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What Is the Primary Reason for Buying an Annuity?

Stan Haithcock
March 28, 2024
What Is the Primary Reason for Buying an Annuity?

Hi there. Stan The Annuity Man, America's annuity agent licensed in all 50 states. So, what is the reason to buy an annuity? There are a lot of reasons, good and bad. I'm going to cover both.

‌Lifetime Income

‌What is the most common use of an annuity? Well, to answer that question properly, as Stan The Annuity Man, I have to do a little bit of a history lesson. Annuities were put on the planet in Roman times as a pension-type gift for the dutiful Roman soldiers and their families. That's where annuities started. That's the Single Premium Immediate Annuity structure. It was for lifetime income. So, what's the most common use? Lifetime income. Why? Because it's the monopoly that the annuity industry owns. Now you have to ask yourself, because sometimes the best questions asked are from me, why isn't the annuity industry promoting the monopoly they have that no other financial product has? Good question, Stan The Annuity Man, and I don't have a good answer. Lifetime income.

‌Now, you might say, "Well, Stan, I hate all annuities because this guy on TV said I hate all annuities." Really? You already own one. It's a lifetime income stream annuity, the best inflation annuity on the planet for lifetime income stream. And oh, by the way, it's called Social Security. It's an annuity. It's for lifetime income. People love it. Why? Because it's for lifetime income, it pays you forever, as long as you're breathing. That's the primary reason for owning annuities. Yes, other types do other things, but if you said to me, "Stan The Annuity Man, America's annuity agent, what's the primary reason to own or consider owning an annuity?" I would tell you that lifetime income is part of your income floor, as that guaranteed pension. We live in a pension less world with 10,000 baby boomers reaching the age of 65 every single day, and they don't have guarantees. Guess what? You need to set up a pension.

‌Of course, you're saying, "Well, what's the return on investment on that? Then, what's the ROI?" I don't know the ROI until you die. Up until that point, it's a transfer risk. You either see value in transferring the risk for that lifetime income stream or do not. The bottom line is that no other financial product on the planet can provide lifetime income other than annuities.

‌Life Expectancy

‌So, Chester calls me all the time, the mythical Chester, and says, "What do I get on a $100,000 annuity?" I need a little bit more information than that, Chester. What does $100,000 annuity pay? What would $100,000 get me? Well, it depends on the type of annuity, but I'm assuming you're thinking lifetime income. Well, remember this: life expectancy at the time you take the payment drives the pricing train. Interest rates play a secondary role.

‌People say, "Well, I'm going to wait to buy my annuity until interest rates go up." Well, then you have to factor in the payments that you miss while you're trying to be Gordon Gekko of annuities, which you can't because you can't time it, period. It's like when you look at your Social Security, you go, "Well, if I wait till age 70, those payments will be higher than if I took them at age 65." Duh, it's because of life expectancy; it's really that simple. But that doesn't mean you wait till 70 and not take it at 65. You have to run the number. If you wait to 70, you have to factor in the payments that you missed, those 60 payments, 5 times 12, 60, those 60 payments, those five years that you waited to time it to get the higher payment. Then, you have to figure out how long it will take to make up for that.

‌I'm getting into the weeds, but when you ask me what a $100,000 annuity pays, what a $200,000 annuity pays, or what a million-dollar annuity pays, it depends on how you structure it. Remember this, too: if it's single life only, it will pay more than a joint life. That doesn't mean you leave your spouse out of it. Consider joint life payment if you're looking for a lifetime income stream because when your Learjet hits the mountain, and you die, the income continues uninterrupted and unchanged for your beloved spouse or partner's life. Isn't that good? It's a transfer of risk. It's a pension. So, what does $100,000 annuity pay? I will need dates of birth. I will need the type of account, even though the contractual guarantee is the same; the taxation of that money coming out will differ depending on the account. I'm going to need it when you need the income to start. When you go to The Annuity Man and schedule a call with us, all those details are confidential.

‌Do You Need an Annuity?

‌So, what is the primary reason for buying an annuity? We've already talked about lifetime income. I yelled at you about that and drove it into your head. But let's be very clear about something coming from Stan The Annuity Man, America's annuity agent licensed in all 50 states, the top agent out here, you might not need an annuity.

‌He said it. The annuity gods looked down upon him and went, "Never say that, Stan. Always sell the annuity, you are the hammer, and everyone's a nail." No, no. You might not need an annuity. And let me tell you how to figure that out. I've come up with two questions. If you ask yourself this and answer it, or I could ask it and you could answer it. Here's the first question, what do you want the money to contractually do? Keyword contractually. Second question, when do you want those contractual guarantees to start, keyword contractual. Annuities are contracts, you make the decision on the contractual guarantees, not the hypothetical, theoretical, projected back-tested, hopeful agent-returned scenarios, unicorns chasing the butterflies nonsense. You buy it for what it will do, not what it might do. So, again, the questions, what do you want the money to contractually do? And when do you want those contractual guarantees to start?

‌If you answer any form of "I like market growth, I'd like a reasonable rate of return," or something like that. Then, never, ever, ever, ever buy an annuity. Do not buy an annuity for market growth. And I'm talking to people considering Index Annuities that have been pitched as market growth products. They're not, they're not securities, they're Fixed Annuities, CD-type products. There is nothing wrong with them; great products. Variable Annuities: There is nothing wrong with those; I don't sell them, but you have limited choices. And when it comes to me, Stan The Annuity Man, in my previous life at Dean Witter Morgan Stanley, Paine Webber, and UBS, I've done it. I've been there, on that side of the table, never buying an annuity for market growth. Hear me? Nod your head. I need to make sure that you understand that.

‌P.I.L.L Acronym

‌Now, those are the two questions. Here's the other thing that I've come up with. Very unique to Stan The Annuity Man, trademark copyrighted, there are people with armed guards with guns up when I start talking about this; it's called the P.I.L.L. It's an acronym you need to remember in addition to the two questions.

‌P stands for principal protection; I stands for income for life, L stands for legacy, and the other L stands for long-term care/confinement care. Let me do it again. P stands for principal protection, I stands for income for life, L stands for legacy, leaving money to your heirs, and the other L stands for long-term care/confinement care.

‌If you do not need to contractually solve for one of those four items in the P.I.L.L, I'm going to say this real slow: You do not need an annuity. It's that simple. So, when you're making that decision, if an annuity even makes sense for you, do I even need one? I've been pitched all these annuities. Ask the two questions and remember the P.I.L.L.

‌Hey, visit The Annuity Man, get the books, run the quotes, schedule a call with me. See you soon.

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.

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