Should You Marry or Date Your Annuity?: Shootin' It Straight with Stan®
Today's topic is, should you date or should you marry your annuity? Now the reason that I categorize it like that is people ask me all the time how I analyze the financial wherewithal of these companies. The claims-paying ability of these carriers. Because they go on my website, theannuityman.com, they look at the MYGA feeds, which is the annuity industry version of a CD and it's a live feed of the best rates for your specific state, et cetera. Sometimes you see a B++ or an A- or and most people are like, "Well, would you recommend that, Stan?" Well, I have two different types of analysis that I run with these companies.
Now, when we're dating a company that means we're only going to be there for a specific duration. So, with Multi-Year Guarantee Annuities, fixed rate annuities if you want to call them that, the annuity industry version of a CD, you give the annuity company your money for a specific period of time and you get a guaranteed contractual interest rate for that specific period of time. Let's just say it's a three-year, a four-year, a five-year. My analysis is, can that carrier back up that claim, that guarantee, that interest rate, for that specific period of time? So, if it's a B++ carrier and they have a high-interest rate for the five-year duration that you're looking at, I might recommend them if I feel looking at their financials that they can back up that claim for that specific period of time.
Now I have a pretty extensive background. I worked for Morgan Stanley, Dean Witter, Paine Webber, and UBS. So, I do understand how to look at company financials and see if the son-in-laws buying the bonds and if they have the wherewithal to back up the claim. I might say "Hey, for this four-year duration or three-year duration or two-year duration or five-year duration or seven-year duration, Multi-Year Guaranteed Annuity, fixed rate annuity, we might do an A- or an A or a B++. Because we're only going to be there for that specific period of time." At the end of the duration, we're either going to send the money back to you in full with interest where it came from whether it's an IRA, a non-IRA, wherever, or we're going to roll it to another MYGA or SPIA or whatever. At that point in time bottom line is you control the asset. But 99.999% of the time, we're not going to be with that same carrier after the duration. So, we're dating that company.
Lifetime Income Stream
Where's the marrying stuff come in? If you came to me and you said, "Stan the Annuity Man. America's annuity agent®. Licensed in all 50 states. We're thinking about, or I'm thinking about, a lifetime income stream. A Single Premium Immediate Annuity. A Deferred Income Annuity. A Qualified Longevity Annuity Contract. An Income Rider." In the vast majority of those cases we're going to be looking at A+ or better carriers, rated. These are the ones that you've heard about. I don't mention carrier names, but I pretty much represent every single one out there. Now there are certain situations that we might say, "Okay, I've looked under the hood of this A- rated carrier or A rated carrier and they can handle the lifetime income stream guarantee." But when we're marrying the annuity company we're looking for legitimate, solid, huge A+, A++ whatever ratings. Because you're going to be there for life. You're going to be there as long as you're breathing. If it's joint life, you're going to be there as long as one of you is breathing. So, we have to make sure that they can back up the claims. So, we're either marrying or dating the annuity.
It depends on the type. With the lifetime income products, we're marrying them. With the short-term, Multi-Year Guarantee Annuities we're dating them. That's the way that I want you to look at it. When you go to my site at theannuityman.com and you run quotes... You can run all kinds of quotes, Income Rider quotes, QLAC, DIA, and SPIA, and then you can see the live MYGA feed. The live MYGA feed that's the dating site. That's the dating application. That's the annuity dating application. We're dating them. You're dating the MYGA but you're marrying the lifetime income stream.
2 Questions to Ask Yourself
Now, with all that being said, remember the two questions: what do you want the money to contractually do, and when do you want those contractual guarantees to start? Let's talk about income very quickly, because I was just on a phone call I said, "Do you need income like a pension income where you just rip the knob off and it's coming? Or do you just protect the principal and peel off the interest for income?" She said, "I don't know. Tell me more." I said, "Okay. Let's look at your income need. So if your income need is x amount per month and you have enough money to where we can just peel off the interest and never touch the principal, then we're going to date the MYGAs." We can ladder the MYGAs, two-year, three, year, four-year ladder, or three-year, five-year, seven-year ladder. We'll discuss that if you go to theannuityman.com and schedule a call.
Think of income in two ways. Lifetime income: SPIAs, DIAs, QLACs, and Income Riders. It's like Social Security, it's going to hit your bank account as long as you're breathing. If you breathe forever, it's going to pay you forever. The annuity company is contractually obligated to pay as long as you are breathing. If you set it up joint life, as long as one of you is breathing. But if you can reach that income finish line and not have to annuitize or do a drawdown type income rider strategy, you can just put money in a Multi-Year Guarantee Annuity in combination with CDs and just peel off the interest and never touch the principal.
At this current time, interest rates are at a level that I'm asking people the question: "tell me the total amount of assets, multiply it by three percent or four percent and can you create the income stream that you need in combination with Social Security and the other things that you have, by just peeling off the interest and never, ever touching the principal? Because if you can, then you do that. You don't have to annuitize. You don't have to rip the knob off the water faucet.
In fact, I told someone just the other day. Because he called up and he was convinced he wanted an immediate annuity. I said, "Okay. Let's run the quote." Then I asked him that question, "Tell me about the amount of money you have. Can you just peel off the interest and get there?" "Yes." Now, he had a really good question that's in the back of your mind, so I'm going to pull it out. He said, "Hey, Stan the Annuity Man. America's annuity agent. We're going to buy this MYGA and get the guaranteed interest rate and we're going to peel off the interest. But what happens if rates go down drastically?" I went, "I don't know." I mean, no one can predict that. But here's what I did tell them after I thought about it, I said, "We might be forced to buy an Immediate Annuity. If rates go drastically down, and interest rates go drastically down on MYGAs, then we might be forced to buy an immediate annuity. But let's let that happen. Let's let them force us to annuitize." I think that's where we're at at this point in time. So if we can buy principal protected, no fees, no moving parts, MYGAs, and peel off the interest, then why wouldn't we do that? But if we're forced to buy annuitization products, then we do that at that time.
In other words, keep your powder dry player. You've worked hard for this money. You don't have to always tie it up. But that's the thought. I digressed a little bit from marrying and dating but just remember: if we're looking at MYGAs we're dating them. It's a dating application. If you want lifetime income, we are marrying that company. So, that should make it easy for you; to understand how I look at this and how it should be looked at period.
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.