Why Do You Have To Buy An Annuity
Knowing Your Why
Why do you have to buy an annuity? We're going to answer that loaded question. We're going to cover all of the good, the bad, the ugly, the benefits, and the limitations of annuities.
Why should you buy an annuity? If you listen to most advisors, they aren’t focused on the contractual guarantees. You should never buy an annuity if you're looking for market growth. That's the bottom line; that’s what separates me, Stan The Annuity Man, America's annuity agent®, top agent in the country because I understand markets. I used to work for UBS, Paine Webber and Dean Webber, and Morgan Stanley, managing money and understanding actual market growth. When I became the mythical loved person of Stan The Annuity Man®, I was appalled out here how annuities were pitched, and sold, and promised, and all that stuff. They are not market-growth products.
Now, Variable Annuities have mutual funds inside of them that were put on the plan in 1955 for tax, for growth, I get that, but every variable annuity has limitations on the choices you have. Disclaimer alert, I don't sell variable annuities because I don't sell anything that goes down or has the potential to go down. You own an annuity for what it will do, not what it might do®, and the will do® are the contractual guarantees. They might do the hypothetical, theoretical, backtested, projected, hopeful return scenario; unicorns tasted butterflies stuff sales pitches that you hear. Annuities are contracts. You should never buy an annuity under potential returns or back-tester returns.
I got a call the other day; the guy said, well, this guy showed me that if I had owned it ten years ago, I would've made seven percent, eight percent, nine percent, ten percent. I'm like, stop, back-tested is nonsense. That's like saying, hey, Stan The Annuity Man, if you'd had done 100 sit-ups every day for the last ten years, you'd have six-pack abs. Spoiler alert, I don't have six-pack abs; you don't either. The point is you can't look at back-tested returns. They are illegal in some states or getting ready to be illegal in some states; they shouldn't even show you. That's juicing the numbers. If you are looking for market growth, if you're looking at about seven, eight, nine, ten percent market growth, do not buy an annuity of any type; I don't care what anyone shows you.
Is there a good time to buy an annuity? Only if the contractual guarantees make sense for your specific situation.
Now, just a little bit of an alert here, because there will be some agents, say, well, I can get you seven percent guarantee, I can get you eight percent guarantee, that's an income rider, that's monopoly money and a phantom account that can only be used for income. That's not Jimmy Carter yield, Jimmy Carter's building houses in Atlanta. There is no yield like that. We all know if that sounds too good to be accurate, it is every single time. So with annuities, you buy the contractual guarantees.
Is It a Good Time to Buy?
So is it a good time to buy an annuity? Promise me this, promise me. Look at me, come here, never ask that question, because the answer is always going to be yeah, it's the perfect time to buy an annuity right now. No, that means it's the right time or the wrong time; there is no perfect time. The perfect time, the right time to buy an annuity is when the contractual guarantees of that annuity type, remember there are many types, makes sense for your specific situation. That's when it's the right time to buy an annuity. What kills me in the industry is agents don't ask the questions.
Remember my two questions, what do you want the money to contractually do, and when do you want those contractual guarantees to start? From those two answers, I can tell you, A, if you don't need an annuity, and B, if you do, what type will provide the highest contractual guarantee. Do not allow people to fit a product into your life. The product has to be your life; the product has to be the solution to what you're looking for. Is there a good time to buy an annuity? Only if the contractual guarantees make sense for your specific situation.
Do You Need an Annuity?
Going back to the original question, why do you have to buy an annuity? The answer is you don't need to buy an annuity. Annuities aren't for everybody, but I will tell you how to determine if you need one or if it makes sense to shop for the highest contractual guarantees, and even after that, you might decide, hey, I don't want an annuity. I've come up with two straightforward ways to figure this out. Two questions. What do you want the money to do contractually? When do you want those contractual guarantees to start? From those two answers, I can determine if you do not need an annuity at all or if an annuity type fits and can provide the highest contractual guarantee for your specific situation and if it makes sense for us to quote that for you.
I've come up with PILL, the acronym P.I.L.L. P stands for principal protection, I stands for income for life, L stands for legacy, and L stands for long-term confinement care. Do it again, principal protection, income for life, legacy, long-term care/confinement care. If you do not need to contractually solve for one or more of those items in the PILL, you do not need an annuity.
Let's go back to the two questions. Let me do a couple of scenarios to answer the question and give you an example of how it works. What do you want the money to do contractually? Your answer is I need income. Second question. When do you want those contractual guarantees to start? Your answer, I need it to start pretty soon, within a year. Then we're down to one product; a Single Premium Immediate Annuity will quote all carriers for the highest contractual guarantee. Annuity quotes are like a gallon of milk; they expire every 7-10 days. That doesn't mean you need to decide every 7-10 days? The only way to lock in those contractual guarantees is to go through the application process.
Let's do another example. What do you want the money to do contractually? I just want to protect a principal, Stan. I just want to make sure I don't lose a penny. When do you want those contractual guarantees to start? I'd like for them to start now. Now, we're down to two products. We're down to a Multi-Year Guaranteed Annuity, which is the annuity industry’s version of a CD, and we're also down to a Fixed Indexed Annuity, a CD product. I know that's not what you heard, but it's a CD product designed in 1995 to compete with CDs. By the way, spoiler alert, that's what they've done since 1995.
Let's do one more. What do you want the money to do contractually? The answer is income. When do you want those contractual guarantees to start? Let’s say you need that income to start seven or eight years from now. Great. We're down to two types of annuities. The first type is a Deferred Income Annuity, which also can be called QLAC if you're using IRA assets. The other is income riders, income riders attached to Indexed or Variable Annuities. Those products, Deferred Income Annuities, and income riders can guarantee a future lifetime income stream starting at a future date. I can tell you to the penny what that lifetime income stream will be seven, ten, nine years from now, etc. Hopefully, you understand, what do you want the money to do contractually, when do you want those contractual guarantees to start, and the PILL acronym. It's that simple.
I got a call the other day, and the guy said he had been pitched this Indexed Annuity, with 7-9 percent type returns. Should I buy that product, Stan, The Annuity Man? Simple answer, no, you shouldn't because it's not going to work like that. If you think there's market upside with complete downside protection, you will get market upside yearly; please don't buy an Indexed Annuity. Indexed annuities are designed for CD-type returns. I convinced him to do a short-term mega ladder, Fixed-Rate Annuity ladder just because I didn't feel it was appropriate for him to lock in that Indexed Annuity that was pitched to him over ten years.
The point is this; there’s not an annuity that's better than another annuity. Annuities are commodity products and should be shopped for like you shop for a plane ticket. When you shop for plane tickets you shop for the best price based upon where you want to go and how you want to travel. If you're being pitched, this is the best annuity for you. Translation, it's the best annuity for the selling agent, or they're lazy and have only learned one product. These are commodity products.
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.