Understanding Annuity Payout Options: Shootin' It Straight with Stan

Hi there. Welcome to Shootin' It Straight With Stan. I am Stan The Annuity Man, America's Annuity Agent. Today's topic is a very good one, and we're talking about it because some things have happened this week that have pointed us in this direction. It's understanding annuity payout options.

Now, that sounds like a mouthful, and it kind of is. But what you need to understand with annuities, and I preach this all the time, is the fact that annuities are customizable. There's not just one structure, especially from a lifetime income standpoint, that you can say, "Okay, this is the way it works." And blah, blah, blah. Let me give you a couple of examples that happened this week, and maybe they'll apply to you.

2 Questions

Now, you can visit my site The Annuity Man and run SPIA, DIA, QLAC and Income Rider quotes to your heart's content. But it's very important, especially with the, let's say, Immediate Annuity, Deferred Income Annuity, Qualified Longevity Annuity Contract annuitization quotes. You understand the structuring because I always tell people to answer two questions. "What do you want the money to contractually do? And when do you want those contractual guarantees to start?" From that, we drill down to the product type that will provide the highest contractual guarantee, and then we quote all carriers for that highest contractual guarantee for your specific situation and goals. And then, we look at the allocation and proportion to make sure that you're not over-funding the annuity.

Client Example

We had a gentleman who became a client. He's very smart, but he wanted the highest payout. I said, "Well, that's Life Only." Okay? I explained to him in my Southern speak, that Life Only means the annuity company's on the hook to pay as long as you're breathing. And I always say this, "When your Learjet hits the mountain, money goes poof." In other words, that's the kind that people think, that's all annuities. People always say, "Well Stan, I'll never buy an annuity because when I die, the company keeps the money." That's Life Only. That's one of 40 plus ways to structure an annuitized product like a SPIA, DIA, and QLAC. So, we had the conversation, and I used my southern-ism of Learjet hitting the mountain, and I thought he got it. But he went through the application process, and then our application people are licensed, and they understand the products. They're not salespeople; they're helping you with the application. And he had to be explained again that Life Only meant that when he died, if he died on day two. If he bought the policy, had the policy, went to Starbucks, and walked out of Starbucks, and the bus hit him, money goes poof. Life Only. And he goes, "Wait. Whoa. I don't think I want that. I want to make sure that all this money I work so hard for is going to be there for my beneficiaries."

Structuring‌

In other words, I want them to pay forever, but if I die early, I want the money to go to my list of beneficiaries. And we can structure that in a myriad ways. Life with cash refund, meaning the lump sum goes back, or life with installment refund or a period certain that payments come back. But we can structure it so that every single penny that you initially put into the contract, we'll go to your beneficiaries if something happens to you early in the contract. Even though the annuity company's on the hook to pay. So, we went from, "Hey, I want the highest payment Life Only." To life with cash re-refund. At the end of the day, that's what he purchased. And kudos to my fine staff.

I will make sure that you fully understand and that I feel comfortable with that. But there's a second level. When you get to my staff, they're going to ask questions that the annuity companies require us to ask. We don't sell or share any information, but they will verify that you understand the structure you've chosen when you were on the phone with me or someone on my team who is an annuity specialist. An agent, that's an annuity specialist, that's an employee that ours that works for me. They're going to verify it. In this case, they caught it. And it doesn't happen often, but because it happened, I thought it was time to talk about it.‌

Client Example 2

Let me give you another story and this might apply to you as well. This one happened this morning before we even got on this, Shootin' It Straight With Stan. He goes, "Well, Stan, I've read the books, I've seen the videos, I've listened to the podcast. Here's what I want to do. I want to take money from my 401k. I want money to start, but I don't want an Immediate Annuity. And I want it on my life, and my wife is the beneficiary." I was like, "Okay, that's fine." But I stop like I always do and say, "Let me clarify what you're wanting to happen. You want the highest payment, okay? And you want your wife as a beneficiary, so life with cash refund." He goes, "Absolutely. That's exactly what I want." I dug further. So, what you're saying is when you die, you want the lump sum, whatever's left in the account, to go to your wife. But if you live forever, there might not be any money for her. He goes, "No, no, no. I want her to get the payments. If I die, I want her to continue with the payments." Of which I said, "Well then that's not life with cash refund. What that is, is Joint Life. That's a Joint Life Policy." I had to stop in there, and I'd explain it. Joint life means that; let's call him Ed and her Bernice. I said, "Ed, when you pass away under a Joint Life Policy, the income continues uninterrupted and unchanged for Bernice's life. And when she dies, we can structure it so that 100% of any unused money will go to the list of beneficiaries of the policy. But if she lives forever and you live forever and way past your life expectancies, there's probably not going to be any money for the beneficiaries." And I told him, "As a man who's been married to a wonderful lady for 34 years of my life. When we structure something for lifetime income, we always structure it Joint Life Income even though it's a lower payment.

Joint Life‌

Why? Because the annuity company is on the hook to pay for two lives instead of one. But there's going to come a point in time. I know you're not going to believe this, but I'm not going to be cognitively there. A lot of you are going, "You're not there right now. I mean, it's passed you by player." I understand that. But the point is, I want to make sure that when I pass away, whenever that time comes. That my wife's income stream is going to continue uninterrupted and unchanged for her. And typically, how we structure it too because we both came up from lower middle-class America with no money. That we structure it Joint Life with cash refund or Joint Life with installment refund for my daughters. Because I don't want them to get the lump sum and buy a Lamborghini with cash.

I want them to buy the Lamborghini with payments, right? So, that's Joint Life with installment refund. And that's the difference between that and Joint Life with cash refund, which means any money left goes to the beneficiaries in a lump sum. Joint Life with installment refund, means that any money left goes to the beneficiaries at the same payment level until the money's exhausted. Either way, the annuity company doesn't keep a penny. Now, the reason I tell you these two stories in detail, is that when you talk to us and you have this goal in mind and you want to structure it a certain way, we have a couple filters in place. First filter is me or somebody on my team. We're going to ask questions and we're going to try to explain this in English. We consider ourselves annuity whispers. We make annuities simple. We're very aware of that.

My Application Team

We want you to understand and be able to explain it to a 9-year-old; no offense to nine-year-olds, as I always say. But there's a second level and second filter, and that's my application team. All W2 employees, all work for me, all great people. But all understand annuities, and they're going to verify once again. Do you understand that if you choose Life Only and you die early, money goes poof? A lot of people are like, "Yeah, I get it. I understand it." We just need that verbal confirmation from you. But these two specific situations reminded me of someone who's been doing this for forever, three decades plus. We have to make it simple for you. We have to make sure that you understand it. And my team is always on alert, that during the application process, they're going to explain it as well. And they probably have a different way of explaining it than I do. I hope they're not using the Learjet hits the mountain example. But that's just my southern-ism; I'm originally from North Carolina. And that's just kind of how we talk; we talk in cliches, and I want to have fun with this. But I also want you to understand what you're buying, and how it works. Remember, you're buying a contract; an annuity is a contract. And so, you can customize that contract, especially from a lifetime income standpoint. But once you customize it in your head, the way you think, you understand it. We're going to then explain it to you again so that you fully understand it, and you can explain it to your spouse, your kids, your beneficiaries, your lawyer, or your CPA. This is how it's going to work. This is what happens when I die. This is what happens to the income. This is what happens to the lump sum.

Understand It

Just to understand, run the quotes on my site. It's great, you have Life Only and Life with cash refund because that's the majority of quotes that are there. But we can dig in and run period certains and all kinds of stuff. We can run a COLA on that if you want too, even though they severely lower the payment. The bottom line is that it will be interactive and educational during the process. And I mean, even in sales, at the end of the day, when you're buying something from us, and we want you to be a client, and we're selling it to you. It's still educational. We are still educating you until the last point so that you fully understand. And even the application people are in education mode as they're filling out the application to make sure that you, our client, totally understand what they're buying.‌

So, it's a customized product. It's not a one size fits all. There's not just one annuity. There are many types of annuities, as you know if you follow me. But there are also many options and choices when customizing the income structure, such as how you want it to work for you, you and your spouse, you and the beneficiary, or however you want to structure it. You can get exactly what you want. I'm not saying you can have your cake and eat it, too, because there is no such thing as a too-good-to-be-true annuity. But you can have exactly what you want and have it work exactly the way that you want it to work. If you have any questions go to The Annuity Man. You can connect with us, and we will educate you and hopefully entertain you at the same time. But I appreciate you joining me for Shootin' It Straight with Stan. I'll 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.