Today's topic is essential. It's about Single Premium Immediate Annuity payouts, which is about the lifetime income stream. So, you need to know how to go about getting the highest contractual guarantee for your situation.
In addition to explaining Single Premium Immediate Annuity payouts, we will go through the limitations and benefits of the product, the history of Single Premium Immediate Annuities, how to structure them, where to get the quote, and where they are fit. Before we get started on the details of this product, let's talk about the Single Premium Immediate Annuity payouts that you're so interested in, and you should be. Why? Because it's a lifetime income stream guaranteed by that carrier, the annuity company, and it's primarily based on your life expectancy when you take the payment.
Now, Immediate Annuities typically start as soon as 30 days from the policy being issued or about a year. So if you need what I call income now, a Single Premium Immediate Annuity is the place to go because it will provide the highest contractual guarantee. The payout part is the most important because you need the highest contractual guarantee for your specific situation. Why would you want to own an immediate annuity? Here's the reason. You love Social Security, I'm assuming, right? It's a monthly check that comes in every single month. If you're taking it, you know that you know in your head. If you're waiting on it, it will happen, and that's a good thing. It's a pension. That's where it fits. That's why you'd want to own one.
Part of that guaranteed overall income flow, pension, dividend income, rental income, immediate annuity income. It's also good because you can structure for your spouse, or loved one, or communal life with whoever so that when you're Learjet hits the mountain and goes poof, that income stream continues uninterrupted and unchanged for the rest of their lives, so kind of a legacy play as well. But at the end of the day, it’s a pension amount that you can never outlive. I think it's important for you to know the history of this product, Immediate Annuities because I think it's fascinating. Most people aren't aware that, in Roman times they established a lifetime income stream for the dutiful Roman soldiers and their families. So regardless of if the Roman soldier got killed in battle or what, there was an annuity lifetime income stream. That's where the hard annuity comes from. Annual means payment. That's the history of an Immediate Annuity.
Up until about 1955, in this country, Immediate Annuities were the only type of annuity that was sold. So it's got a great history. The product hasn't changed since then. It's a transfer of risk that you're saying to the annuity company, you pay me for the rest of my life regardless of how long I live, and that payment is based on your life expectancy at the time the payment is taken.
Let's talk about the benefits of an immediate annuity. There are limitations, too; I’m going to get to that. But the benefits are it's a transfer of risk. It's a lifetime in constraint. Understand and just remind yourself of this; it’s about life expectancy, not interest rates. Now do interest rates play a role? It's a secondary role because all annuity income, regardless of the type, is a combination of return of principal plus interest.
If you're using the money in a non-IRA account, the principal part is not taxable. We call it the exclusion ratio in the business, but the benefits are the product’s simplicity. It's easy to understand, you can explain it to anybody, there are no moving parts, there are no annual fees. Yes, commissions are paid to the agent, it's hidden from the consumer, so it's a net transaction. For example, if you put $100,000 into an immediate annuity, you will see $100,000 on your statement. Now, did I get paid? Yeah, not much, but I got paid by the annuity company. But it's a net transaction to you.
Let's talk about the limitations very quickly. Limitations are an irrevocable contract ninety-nine percent of the time with the Immediate Annuities that you can buy. You're missing out on growth opportunities; you’re missing out on the next Apple; you’re missing out. But you know what you're not missing? You're not missing anything from an income stream standpoint because that income will hit your bank account every month. I believe the benefits outweigh the limitations, but you have to understand it's not a liquid product; you can't get money out. Hey, Stan, send me the money; I don't want to do that anymore. No. The income stream is standard, but that's a good thing. Then it comes down to allocating the money correctly and in proportion.
One keyword I want you to remember when structuring the contract of an immediate annuity is "customizable." You can customize it exactly the way you want it to work. Let me give you a story. I had a husband and wife call me. They said, “we want a lifetime income stream for both of us.” They wanted to make sure that when they both died, whatever money was left in the account went to their children. Because, as I always tell people, when you die, your children will show up to your funeral in a Ferrari or a Lamborghini. The key is, you want them making payments on it. You don't always want them to buy it with a lump sum. The point is how we structured it was, a lifetime income stream for both spouses. When the first spouse died, the income continued uninterrupted and unchanged for that second spouse. But when the second spouse died, the money left at the account went in the payment form, that same payment form to the kids until the money was exhausted. They're getting payments; they’re not getting the lump sum. That's called handcuffing your beneficiaries, by the way. You handcuff out of love, right?
You're handcuffing them just to ensure that they're not going to blow the money in Vegas one weekend. If they're going to do that, they got to go every weekend because they're getting payments. But when you're structuring annuity, you can customize it the way you want it to be paid out, and we can show you multiple quotes to show you how the annuity company prices in the guarantees you want. Remember, Immediate Annuities, part of the income flow, fill the gap, right? It's a transfer of risk.
You can run the quotes here on our site inside an IRA, outside an IRA, and a Roth IRA; it doesn't matter. All that means is how the money will be taxed coming out, but it's like a gallon of milk. Quotes expire every 7-10 days unless you pull the trigger, lock in the quote, and start the paperwork. Let us give you a quote and show you what the payout will be, the guarantees. That's important because it's based on your life expectancy, right? Not interest rates. Rates play a secondary role.
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.