Retirement Withdrawal Strategies With Annuities
Today's topic is a good one. We're talking about retirement withdrawal strategies using annuities. I'm going to talk about withdrawal strategy, history, and what the pitches are because I used to work for all the major firms. Dean Witter, Morgan Stanley, Paine Webber, UBS. I know that side of the table. I know what you're hearing from everybody. I'm going to strip it down, so you understand how annuities and the different types work with retirement withdrawal strategies. Many of you are either retired, thinking about retirement, or hoping about retirement, which is a good thing.
Retirement Withdrawal Strategies
Let's talk about retirement withdrawal strategies broadly, what you've heard, what you've been told, and what's been the mantra in the financial services industry. Because, of course, yours truly, Stan The Annuity Man®, America's annuity agent®, used to be on that other side of the table, master of the universe, working in New York, with Morgan Stanley, Dean, with all that people. Here's what you've heard. "When it comes to retirement withdrawal strategies, Mr. Johnson, you don't need to buy an annuity for income because you can take out 4% of the portfolio and not disrupt it. It grows, and you take off the gain, it grows, and you take off the gain, and it grows and takes off the gain." Let me rephrase it. Take a pill, get skinny, take a pill, get skinny, take a pill, get skinny. Doesn't work like that all the time. With volatile markets, and I was around back in the day with Dean Witter when they called us stockbrokers. There was, "No, do not call us." You call people, and you sell them stock. Their 4% rule has been in place for a long time, as long as I've been in the business, which is a long time. Back then, stock markets, the DAO, and the S&P were not securities licenses. A disclaimer, I saw fixed annuities, period. Market movements happened slowly. Today's market movements, what happens in a day now, happened a year back when I was working. It's volatile.
Today, almost 85% of all trades are non-human, algorithmic, black box, high-velocity trades. Computers fight against computers, institutions fight against institutions. I always tell people that when you're in the markets, and you need to be, I'm the first one to tell you, you need to be. It's like surfing beside a cruise ship. You're going to catch a wave sometimes, but a lot of times, you're going to get sucked under the boat. When we're talking about the 4% withdrawal strategy, that's just peachy and ducky and wonderful, and unicorns chasing the butterflies when the market is going up. It's tough, especially when you get closer to retirement age or retirement, whatever that age is to you at retirement. You don't have time to recover.
Retirement withdrawal strategies with annuities are very important. History lesson, annuities are the only product on the planet to provide a lifetime income stream that you can never outlive, period. No other product designed in Roman times for the dutiful Roman soldiers and their families as a pension. Still, to this day, annuities are the only product that can provide that pension. I hear you saying, "We still rely on that, Stan The Annuity Man." I don't know that until you die. If you die, you can invite me to your funeral, and I will sing a song, acapella. No one's ever taken me up to that, but that's an offer. I digress.
Deferred Annuities and MYGAs
We're talking about retirement withdrawal strategies with annuities. There are a couple of different types of annuities. There are what's called Deferred Annuities, which are Multi-Year Guaranteed Annuities, which is the CD product. It works just like a CD, but it's an annuity, then you have Fixed Index Annuities and Variable Annuities. Those are the primary-deferred products. For most of those, not all, you can take out a percentage annually, penalty-free, from the policy. Typically, it's either five or 10% that you can take out penalty-free. You can use that as a withdrawal strategy. The other types of annuities are annuitized. What that represents is annuitization, the income stream flowing and flowing and flowing. You'll get your money back, but it will be in payment form. That's another retirement withdrawal strategy. Now there's one more strategy, which is called Income Riders, that you can attach to these Deferred Annuities. Typically, variable or index. Disclaimer, I don't sell variables. I don't sell anything that goes down. But Income Riders are Lifetime Income Products.
Retirement withdrawal strategies used in annuities are very basic, in my opinion, as the top agent. Now, here's Stan The Annuity Man, who's written seven books on the subject and done 300, 400 videos of that. You use the annuities as an income floor, the guaranteed amount of money that will hit your bank account every month, regardless of who's in office, regardless of Republicans or Democrats, regardless of social and income, this and that. Regardless, it will hit your bank account just like social security.
If you're out there saying, "Stan, I hate all annuities. I hate you, and I hate all annuities." That's fine to hate me, but you can't hate all annuities because you already own one player. It's called social security, the best inflation annuity on the planet. You already own one. In conjunction with your social security payments, you can add annuities to the dividend income and rental income, or whatever you're getting, as that income floor will always be there and will always hit your count as long as you're breathing. Can I get an amen on the breathing? Yes, you can. Forget the 4%, the 5%, and the pie in the sky because that's not guaranteed. You need a guaranteed income floor as your retirement withdrawal strategy, period. Don't worry about taking 4% from your investments and disrupting them. You'll have the income floor in place, so you don't have to worry about it. A question in the back of your head that you're yelling, "What about inflation? What about hyperinflation?" I hear that all the time. I don't know. When it hits, it hits. We'll solve for it.
How do you solve inflation? First, you already own the best inflation annuity on the planet, social security. Why is it the best one? It's because our friends in Congress, the Senate, and the House vote for the increase because they want your vote. It has nothing to do if they have the money. By the way, as you found out, they can print money. It's the best inflation annuity on the planet. But when it comes to annuities, there's no philanthropist at annuity companies. They're not going to give it away. Do a visual. If you bought the same annuity, like an Immediate Annuity, without an increase to the income stream, it's typically a six to nine-year breakeven point.
You can buy an annuity that increases with inflation, but they're not going to give it away. What I tell people to do, instead of doing that, when inflation hits, you say, "You know what? Our income floor is $4,122 and 12 cents." Great. Inflation has increased it by $232 a month. Then tell me that, and we'll do a reverse engineer quote and solve for that inflation amount. The burning question you have in the back of your head, I'm going to yank it out, are annuities the best retirement withdrawal strategy? Maybe, maybe not. Annuities aren't for everybody. I have people ask and answer two questions. What do you want the money to contractually do? And when do you want those contractual guarantees to start? From those two answers, I can determine if you need an annuity. By the way, I'm never going to be your friend, but I'm going to be the best advisor you've ever had because I'm going to be brutally factual. Isn't that what you want? We're talking about your money. Those are the two questions. From those two answers, depending on the answers, I can then point to the product and the annuity type. There's not just one annuity, the annuity type that will give you the highest contractual guarantee, and then we can start the conversation. But you might not need an annuity. You might be okay with the 4% withdrawal strategy. You might be the master of the universe, and that's okay. But what you need to understand is if you want a turnkey, contractually put it in place, lock and loaded, annuities might be it.
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.