The Cost of Waiting to Purchase an Annuity: Shootin' It Straight With Stan

Welcome to Shooting It Straight With Stan. I'm your host Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Today's topic is the cost of waiting to purchase an annuity. Now I know what you're saying. Wait a minute. That sounds like a sales pitch. That sounds like some type of an angle for me to buy now, Stan. Are you pushing me to buy now? Is this one of those ploys and sales pitches I hear at the bad chicken dinner seminar, where you got to buy now, you're going to get the upfront bonus, blah, blah, blah? No, it's not. There is a cost to waiting. And what forces me to say this often to clients is that the bell doesn't ring at the top or the bottom, period.

The PILL

You can't time it. There's no Gordon Gekko. There's no sweet spot. There's no arbitrage moment where it's the perfect time to buy an annuity type. Now, let's talk about that for a second. There are many types of annuities. There are annuities for lifetime income. There are annuities for principal protection, there are annuities for legacy. There are annuities for long-term care and confinement care. I've come up with an easy acronym called PILL that covers all the things annuities contractually solve for. 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. And the way to determine if you need an annuity at all is to ask two questions and answer them, obviously. The first question is what do you want the money to contractually do, and when do you want those contractual guarantees to start?

Never buy an annuity for what it might do. Always own an annuity for what it will do. And the might dos are all this stuff you see out there with the hypotheticals and the theoreticals, if you'd own it 10 years ago, back-tested numbers. Those can be manipulated. And I'm now starting to see the industry following me with articles and studies on how these back-tested non-guaranteed numbers can be very, very, very misleading. But let's get back to the topic: you can't time it and there is a cost of waiting. Let me give you a real-life example that you can grab hold of that applies to everyone who's reading this.

Life Expectancy

Every single one of us owns the best inflation annuity on the planet. It is called Social Security. Now, the conundrum of decisions that we have out there is should I take that lifetime income stream at, let's pick a date, an age 65, or should I wait as all the pundits and experts and people with ascots on and patches on their smoking jackets or whatever, you know what I'm saying. All the, well, you should always wait until 70 because the number's higher. Of course, they're higher, player, you're older, and the older you are, the higher the payment because you have less projected life expectancy, which means the payments that are projected are fewer, which means the payments are higher. Duh.

It is what it is. If you wait until 70, it's going to be the highest. If you don't need the income, that's fine if it's part of your overall plan. But let's look at the 65 to 70 type thought. Stan, should I take a Social Security payment? Should I turn them on at age 65 or 70? There are no good answers, just bad sales pitches and the advisor's uninformed, narcissistic, pound-the-table moments. If you take it at 65, yes, it's going to be a lower payment. If you take it at 70, yes, it's going to be a higher payment. But if you wait until age 70, you must factor in the five years of payments, so 60 months that you've missed. And then how long, even if you're getting the higher payment at 70, how long will it take to make up for that? And typically, it's 6, 7, 8 years, whatever. You can run that math yourself. But as I say in the hand, bird in the hand's worth, say in the hand, say in the South, the bird in the hand's worth two in the bush, whatever that means. But in Southern speak, that means you might want to spend the money now.

Example

I was having a good conversation with my older sister, who is a great person. She is older than me, so I was talking to her about finance and seeing how they were doing. No, she's not a client. I do not have family members as clients. Please don't do business with family. You can go to the family reunion and have a nice time without this cloud of doubt over your head if you're trying to sell or buy something from a family member. But she's getting ready at the time of this blog to turn 62 years old. And she asked me a question. She said, "Stan, should I turn on the Social Security at 62? Because I think I'm going to because I want to spend it and travel and do my thing, and I don't know how long I will live."

She goes, "Every single advisor we work with says, no, don't do that. Wait until 70 or wait until 66 or wait until 70, and they pound the table mathematically." And so, I asked my sister, a brilliant person, when she was born, she got all the brains, and I could shoot a basketball. I don't know if that's even or not. But anyway, she ran the numbers, and it would take a long time for us, her, and her husband to make up for it if they waited to make up for the payments if she took them now. And I said, "Well, take them now." She goes, "You're the only person that's told me to do that." And that's because, hey, spend the money. You know, there's three phases of retirement. Go go, slow go, and no go. And I'm going to add one more. When you hit between 95 and 100, that's hell no go.

I was on my Fun With Annuities podcast with Marcia Mantel, and we came up with that fourth one because she had in-laws who were in their hundreds. I said that's a hell no-go because nothing's happening then. But I told my sister, "Hey, go ahead and take it. If you're going to earmark it for fun and enjoy your life, and you're hitting on all cylinders and healthy, do it." Now, all financial planners out there are yelling at the screen, and the speaker saying, "That's the dumbest thing I ever said because you're leaving money on the table because of an 8% increase in Social Security." I get it. I totally get it. But what I want you to come away from the Shooting it Straight with Stan masterpiece that's in progress right now, but it is a masterpiece, is that there is a cost of waiting.

The only reason that you would wait, in my opinion, is if you really didn't need the income and you just wanted to maximize it because you're going to be older, which means the payments will be higher. After all, the projected life expectancy is going to be less. It's really that basic. So, what I want you to do is stop. When you're looking at the annuity category, and there are many types of annuities, remember the principal protection, income for life legacy, and long-term care that the PILL acronym is what annuities contractually solve for. Please do not buy annuities for market growth. Go and purchase other non-annuity things for market growth. And that's coming from someone who worked on the street, Dean Witter, Payne Weber, Morgan Stanley, UBS. I know of what I speak. Been there, done that. But when you're buying contractual guarantees, you can't time it.

Annuities Are Contracts

You can't. I don't care who you are. I don't care how smart you are. I don't care what Ivy League or whatever thing you went; I don't care. These are contracts. These are commodity products. You shop all carriers for the highest contractual guarantee. And I always tell people that if the contractual guarantee looks fair to you for your situation, then lock it in. Lock and load, as they say in the South, lock and load and go live your life. But there is a cost of waiting. Does that cost pay off if you wait? It can be for lifetime income because you're older, but you have to factor in the payments you miss while waiting to get the higher payment. Annuity companies have the big buildings for a reason and the logos on the plane for a reason. They sponsor sports stadiums for a reason. They don't give anything away, and they price everything in, and they know when we're going to die. Life insurance companies know when we're going to die. That's why they have the big buildings and the property and casualty companies don't because the P and C companies don't know when the hurricane, the tornado, and the fire will hit. But life insurance companies know when you're going to die and they're fine with you waiting. They're fine with you trying to be Gordon Annuity Gekko. They're fine with you trying to be a master of the annuity universe, which doesn't exist because if that person exists, it would be me because I'm Stan The Annuity Man, America's annuity agent. I know after decades in this business; you cannot time it. There is no sweet spot. There is no arbitrage moment. And there is a cost of waiting when you're trying to be that person. So, do not be that person.

Go to The Annuity Man. You can run quotes using our proprietary calculators. It's the best out there, and there's no argument. You can run those quotes 24/7/365, and nobody will call or bug you. How about that? It's actually a service for the consumer and you can run them 24/7/365. It's not for agents, it's not for advisors, it's for consumers only because we are the top direct-to-consumer annuity salespeople in the world. It is what it is, The Annuity Man.

That is Shooting It Straight With Stan. My name is Stan The Annuity Man. Yes, yes. To answer your question, I am America's annuity agent, and yes, I hear you. I am licensed in all 50 states. See you next time.

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.