The 15 Biggest Mistakes When Buying Annuities - Part 3
Today we are finishing up our series on the 15 biggest mistakes people make when considering annuities or buying annuities, and we've done one through five and five through 10. Now we're going to do 11 through 15. I'm very excited about that because this is a learning experience for you and the industry. I mean, this was requested for me to do by an industry icon who remains nameless. He wanted me to go through this in detail so that people would be aware of what's happening and not make these mistakes.
All right. The 11th biggest mistake I see people make when buying annuities is not making the decision on your terms and on your timeframe. This is a big one. When people start looking at annuities, and if you go to multiple sites, hopefully, you choose us. We want you as a client, and we pride ourselves in saying that our site is where annuities are bought, not sold. Yes, we do sell them, but we don't high-pressure people, okay? We want you to make your decision on your terms, on your timeframe. Why is that important? Annuities are contracts, okay? So there's no urgency from the standpoint of missing out, or whatever my daughters call it, FOMO, fear of missing out. There's no fear of missing out with annuities.
Do your research, shop all carriers, use our calculators, get my books, watch the videos, and listen to my Fund with Annuities podcast every other Tuesday. Do your education. Get that foundational education in place. Get the quotes, schedule time with me to talk about it, and get a specimen policy. If you want to see a specimen policy on what the verbiage would look like, we'll send you that. Anybody that doesn't agree to send you that, without hesitation, it shouldn't be your advisor, shouldn't be your agent, shouldn't be anybody in your financial advice world. So, you have to decide on your terms and timeframe.
You might have a date when you need to implement an annuity strategy. In your mind, you think, "Hey, we need to make a new start here," or, I'm retiring. I want to transfer things to protect the principal here," et cetera. But that's your timeframe. That's not me. That's not me saying, "Hey, I need you to make a decision by next week." I'm never going to do that. No one else should do that as well. It should be on your terms and on your timeframe, with you fully understanding the strategy for both the benefits, the limitations, the good and the bad, so you understand what you are buying.
Okay. The 12th biggest mistake I see people making with annuity purchases and evaluation is trying to buy a one-size-fits-all product. So, they need income, and they need long-term care, and they need this and that, and they want to buy it in one product, just one product that does everything. Now, if you ask enough agents and advisors if that exists, there's going to be a lot of them telling you that it does exist. It does not exist. Okay? When you're trying to solve contractually for a specific goal, you need to solve for that goal.
Let me give an example. I have an acronym called PILLS. P stands for principal protection, I stands for income for life, L stands for legacy, and the other L stands for long-term care. There is no product that solves all four of those at once. If you said, "Stan, I want to solve for principle protection," okay, great. We're going to look at those products, and we're going to solve for principle protection. Or if you say, "We're really looking for income for life, whether it's immediate or down the road," great. We're not going to look just at that. We're going to quote all carriers just for those specific quote parameters that you give me. "Hey, I want income to start now," or three years or five years, "I want a joint life," whatever, we're going to quote all carriers for that.
Or legacy, "Hey, Stan, I really don't need the money. I just want to leave the money. I've already got life insurance," or, "I don't qualify for life insurance. I want a legacy benefit to leaving money to my heirs that pass outside of probate." Great. Then let's look for the best legacy riders attached to a policy we can find. Finally, long-term care. If you need long-term care, then let's talk to someone who does long- term care. I use Jack Lindenberg, ltcpartner.com. Tell them I told you to call. He's the number one expert in long-term care, and I've done podcasts with him on my Fund with Annuities podcast. You can go listen to the replays at my site, at theannuityman.com. Just drop the podcast, listening down.
But long-term care really isn't solved in the annuity world from the standpoint of it being guaranteed issue and all that stuff. You need to talk to a long-term care expert. Why? Because long-term care is a health insurance product. Annuities are life insurance products. Now, there are some confinement care enhanced benefit products that are guaranteed issue if you cannot qualify for long-term care, but that should be a last resort. So, principle protection, income for life legacy, and long-term care confinement care solve for each one separately. There is no one-size-fits-all. The 13th biggest mistake I see people making with annuities is they're taking these income writer doublers and using that for long-term care, or cashing in their long term care and replacing it with this guaranteed issue, index annuity, income writers, doublers.
That's crazy. That's insane. The person they recommend should lose their license immediately because it makes no sense. Long-term care is a health insurance product. We can refer you to Jack Lenenberg. He's the best in the country with long-term care, and he can tell you if you qualify, and if you do qualify, what three types of long-term care products fit your specific need if you want to control the asset, et cetera. But under no circumstance should you cash in a current long-term care policy and replace it with an income doubler or enhanced benefit rider. Those are, in essence, if you get sick or you get your money back quicker. That's the way I say it in a southern phrase. But they're guaranteed issue products, but they're not for long-term care replacement. It's there as supplemental coverage in a perfect world.
If you can't qualify with Jack through traditional long-term care, then it's your only choice that you have these income riders that do enhanced benefits and doublers, but they are not long-term care. That's a huge mistake I’m seeing: “Well, you can get this upfront bonus, and you can get this long-term care." No. Upfront bonus is candy for the stupid, and income writers are not long-term care. Long-term care coverage is standalone coverage. If you have it, keep it. If you want to look into it, talk to my friend, Jack. We'll point you to that. I've done podcasts with him on my podcast Fun with Annuities.
All right. The 14th biggest mistake I see people making with annuities is basing their decision to buy lifetime income on current interest rates. That is a huge mistake. You're missing the point. I get these calls all the time. "Well, I'm going to wait until interest rates rise, Stan the Annuity Man®, which they're going to do, and before I make my lifetime income purchase with annuities." Dumb, dumb, and dumber, okay? Lifetime income, I don't care what product you're talking about, immediate annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, and income riders attached to Deferred Annuities, all of which are lifetime income guarantees. All of those are priced primarily on your life expectancy at the time you take the payment, mortality credits. That’s the primary pricing mechanism.
Interest rates play a secondary role. Interest rates play a secondary role. Because they play a secondary role, interest rates would have to significantly move from here at the time of this taping, or whenever you're watching this, to move the pricing needle. It's all about life expectancy. The older you are, the higher the payment. Sound familiar? Social security, retired age 70, then 65, why? Life expectancy and mortality credits. That's it. It all comes down to that. The 14th biggest mistake I see with an annuity, and this is a big one, and it happens every single day, and I have to take deep breaths when people bring it up, is people want to purchase the lifetime income guarantee and base their decision on interest rates.
It's not about interest rates; it’s about life expectancy. Okay, we're to the final one, number 15, the 15th biggest mistake that I see people make when it comes to annuities, and this is the biggest one that drives me crazy, is when people say annuities as one product, or, "I hate all annuities," as one product. It's like saying, "I hate all trucks." "I hate all restaurants." "I hate all shoes." "I hate all desserts." No. You can't hate all annuities because you, as an American citizen with a social security number, already own the best inflation annuity on the planet, and it's called social security. If you don't believe that in 2022, you will get a 5.9% increase. Seventy million households will get a 5.9% increase in their social security payments. That's a pretty good annuity, so you can't say you hate all annuities.
I know there are people out there and advisors running these ads, "I hate all annuities." That's insanity. That's hypocrisy, because I guarantee they're taking their social security payments. I guarantee the people saying, "I hate all annuities," are advising their clients of their agents and advisor to take their social security payments, which are annuities. I guarantee that people with pensions take the pension payments because those are annuities. So, you can't hate all annuities. Give another example. You can't say, "I hate all annuities," and buy CDs. Why? Because the annuity industry has its version of a CD. It's called a Multi-Year Guarantee Annuity.
So, one of the biggest mistakes I see, and number 15 on this list, is people thinking that the word annuity is all-encompassing. Now, the way that I prove to people that it's not encompassing, on my site at theannuityman.com, top right-hand corner, you can click get the books, and I'll send you the books I've written for free on all major types of annuities, and they're all different. They all have different benefit propositions, good and bad limitations, et cetera, but there are different types of annuities. You can't just say, "I hate all annuities. I don't want ever to buy an annuity." It all comes down to what you're trying to solve.
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.