. I want to contract, I want income, and I want it to start in 10 years. So, 10 years from now. Well, what's the product? The product could be a Deferred Income Annuity. It could be an Income Rider in a traditional IRA, or it could be a QLAC, a Qualified Longevity Annuity Contract. But these are the conversations that you and I are going to have.

‌Now, when you book a call with us, you're not going to get some underling. You'll get one of my top associates, or you might get me. It's my company. I stand behind every single recommendation. So, you will talk to us, and we will have this conversation. I'm going to ask you these questions, and you're going to be specific about those, and I'm going to point you to where we need to go from the standpoint of the product, not a carrier or not a specific product, but the strategy. Based on these two questions, I can say, "Okay, if you need income 10 years from now and we're using a non-qualified account, non-IRA account, then we're going to quote Deferred Income Annuities and Income Riders."

‌Or if you say, "You know what? I need income to start right now, and I'm unsure whether to use an IRA, Roth IRA, or non-IRA." Then I'll quote that in all of those. The other thing you will have to tell me is what you want the beneficiaries to have. Do you want them to have any of the unused money when you pass away? If you do, we can structure that so that 100% of the unused money goes to your beneficiaries. It's customizable. Just remember that when you're talking about retirement income planning using annuities, it's customizable.

‌Fitting Into Retirement

‌Here's another way annuities fit in retirement income planning. You might be out there and saying, "Stan, I have this lump sum." So, here's the lump sum. Let's say it's $200,000. I'm thinking about quoting $200,000 using these two questions. What do I want the money to contractually do, and when do I want those contractual guarantees to start? Or you might say a monthly, you might say, "You know what? I'm not sure how much money I want to put in, but me and the spouse, me and the wife, me and the partner need $2,000 a month."

‌This is how you quote for retirement income needs. You quote either saying, "Okay, I've earmarked this $200,000. How much income would that provide based upon the specific quote parameters, single life, joint life, whatever you provide to us?" Or "How much money would it take to create $2,000 a month for the rest of my life, or the rest of my life and my spouse's life?"

‌Either way, these are contractual guarantees amount. Either way, these are commodity quotes. Either way, we will shop all carriers and understand that it's a fluid market. Rates change, and guarantees change every seven to 10 days unless you lock them in during the application process. You can't just get the quote from us and say, "You know what? I'm just going to think about it."

‌Client Example

‌I had a call the other day from a guy we gave a quote to, and he called three months later and said, "I want to do that quote you sent me." Obviously, we have those things on the quote that says, "This quote's only good for seven to 10..." He didn't read that, and he was upset. He goes, "No, this is the number. I did my research; it took me this long to do my research." Listen, I understand that, but it's a fluid world. There is no single perfect company, carrier, product, or strategy. It all comes down to what you're trying to achieve contractually. Then, we will quote it based on what you tell us.

‌One last key point: When discussing annuities and how they fit in a retirement income plan, you need to look at the overall income floor of what you have. Let's say your Social Security is part of it. Your pension, if you have one's part of it, RMDs on your traditional IRA is a part of it if you're 72. All of that's guaranteed income coming in. So, what is that total amount of money? And then, what's the gap that you need to fill? If you don't need a gap filled, you don't need an income annuity right now. You might want to look at one for the future if there's future inflation, but that's the starting point from the standpoint of just doing inventory on what's coming into your bank account, what you need to come into your bank account, and if there's a gap, how to fill it. Again, like in the last example I showed you, we can quote for a specific monthly dollar amount and find out who is offering that guarantee using the least amount of money. Make sense?

‌Remember to drive this home: all income products, all annuity products, providing lifetime income is primarily based on your life expectancy at the time you take the payment, life expectancies if joint, and the payment is a return of principal plus interest. And if you get to zero, it doesn't matter because that's the true benefit proposition of annuities. After all, annuity companies are on the hook to pay regardless of how long you live. That's the monopoly that the annuity industry has. For some unknown reason, they're not pounding it into the table. It's one of the biggest marketing blunders of all time, that business schools will be studying why they didn't do that. Maybe in the future, I'll be the annuities czar, and I will institute that so that lifetime income equals annuities every single time you think about it. So, with retirement income planning, you need to make sure you are solving for a specific goal. And if you don't need income right now, you probably don't need an annuity. And when I say you probably don't need an annuity, if you don't need income now, that's for people that are trying to solve a specific goal.

‌However, there are income later needs that if you want to plan for the future, it might make sense to put a Deferred Income Annuity, or Income Rider, or a QLAC in place, so that you have money coming in at a future date. Again, it's customizable and what you need it to be for your situation.

‌Thank you for joining me today. Visit The Annuity Man, let us run quotes for you on our proprietary annuity calculators, and make sure you subscribe to my YouTube Channel for all things annuities. 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.

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