Why Are Income Riders Paying More Than Deferred Income Annuities?
An interesting topic today comes directly from my interactions with people on the phone. This topic is why are income riders currently paying more contractually than Deferred Income Annuities? We're going to go through all of that, and the details of that and why that matters to you when you're looking for future income guarantees after this.
All right, so we're back. In my world of contractual guarantees, you own an annuity for what it will do, not what it might do®, as you can see in the background, the Will Do. Not Might Do studios. What does that mean? Will do® are the contractual guarantees. Might do is the hypothetical, theoretical, projected back-tested, hopeful, you could chase butterflies return scenario that you're going to hear from most agents like, "Well, if you'd owned this, you're going to go..." Eh, blah. You buy an annuity for the contractual guarantee. So when people call me or set an appointment, preferably so you can block out that time, I ask two questions. What do you want the money to do contractually? And when do you want those contractual guarantees to start?
So getting back to the income rider and the Deferred Income Annuity topic for today. When people say, "Stan, I want income." And then the second answer to the question is, "Stan, I want income to start at a later date, but I want to know contractually what it's going to be." If those are the parameters, lifetime income starting at a future date, then there are only two types of annuity strategies to quote. The first is Deferred Income Annuities. "What are those, Stan?" Good question- Deferred Income Annuities are the sister product, cousin product of single premium, immediate annuities. No moving parts, no annual fees, and no market attachments. Very simple. You can explain it to a nine-year-old; no offense to nine-year-olds. It's a good thing. It's a transfer risk pension product that you can defer for as short as 13 months or as long as 40 years. Deferred Income Annuities. If you want to learn more about it, I’ve done many videos. You can go to my main page on the Stan the Annuity Man® YouTube channel hit playlist, and I've done a ton of Deferred Income Annuity videos and income rider videos, which leads us to income riders."
I am factual and truthful, and I will tell you if you don't need an annuity.
What are income riders, Stan?" Income riders are guaranteed lifetime income attachments, riding on the policy, i.e., rider, typically attached to either indexed annuities, Fixed Indexed Annuities, or variable annuities. I don't sell variable annuities because I don't sell anything that goes down. What we found is that most of the time, the riders attached to fixed index annuities provide a higher contractual guarantee, and I'm all about the contractual guarantee. So getting back to the question. "Hey, Stan. I need income. I needed to start at a later date." Great. What we're going to do is we're going to quote all carriers for both of those strategies. Deferred Income Annuities and income riders. Now, both of those are contractual guarantees. Both strategies will tell you to the penny what the contractual guarantee will be at a future date.
Defer for three years. Defer for four years. Defer for five years. Defer for ten years, whatever. But I don't know which strategy will produce the higher contractual guarantee, which is why we quote both. And by the way, Deferred Income Annuities also have a sister product called QLAC, a Qualified Longevity Annuity Contract if you're using IRA money. But, what we're finding right now at the time of this taping, income riders are providing a higher contractual guarantee. Does that happen all the time? No. Did that happen in the past? No, but right now, it's happening.
Why is that important? It's because if someone's just showing you a Deferred Income Annuity, if someone's just showing you an income rider, then you... If you're looking for income later®, then you need to quote both strategies and quote all carriers for the highest contractual guarantee. Now, when we talk, going to ask you, "Hey, is it IRA money or non-IRA money or Roth IRA money?" That's going to determine the taxation of the lifetime income stream, and that might gravitate us toward a specific strategy over the other, but in a pure contractual guarantee, "What's the highest contractual guarantee on the planet for me right now, for future income, income later, right now Stan the Annuity Man, which one is it?" Right now, they’re income riders at the time of this taping.
Now, the difference between income riders and Deferred Income Annuities, once again, both contractual guarantees, but they take two different contractual paths. This is the heart; this is the annuity heart right here. Two different contractual paths to get to the contractual guarantee. Both are contractually guaranteed, but with income riders, it is a little bit more flexible of a strategy. Deferred Income Annuities and their sister product are pretty much the same things. Single Premium Immediate Annuities are irrevocable lifetime income pension payments. You're ripping the knob off a water faucet. Water's flowing; in this case, income's flowing. That's a Deferred Income Annuity. We can set it up to where 100% of the money will go to you, your spouse if you set it up joint, or your beneficiaries if you die early in that Learjet crash. But a Deferred Income Annuity is an irrevocable pension plan. That's fine. If it's the highest contractual guarantee, fantastic. But we're seeing now that income riders attached to typically fixed index annuities are providing the highest contractual guarantee.
That's cool because you have flexibility, meaning that you still control the asset. At the end of the syringe charge time period of the index annuity, you can get your money out and walk away. I mean, that's a good thing, and with index annuities, we're okay with that product. It's a CD product, not a market product, but in this case, you're using it as a delivery system for future income. A very efficient and cost-effective delivery system for that income rider guarantee. Now looking at income riders just a little bit more visual, because it is the Stan the Annuity Man YouTube video, draw a line down the middle of a paper right here, visually. This side right over here, that index option side fine, CD returns, but this side over here is the income rider benefit—two separate calculations when you get your statement.
This is the one we're looking at. Income rider. That's the guarantee. So right now, when we're quoting income later, people are, "Oh yeah, I wanted to want income seven years from now; the wife and I want to know exactly what it is to the penny." We're quoting Deferred Income Annuities and income riders for the highest contractual guarantee. At the time of this taping, income riders are contractually beating the number from Deferred Income Annuities. I'm always going to tell you, choose the higher number! It's contractual; whether it's a Deferred Income Annuity or income rider, it is a contractual guarantee. So let's go with the highest number. With that being said, remember annuities are commodity products. If some, can I say jack wagon? Some Jack Wagon agent, this is Jack wagon agents show you one income rider or one Deferred Annuity.
Give me a break. That's like going to a restaurant and saying, "Huh, what's on the menu?" "Chicken. That's it. Chicken." No. All carriers. All carriers. Quote all carriers for the highest contractual guarantee because, remember, with annuity products, regardless of the type and, in this case, income later, quotes are like a gallon of milk. What does that mean, Stan? That means in 7 to 10 days; my grandmother used to say that a gallon of milk goes blinky, sour, and blinky means done. So we have to re-quote every 7 to 10 days for the highest contractual guarantee, meaning that it could change week to week unless you lock that guarantee in.
I am factual and truthful, and I will tell you if you don't need an annuity. I will tell you you're putting too much money in. I will tell you how it fits in proportion to the allocation with your specific situation.
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.