Who Should NOT Buy an Annuity?
Hi there. Stan The Annuity Man, America's annuity agent, licensed in all 50 states. I know what you're saying. Do you say that every time you meet somebody? Yes, I do. And I make my wife and family repeat that to me when they introduce themselves. "This is my father, Stan The Annuity Man, America's annuity agent, licensed in all 50 states." It's kind of embarrassing, but from a branding standpoint, it makes a lot of sense.
Today's topic is a beauty. I can't wait to do this one. Who Should NOT Buy an Annuity? Think about that. Stan The Annuity Man, America's annuity agent. I sell more annuities than anyone on the planet, and I'm going to tell you who shouldn't buy an annuity. And you're going, "What? An agent not trying to make a commission?"
Annuities aren't for everybody, even though you already own one, and it's called Social Security, but I'm going to go over who should not buy an annuity. You're going to love it.
What's Your Age Again?
All righty then as Jim Carrey said in, what was that, The Mask? Watch it. It is fun. Just watch. So, who should not buy an annuity? Okay, let's start talking amongst ourselves about that. A person that's 20 years old, 30 years old, or 40 years old. Unless you can convince me otherwise, and I'm sure there's a one out of a million shot unless you're 50 or older. You don't need an annuity. Okay? Period.
You're too young. You're too young because a lifetime income is based on your life expectancy. Have 40-year-old people purchased from me? Yes, but they've told me specific reasons why, and I've signed off on it. But 99% of 40-year-olds or 47-year-olds are coming to me like, "What are you doing?"
Looking for Market Upside With No Downside?
Annuities are a transfer risk product that solves for principal protection, income for life, legacy, and long-term care. In most cases, when you're young like that, you do not need to buy an annuity. Another person that doesn't need to buy an annuity is someone that's looking for market upside with no downside. That's an Index Annuity pitch that doesn't hold any water. It's a great sales pitch.
Another person that shouldn't buy an annuity is a person looking for an upfront bonus. Upfront bonuses are candy for the stupid. A person that is looking for market growth shouldn't buy an annuity. I know the Variable Annuity people out there are saying, "Wait a minute. You get the Variable Annuity with the mutual funds inside." They call them separate accounts in the industry for whatever reason. "Mutual funds, they can grow tax deferred." I understand TIAA, which used to be called TIAA-CREF, put them on the planet in 1954, '55, for tax deferred growth. Great.
But in my opinion, as Stan The Annuity Man who's worked for Dean Witter, Paine Webber, Morgan Stanley, and UBS, I know what I'm talking about on that side of the ledger. If you're going to buy mutual funds, buy mutual funds. You don't have to pay two to 4% in fees annually for the policy's life for the right to do that.
A person that does not need principal protection, does not need income for life, does not need legacy, and does not need long-term care, doesn't need an annuity.
I tell this story all the time. One of my favorite clients is a guy who trades corn futures for a living. You're like, "What?" Yeah. I mean, he's a maniac. He's in his mid-70s and has been trading futures for a long time. He does not need an annuity. At all, whatsoever. The funny part, though, is he's starting to buy them right now for his wife because she could care less about corn futures or the markets. She just needs a lifetime income stream when he passes.
But if you're one of those people out there that loves the markets, understands volatility, can manage your assets, or has a really good fee-only planner managing your assets, and you're okay with that, you do not need to buy an annuity.
But where the big mistakes are made, in my opinion, are young people buying annuities now. There are such things called structured settlements that are annuity payments when people get in accidents when they're young, and there's a settlement or a lawsuit, and they get an annuity payment. Come on. That's an asterisk. I have people all the time in their 20s and 30s that somebody's trying to sell them an Index or Variable Annuity. What? What are you talking about?
That's a Little Crazy
The reason that is a little crazy is that you're buying an Index Annuity, Variable Annuity, or Multi-Year Guarantee Annuity contract, the annuity industry version of a CD. With non-IRA money, those contracts are looked upon, from a taxation standpoint, like IRAs. Meaning that if you remove money from them before you're age 59 and a half, there's a 10% IRS penalty. So, when I say 50 is kind of the cutoff point for us, it really is. You're going to have to convince me otherwise.
I had a call the other day from a 40-year-old, very successful. And he said, "Stan, I understand the 10% rule. I want to lock in a MYGA for 20 years." I'm like, "I don't think that's smart. But if you want to do that, that's fine. We'll sign off on it."
But that's the asterisk. I mean, he understood that he had many millions of dollars. This was just a very small portion that he was doing, and it was an asset allocation.
For the older people out there, the more senior citizens out there, you do not need an annuity that is a long-term surrender charge. Okay? I always cringe when I get a call from the 77, 78, 79-year-old that's being pitched a 10-year surrender charge product, like an Index Annuity for 10 years. What? What are you doing? Why are you doing that? You don't need to do that. Most of the time, the only winner would be the agent selling it to you. You can buy shorter-term Deferred Annuities. You can buy a MYGA for two, three, four, or five years.
So, the people that should not buy an annuity, you instinctually know. If it feels like you're fitting a square peg into a round hole, you shouldn't buy it. If it sounds too good to be true, you shouldn't buy it. If you're thinking about upfront bonuses or free money, you shouldn't buy it because that's candy for the stupid. If you think you'll get market upside with no downside, you shouldn't buy it.
You buy annuities for the contractual guarantees of the policy. You never buy an annuity for what it might do. You own it for what it will do. Got it? Annuities aren't for everybody.
If you still want to have that conversation, we'd love to talk with you. Go to our website and you can schedule a call. We will talk with you about it, and we should keep these numbers. The CEO, think about this, there are a lot of people that we say, "No, we don't think it's appropriate. We don't think it's suitable." We will tell you that. We're not a hammer looking for nails. We're going to tell you the truth.
As my grandfather, Hunter Garrison, in Stanley, North Carolina, borders Alexis, North Carolina, he told me this. "If you tell the truth, you don't have to remember anything." That's our business model. We are going to tell you the truth. And if that truth is you don't need the annuity, we're going to tell you that. Period. We're not going to force a sale just to sell something. We don't need to do that, and we don't want to, and we will never do that. And with that, I appreciate you joining us. I'll see you on the next Stan The Annuity Man blog.
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.