What Is the Objective of an Annuity?
Stan, the Annuity Man here. What is the objective of an annuity? To me, that sounds like you're saying, "Hey, I heard all these things about annuities. I went to the bad chicken dinner seminar and ate the chicken." And if it was a steak dinner seminar, now you know how high the commissions were. So, what is the objective of an annuity? I will tell you the good, the bad, the ugly, and the history of that question.
What's an Annuity?
Okay, so what's an annuity? You asked what the objective is, but let's get to the heart of it. An annuity is a contract. It's a transfer of risk product that if you buy one, you're going to get a contract. You're going to buy it for the contractual guarantees. Only the will do, not might do, and the will do is the contractual guarantees. Now, the objective of an annuity is transferring the risk to the annuity company to do four things, and I've come up with an easy to understand acronym called PILL. P stands for principal protection, I stands for income for life, L stands for legacy, and the other L stands for long-term care. So let's do it again slowly. Principal protection, Income for life, Legacy, Long-term care, confinement care. Those are the four primary things that annuities solve.
If you don't need to contractually solve for those, guess what? You don't need an annuity, and that's okay coming from Stan The Annuity Man. The other thing you need to do is ask yourself two very simple questions, and please answer them as well. Number one. What do you want the money to contractually do, and when do you want those contractual guarantees to start? That's it. So when you're talking about what's the objective of an annuity, it's the transfer of risk, PILL, and the two questions.
I got a call the other day from this guy. I'll call him Fred. Maybe his name was Fred. I forgot, but he did call me and say, "Here's what I want. I answered the two questions, Stan. I watched the YouTube videos, and they're fantastic, and I can't believe you put one out every single day because you must be crazy." I'm not. I'm an educator. Also, the number one agent in the country, but that's a whole 'nother story. I'm also licensed in all 50 states, so don't hesitate to get in touch with me.
But here's what he said. He said, "I want both income and principal protection. In other words, I want a lifetime income stream, and at the very end of the day, I don't want a dime on my principal to be touched because some agent told me that could happen." First of all, it can't happen. I hate to burst the bubble and be the grim reaper, but it can't happen. The only annuity that would provide that type of situation, that type of solution, is what's called a MYGA, a Multi-Year Guarantee Annuity, which is a Fixed Rate Annuity, but it's like a CD. You're just pulling off interest. That's not income because you're just pulling off interest, in my opinion.
Lifetime income is like an Immediate Annuity or Deferred Income Annuity. He was told by some eager beaver agent that you could have your cake and eat it too. I'm telling you, no, you can't. When you take lifetime income from an annuity of any type, it is a combination of return of principal plus interest, and the pricing is primarily based on your life expectancy at the time you start the payment.
What does that mean in English, Stan The Annuity Man? It means that if you outlive your life expectancy, there's a possibility that there will be no money in the account, even though the annuity company's on the hook to pay you for the rest of your life. So, anyone that tells you that you can have your cake and eat it too, you can get a lifetime income stream, and the principal's going to never be touched because of the hypothetical, theoretical, back-tested projected return numbers of, say, like an Index of Variable Annuity, complete and utter garbage.
If it sounds too good to be true, it is every single time, and if you really like the pitch and want to make sure it's true, write it down just like you heard it, sign, and date it. Turn that page around. Have the agent sign and date what they just pitched you. That pen will weigh 1,000 pounds.
What Is the Objective?
So the objective of the annuity is what? PILL. Principal protection, Income for life, Legacy, and Long-term care. When people are looking for an annuity or annuity solution, they're looking for income. Filling in that income gap, Social Security, pension, dividends, real estate income, whatever you have. An annuity can fit that. And I tell people, you can either say, "Hey Stan, how much will a $100,000 pay me and my spouse for the rest of our lives?"
Or you might say, "Reverse engineer the quote, and I need $1,275 and 22 cents to fill this income gap. I need it to hit every single month, and then we'll be happy as a clam." We can do that. We can then reverse engineer it. I can tell you exactly to the penny how much premium is needed to guarantee that monthly income amount.
By the way, it can come in monthly. You say, "Hey, I don't need it monthly. Send it annually or semi-annually." It's customizable. All of it's customizable, and you can use any type of account. IRA, traditional IRA, ROTH IRA, non-qualified account. Books a call with me, and you can get quotes and interact, and we can have a full discussion of your specific situation, and then I can quote all carriers based on exactly what you tell me.
There's one video I want you to look at. How To Choose An Annuity. I dig a little deeper into some steps to ensure you're getting the right one. Right there, click it when we get done with this. Hit the subscribe button as well. Every day for infinity until my Learjet hits the mountain, we're putting out different videos. I'm just trying to educate the public. Obviously, I would love to do business with you, but I want you to make a good decision. Thanks again for joining me. 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.