Retirement Withdrawal Strategy: Income Riders
Hi there, Stan The Annuity Man, America's Annuity Agent, licensed in all 50 states. I'm glad you joined me today for this blog. We're talking about retirement withdrawal strategies or strategies using Income Riders. So we're going to talk about how Income Riders work, where they're attached to, what products use Income Riders, what you should know, what is good and bad about Income Riders, the limitations, the benefits, what I call the asterisk, the things that not anybody knows, but Stan The Annuity Man and a handful of other people that probably I can count on this hand, this big hand that can palm a basketball. Hello, that's what I'm talking about. Six foot six. I told someone the other day because I have a lot of free throw shooting records and shooting records where I used to play basketball, and people go, "That's fantastic." I'm like, "Not really. It's not a good resume builder, and that and a dollar will buy you a really bad cup of coffee." So, for all the kids out there going, "Yeah, I'm going to play in the pros." No, you're not. Get your degree. Why am I doing that? Why am I giving that? You're already telling your kids and grandkids that, right?
Income Rider Owner's Manual
All right, so we're going to talk about Income Riders. What is an Income Rider? The first thing you need to do is get your pencil out and go to my website because guess who's written a book on Income Riders and guess who's giving it to you for free and under no obligation? No one's going to call or show up at your door. Me. You can download my Income Rider annuity owner's manual for free by clicking this link. Who in the world would sit down and write a book on Income Riders? Let me think. Me. Because I don't have a life. My life is annuities. I'm Stan The Annuity Man. I don't even have a last name. It's Stan The Annuity Man.
I guess on my headstone when I die and my Learjet hits the mountain. I don't have a Learjet, but I could rent one, I guess. It's going to say Stan The Annuity Man. No last name. My wife won't care. She'll be driving off in the Lamborghini with the boyfriend, right? And my two daughters will helicopter in, and they'll drive off in the Bentley. It won't matter. But Income Riders do matter. Why do they matter? Because they solve for what I call income later.
What is income later? I got a call the other day, and the guy said, I believe his name was Fred or something. But we're going to call him Fred. I like Fred. He said, "Hey Stan, I don't really need income now because I'm going to retire in about five years." He goes, "I'm retiring in about five years or seven years, not sure. What should I do? Me and the wife want to plan. We want to know what we're going to get in the future. How do we do that?" That's called income later.
Now, two products solve for income later. One's a Deferred Income Annuity, and one's an Income Rider. We'll talk about Deferred Income Annuities later because we're talking about Income Riders. Income riders are not just a standalone annuity. You can't call me up like Chester did the other day and go, "Hey Stan, I've read all the books. I just want to buy the Income Rider. That's all I want to buy. Me and Martha have made the decision." "Hey Chester, you can't do that." You have to attach it to a policy. It's typically attached to a Variable Annuity, which I don't sell because I don't sell anything that has the potential to go down in value. So when we use Income Riders, we attach them to Fixed Indexed Annuities.
Now you got to say, "Stan, wait a minute. Aren't you kind of harsh on Indexed Annuities?" I'm harsh on the way they're sold and the way they're promoted. But Indexed Annuities are great products. They're not too good to be true, but they're pretty darn good, because they're CD-type and MYGA-type products. They give a two to 4% return. You don't lose any money. But we typically and primarily use Indexed Annuities for an efficient and cost-effective delivery system for the Income Rider.
So the Income Rider attaches, you attach it to the policy at the time of application. I'll give you an example. Let's say, "Hey Stan, we want to protect the principal. We want to make sure that we're not going to lose any money, but we want to guarantee an income stream nine years down the road." You attach an Income Rider to an Indexed Annuity that guarantees a lifetime income stream nine years later. But it gets a little bit more complicated than that because annuities, as you all know, and if you don't, you're getting ready to find out, they're commodity products, meaning that you have to shop them all for the highest contractual guarantee for your specific situation.
Run Your Own Quotes
Don't ever let somebody; first of all, you should use Stan the Annuity Man, but if your brother-in-law is selling Income Riders and you have to buy from your brother-in-law, do not allow them to show you just one. "This is the best Income Rider that I could find." Wrong. You buy all annuity types, including Income Riders, like you buy a plane ticket, you shop for them, you shop, you shop, you shop, you shop. Now, on my site, you can run your own Income Rider quotes. How about that one? You can run your own Income Rider quotes. Or my staff will beat you to the punch and send them to you once you punch in your information. That's the great thing about The Annuity Man: you can run your own quotes there. It's fantastic. But we quote all Income Riders. And remember, annuity quotes are like a gallon of milk; they change every seven to 10 days, so you can't just say, well, I really like this one. Give us a couple of months Stan The Annuity Man, and we'll make a decision. Wrong. That's not a sales pitch, and that's not some high-pressure nonsense. It's just reality.
Joint Life and Single Life
With Income Riders, you have to shop for the highest contractual guarantee. You can set them up for your life, and you can set them up with a spouse etc., joint life, single life. If it's single life, it will pay more contractually than if you set it up joint life because, with joint life, they're covering two lives. And people say, I got to call the other, they go, "I like this," this is from the Chester, "I like this Income Rider, but when does it stop paying?" As long as you, Chester, and your wife Martha are breathing. As long as you're breathing, it's going to pay. When you stop breathing, or if it's joint, when the second spouse stops breathing, then the income stops.
I don't know the return on investment until you die. There's no ROI till you die. It's a transfer of risk pension product. So don't compare it to bonds, or stocks, or ETFs, or GameStop, bitcoin, it's a pension. And in the world that we live in, 90% of private companies, or more than that, do not offer pensions. The only pensions around are if you work for the government, a really good labor union, or the one or two or three or ten handful of companies that offer pensions. The rest of us have to create our own pensions.
Let's Get Visual
Now, visual. Here's how it works. Draw a line down a blank sheet of paper.
On the left-hand side is the Indexed Annuity. The right-hand side is the Income Rider. So when you get your statement or go online to check your account, you will see two valuations: the Indexed Annuity accumulation value and the Income Rider value. Spoiler alert: The Income Rider value is always going to be higher. Also, remember, and you have to remember this one, because people will call me and say, "Stan, I got an 8% annuity the other day. My brother-in-law sold me an 8% annuity." No, he didn't. Your brother-in-law either lied to you or doesn't know anything. What you got is an 8% Income Rider.
Many of these Income Riders during the deferral period, when you're waiting to turn on the income, will grow by this high percentage rate, and you're like, Jimmy Carter's back in office. I love Jimmy Carter. He's from Georgia, and he builds houses, and his brother drinks beer. That would be Billy for all you guys, Billy beer. No, Jimmy Carter's not in office. That's not 8%, or 7%, or 6%, or 5% yield. You can't call up the annuity company and say, "Send me that 7%." No, but it will grow by that amount so that when you turn on the income stream, it will be a high dollar amount that you will base that first income amount on for life. It's not going to go up or go down.
Yes, there are Income Riders that have some, not all, not many actually, increases in the income stream. But remember Madonna, Vogue. Let your body roll to the Income Rider music. An income Rider without a COLA or inflation increase starts high, and an Income Rider starts lower with an inflation increase. Annuity companies have the big buildings for a reason. As my CEO says, she goes, "They're sponsoring sports stadiums for a reason. They know when we're going to die." An Income Rider without starts high, and the Income Rider with an inflation increase starts lower. That doesn't mean you don't buy the inflation increase. You just have to know they're not giving it away. And when the person's pissed and you're going, "Well, this annuity's just for inflation." And you go, "What? That sounds great. And Cynthia, that sounds great." No, it sounds great. It sounds too good to be true because it is. With every single annuity sales pitch, if it sounds too good to be true, it is. Period. No exceptions. Okay, great story. I digress a little bit. Great story.
So, we ran a quote for a gentleman the other day, and he wanted to defer for ten years. He was really planning. I'm like, that's what I'm talking about. You need to plan. Defer for ten years. And we ran the quote, and it came back saying X, Y, Z company. And it was a really high payout, I mean really high to the point where it was so much marginally higher than the company that finished second. They were like, wow, that's pretty high. And he's like, well, why is it so high?
This is an asterisk, and this doesn't happen all the time, but you need to know some companies will pay a high amount for the first ten years, and then it drops after ten years. I mean, 98% don't do that. But I'm giving you the reason that you need to set an appointment and talk to me because I will explain to you how these Income Riders work, and people that say all annuities are the same, or I hate all annuities, all this stuff. Yes, Income Riders solve for income later. Yes, they do. But you have to understand that companies try to delineate themselves. How about that word? Delineate themselves from others to make themselves more attractive. That's why we need to run the quote, and you just can't decide on some guy or some gal sending you a proposal. We need to dig in. You need to read the books. And actually, on my Stan The Annuity Man YouTube channel, if you hit Playlist, you're going to see that I've done a ton of videos just on Income Riders in addition to this one that goes deeper and deeper and deeper and deeper into Income Riders.
Let's talk about fees on Income Riders, with most, I'd say 98%, who knows? That's the Stan The Annuity Man math percentage, but the majority have a fee for the Income Rider for the life of the policy. But remember, draw the line down the middle of the page, Income Rider over on the right side, Indexed Annuity on the left, the call options, the fee for the rider, comes out of the Indexed Annuity side, whatever that is. The typical ballpark is around 1%. It could be more than 1% or less than 1%, but in that 1% range, that's taken out of the accumulation value for the life of the policy. Even after you turn on that income stream from the Income Rider, that fee will be deducted from the accumulation value. Once again, the annuity companies have the big buildings for a reason, but remember what they're doing. They're taking on the risk of your life expectancy. You're saying, "Hey, annuity company, I'm going to buy an Income Rider. I'm going to turn it on seven years from now." You, the annuity company, I want you to take that risk on and pay me or me and the spouse, or me and the partner for the rest of our lives as long as we are breathing.
One last thing about Income Riders that I think is very, very important, it's called flexibility. It's not me because I can't even reach down and touch my toes. Income Riders are flexible. What do I mean by that? Let's say the gentleman wanting the seven-year income start is buying an Indexed Annuity with an Income Rider. The surrender charge for the Indexed Annuity was a seven-year surrender charge. We get to the seven years, and he says, Fred says, "You know what? Stan the Annuity Man, America's annuity agent license in all 50 states." Yeah, that's how you have to do it. He says, "You know what? I don't want to turn on the income rider. I just want all the money back. Things have changed. My Aunt Martha died and left me $400 million. I don't need it anymore." You do not have to take it. How about that? It's not annuitized.
The majority of Income Riders, as you'll read in my book when you get it at for free, the majority of Income Riders are not annuitized, meaning you are not ripping the knob off the faucet and the income's coming. You can't do anything about it. Income Riders are flexible. You literally could shut it on and off if you wanted to. If they raise income taxes to 92% like my CEO wants, she goes, "Let's tax all rich people at 92%." She didn't say that, but she just pointed it out the other day. Then we could shut it off. Not many people do that, but we could.
I was thinking about a Genesis song. Turn it on. Turn it on, turn it on again. Remember that Phil Collins song. Turn it on. Turn it on. Okay. What I'm trying to get to is that it's pretty cool with Income riders. Let's say you turn it on in seven years; you could shut it off and then turn it on at year 10. Shut it off and then turn it on at year 15. Flexible. It's flexible. That's all you need to know.
I'm so glad you joined me for this crazy, wonderful Income Rider blog, but before you leave, I want you to hit subscribe, share, like, and comment on my YouTube channel. I'll see you on the next 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.