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What Percentage of Your Portfolio Should Be in Annuities?

Stan Haithcock
November 16, 2023
What Percentage of Your Portfolio Should Be in Annuities?

Hey, Stan The Annuity Man here. America's annuity agent. Yes, licensed in all 50 states. I want to cover the country and help people understand annuities before they buy them, and certainly, we can help you with that at The Annuity Man if we get to that point. But let's talk about what you're interested in, which is what percentage of your portfolio should be in annuities? Really good question. No perfect answers. And if anyone's given you a percentage, they have no clue what they're talking about. Now that's the short answer. What I would like for you to do is hang in there with me because I'm going to dig into how this all got started, how people start talking about percentages of your portfolio, and I'm also going to talk about what the annuity companies actually think about that and the laws in place to protect you, the customer, the client. So, hang in there.

‌All right, so the question is, what's the percentage of annuities you need in a portfolio? Now, it could be zero, right? You might not need an annuity, and you say, "Well, wait a minute, Stan, you sell annuities. You're the guy out here. You're America's annuity agent". That's all true, but I'm also conscious of the fact that annuities are contracts, they're transfer risk products, and there's a lot of you out there that don't even need to transfer risk.

‌Do You Need an Annuity?

‌How do I determine that with my clients? Two very simple questions. The first one is, what do you want the money to contractually do? The keyword is contractual. And then when do you want those contractual guarantees to start? So, answer those questions, write those down, or put them in the back of your head.

‌The other thing that I tell people is there's an 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. If you don't need to solve for one or more of those problems, principal protection, income for life, legacy long-term care, then you don't need an annuity. If you don't need to transfer the rest, you don't need an annuity. So, the answer is then zero.

‌How It Started

‌Here's how this all started. Before the Stan The Annuity man juggernaut was out there. I was in the securities industry. I worked for all the big firms, all the ones you've heard of, and I'm not going to say their names because they're big enough, they don't need the ads, and they're not paying me to tell them their name. But they would say stuff like, "If you're 60 years old, you need 60% in equities and 40% in bonds". I mean it was the old nap, they called it the napkin presentation where you just drew it out on a napkin. I'm not kidding. Or they'd flip it. They'd say, "You need 40% in equities and 60% in bonds". I know you're saying, "Wait a minute, that sounds so simplistic." It really was that simplistic. And there's a lot of old school guys out there in the securities industry, planners, fee planners, etc., that still kind of use that basic premise on how to allocate stocks and bonds, etc.

‌The Annuity Industry Pie Chart

‌So, let's look at how the annuity companies look at the pie chart and what they approve of. What do the annuity companies think about the old pie chart and the percentage of your portfolio? There are rules in place to protect you, the client, and to make sure that the agent or the advisor out there is not just putting all of Grandma's money into an annuity. That doesn't need to happen, and there are guardrails in place.

‌The annuity industry feels comfortable with around a maximum of 50% of your investible assets in annuities. Seriously, that's what they say. I'll give you a great story on that. It just happened to me last week.

‌Client Example

‌A lady calls me, she literally watched one of my YouTube videos, calls me and says, "I think I need an Immediate Annuity for a lifetime income stream." And I said, "Fine, let's run the quote. Give me a little bit of background about what you have. What are your investible assets?" She was not working. She rented an apartment, which is fine. She had $150,000 to her name, period. She had no debt, and she wanted to put all $150,000 into an Immediate Annuity. Now, on the surface, that makes sense because she needed income; she needed a lifetime income stream. She had no beneficiaries, perfect. But I told her, "Unfortunately, the annuity industry is not going to allow that. They're not going to allow you to put all your money in". So, in essence, of her $150,000, we could only run a quote for $75,000. She was not happy. She's like, "Well, I'll just buy it from someone else."

‌I'm like, "That's fine. But the only way that application's going to go through is if someone fictitiously fills in your application to reflect the $150,000 being half of what your investible assets". They do this for a reason. Over a decade ago, there were many lawsuits from consumers who put all their money into annuities, and they sued the carriers for allowing them to do that. There wasn't anything wrong with the annuities; they were in Fixed Annuities, but there were lots of lawsuits. And then the actual industry said, "Okay, enough of that, we're going to put some guardrails in place to make sure that people have enough liquidity, enough cash on hand, in case things happen." So, that's a great example of why the annuity companies put that in place. And if you went to the annuity company and you said, okay, and your agent didn't know that rule or advisor, and they put 75% of your investible assets into annuities, and that application got to the carrier, regardless of who the carrier is, they're going to spit that back out. They're not going to approve it. And that's a good thing the annuity industry is doing. They are trying to protect the client out there.

‌Let's Have a Conversation

‌I know the annuity industry gets a bad rap. There are always bad actors in any sales business; there certainly are in the annuity business. But the annuity industry itself and the carriers have put some things in place from an application standpoint, suitability, and appropriateness, to protect you, the client. So, what percentage of your portfolio needs to be in annuities? I don't know that. That's the reason you need to contact us and book a call. We can have a conversation and a discussion on what type of transfer risk annuities fit your specific situation.

‌I would encourage you to do that. I also want you to watch a video I did called, What Is the Purpose of an Annuity? It coincides with what we're talking about. You really need to make sure that an annuity transfer risk contract fits your specific situation. That video will help. Obviously, this blog will help as well. You can also click on this link to get my books for free. I've written a bunch of them on annuities and annuity owner's manuals.

‌Do me a favor before you click away and start surfing the internet. Hit the subscribe button on our YouTube Channel, and you'll get videos every single day, Monday through Friday, that are informative and educational and hopefully will make you understand annuities a lot better and make an informed decision on your terms and your timeframe. 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.

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