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What To Know When Gap Filling Your Income: Shootin' It Straight With Stan®

Stan Haithcock
January 4, 2023
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Now or Later: Annuities

Today's topic is gap-filling strategies before Social Security. I get a lot of calls from people in their sixties who are thinking about waiting until age 70 to take their income from the best inflation annuity on the planet called Social Security. By the way, a guy called me the other day and started it off with a slam and a putdown. He said, "Well, I don't know why and I don't know a lot of people that own annuities." I went, "Stop. Every single person you know owns an annuity." Every single American with a Social Security number owns an annuity. I didn't tell him that was the worst statement I'd heard that day, but it was. If you hate all annuities, then you hate social security. If you hate annuities, call Social Security, stop the payments, and don't be a hypocrite. For the people that call me all the time and say, "Well, I'm going to wait till 70 to turn on the best inflation annuity on the planet Stan, Social Security." I'm like, "You're right about that." It is the best inflation annuity on the planet, but I need a gap-fill. I need income from age 63 to 70, from 65 to 70, or from 62 to 70. How do we do that, Stan the Annuity Man®? Is there a way to do that? The answer is yes, there is a contractual way to do it.

There are two contractual ways to do it, both good and bad, like with anything. If it sounds too good to be true, it is every single time. There are limitations to every strategy, and you have to weigh the good and the bad to see if it makes sense.

SPIA for a Period Certain

Let's talk about the first strategy for gap-filling income, and it's called a Single Premium Immediate Annuity for a Period Certain or a Period Certain Immediate Annuity. That means instead of paying you for life, as long as you're breathing, you're buying it to pay for a specific term. It's just like what most people buy Immediate Annuities for. In other words, a five-year Period Certain Immediate Annuity pays for five years, 60 months, and after the 60 months, the money's gone. But for those 5 years, contractually, you know exactly what the monthly payment will be for those five years, or seven years, or eight years, or nine years, or ten years. Currently, most carriers and remember that I represent almost every carrier out there, so when we do these quotes, I'm quoting almost every carrier. Most of them do not quote less than a five-year Period Certain. There are some, but it's not competitive. Things could change with rate movements, etc., but typically it's a five-year Period Certain. The downside to a Period Certain Immediate Annuity is that after that term, money goes poof. The upside is it pays for the term. It's six to one-half does the other. You have to understand that, yes, you're going to gap-fill the income, but at the end of that term with a Period Certain Immediate Annuity, it's over. Done. You might say, "Well, that's cool. That's okay." The way that I would tell you to buy that Period Certain Immediate Annuity is to tell us exactly the monthly income needed to fill that gap, and we reverse engineer that quote to find out how little amount of money we need to put in the Period Certain Immediate Annuity to contractually solve for that monthly income goal. Remember, please don't throw inflation at, "Well, what about inflation time?" Listen, annuity companies don't give that away. You already own the best inflation annuity on the planet, Social Security.

Anytime you attach inflation to an annuity payout or some yahoo at a bad chicken dinner seminar says, "My Index Annuity increases with inflation." The annuity company lowers the payment by around 30% in many cases. Think logically. If it sounds too good to be true, it is every single time. The good news about a Period Certain Single Premium Immediate Annuity is that it's contractual. It's locked and loaded. It's irrevocable. It's going to happen, period. Whether you have cognitive decline or hitting on all cylinders, it doesn't matter. Period Certain, let's say you got a seven-year Period Certain and you died in year two, someone's going to get the additional five years of payments.


The other way to do this gap-filling is with a MYGA, a Fixed Rate Annuity, the annuity industry version of a CD. You'll have to have a little bit more money to pull this off because most people who want a gap-fill income using MYGAs don't want to touch the principle. They want to peel off or use the interest as that gap-filling income and, at the end of the term, have all their money left. However, I recently had a couple of clients that implemented a unique strategy: they're using the Multi-Year Guarantee Annuity and the ones that allow 10% free withdrawal every year. Then they're just drawing the asset down, and at the end of the term, taking the rate remainder of the asset lump-sum to cover that gap-fill. We can do it in a myriad of ways.

Bank It

The gap-fill strategy with annuities is not perfect. It will work. There are upsides and downsides, but it's something to explore. The other way to do it is if you don't want to tie your money up in a Period Certain Immediate Annuity or put it in a MYGA Fixed Rate Annuity and get a guaranteed interest rate, you could always leave it in the bank and pull it out as needed over that time period. You could do that, or you could risk it, leave it in the markets and pull it out. Hopefully, just peeling off the growth. Many of you are trying to figure out how to do it contractually, and I get that, but the key thing here is understanding that there are only so many great options. There are really not good options five years and in. If it's five years in and you need the gap fill, you might want to stay at the course with what you're doing. However, if it's five, six, seven, eight, nine, ten, then let's look at a five-year Period Certain six years, seven-year, eight-year, nine-year, ten-year certain. Or a Multi-Year Guarantee Annuity with a high-interest rate of which you can take that interest out and never touch the principal or take that interest out in addition to some principal to achieve whatever goals you want.

Social Security

The good news is that you are in chapter two of your life and planning for that lifestyle in chapter two. The other thing you should consider mathematically is people always ask, what's the best way to do Social Security? Should I wait till age 70 to turn it on? There are a lot of yahoos and dart throwers out there that say, "You have to do it this way. I'm a social security expert. You have to do it this way." You have to do it anyway, so do it your way. Let me give you an example. People say, "Should I take it at 65 Stan, Social Security, or should I take it at age 70?" My answer to them is, "I don't know," but if you take it at age 70 or you're thinking about that, you need to factor in those five years or 60 months of payments that you miss while you're waiting to get the higher payment, and how long it will take for you to make up for those 60 months of payments that you missed while you're waiting to get a higher payment. It's a data point. It's math. I always say, "There's no U-hauls behind hearses, a bird in the hands worth two in the bush.", as they say in the South. My opinion on all this is that let's live life for the day. It's a chaotic world. I'd rather enjoy the money now.

People say, "That just flies in the face of just regular advice for Social Security waiting until 70, blah, blah, blah, blah." I get that. I understand that, but I'd rather you enjoy the money now. Why do I keep saying that? It's because I want you to think about your life for a second. You have scrimped, saved, worked hard, and done without, bought the lesser product, and not gone on the exact vacation you want. Am I hitting a nerve? Am I ringing the bell a little bit? There has to come a point when you do things for yourself, and the income stream turns on now. Instead of gap-filling, turn on the lifetime income stream and go live your life.


You should consider that instead of just gap-filling because gap-filling is a continuation of you trying to squeeze every penny out of every single thing and maximize every single thing. I'm not against that because that might be in your DNA, but what I'm going to encourage you to do is maybe come off of that a little bit and look at what if I turn on a lifetime income stream right now, what if I turned Social Security on right now and didn't try to fill this gap? What if? Live today like you're dying tomorrow.

I try to do that. I mean, heck, I'm Stan the Annuity Man. I have no last name. It's the annuity man®. I do this because I know they're going to be controversial and I get so much hate mail and emails and blowback from the industry about, "Well, you need money in the markets, and you need, you move, you need, you need, you need, you need to, you need..." I know on this one I'm going to get from the Social Security experts, "You're doing a disservice, Stan The Annuity Man, to tell people not to wait till age 70." No, I'm not. I'm making you think mathematically about what makes the most sense for you, and I'm also hitting you in the forehead with a factual two-by-four of, "Hey, it might be time to take care of you. It might be time to turn on the income. It might be time to go live your life. It might be time to stop trying to squeeze oil out of the brick and take what's there in front of you and go do it."

Annuities can provide those Lifetime Guarantees, and annuities can also provide those gap-filling strategies. Remember, this gap-filling strategy we're talking about bridges that gap between the time now, whatever now is for you, and the time you plan on turning on Social Security. We can do a Single Premium Immediate Annuity Period Certain for you or a Multi-Year Guarantee Annuity, and we'll do that. Both of them are positive and negative from the standpoint of benefits and limitations, like everything. You should also consider not filling the gap and living life now, turning on the income now®, and running those math numbers to see if that works for you.

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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