Understanding Annuity Payout Options: Shootin' It Straight with Stan®

We’re talking about today’s topic because of some things that have happened this week that have pointed us in this direction. I want to make sure you understand your annuity payout options.

Now, that sounds like a mouthful, and it kind of is, but what you need to understand with annuities, and I preach this all the time, is that annuities are customizable. There's not just one structure, especially from a lifetime income standpoint, that you can say, "Okay, this is how it works and blah, blah, blah."

Structuring Example

Let me give you a couple of examples and annuitization quotes. Understand the structuring, especially with the Immediate Annuity, Deferred Income Annuity, Qualified Longevity Contract, and annuitization quotes. I want you to ask yourself, what do you want the money to do, and when do you want those contractual guarantees to start? From that, we drill down to the product type that will provide the highest contractual guarantee. Then, we quote all carriers for the highest contractual guarantee for your specific situation and goals. We look and get the allocation and proportion to ensure that you're not overfunding the annuity.

We had a gentleman that became a client, and he's very smart, but he wanted the highest payout. And I said, "Well, that's life only." And I explained to him that life only means the annuity company's on the hook to pay, as long as you're breathing. And I always say this. When your leer jet hits the mountain, the money goes poof. In other words, that's the kind that people think that's all annuities. People always say, "Well, I never bought an annuity because the company keeps the money when I die." And that's life only. That's one of 40+ ways to structure an annuitized product like an SPIA, DIA, and QLAC. He went through the application process, and then our application people who are licensed, and they understand the products took it from there.

It had to be explained to him again that life-only meant that, when he died, if he died day two, had the policy, went to Starbucks and walked out of Starbucks, and a bus hit him, money goes poof. Life only. So, in other words, "I want them to pay forever, but if I die early, I want the money to go to my list of beneficiaries."

And we can structure that in a myriad of ways, life with cash refund, meaning the lump sum goes back, or life with installment refund, or period certain that payments come back. But we can structure it so that every penny you initially put into the contract will go to your beneficiaries if something happens to you early in the contract, even though the annuity company's on the hook to pay.

Clear Understanding

So, we went from, "Hey, I want the highest payment, life only," to "life with a cash refund." That’s what he purchased, and kudos to my staff because when you buy through us, when you become a client, we explain everything as simply as we can, to make sure that you fully understand.

There's a second level. When you get to my staff, they will ask questions about the annuity companies. We don't sell or share information. They're going to verify you understand the structure you've chosen. In this case, they caught it.

Let me give you another story. And this might apply to you as well. This one happened this morning, before we even got on this Shooting It Straight with Stan to tape this. And he goes, "Well, Stan, I've read the books. I've seen the videos. I've listened to the podcast. Here's what I want to do. I want to make money from my 401(k). I want an immediate annuity. And I want it on my life and my wife as beneficiary.

I was like, "Okay, that's fine." But I stopped, like I always do, and said, "Let me clarify what you want to happen. You want the highest payment and your wife as a beneficiary. So, life with a cash refund." He goes, "Absolutely. That's exactly what I want." I dug further. "So, what you're saying is, when you die, you want the lump sum, whatever's left in the account, to go to your wife, but if you live forever, there might not be any money for her."

He goes, "No, no, no, no. I want her to get the payments. I want to die, and I want her to continue with the payments." I said, "Well, that's not living with a cash refund. What that is, is joint life. That's a joint life policy." So, I had to stop him there, and I had to explain it. Joint life means that, let's call him Ed and her Bernice. I said, "Ed, when you pass away, under a joint life policy, the income continues uninterrupted and unchanged for Bernice's life. And when she dies, we can structure it so that 100% of any unused money will go to the list of beneficiaries on the policy. But if she lives forever, and you live forever, and way past your life expectancies, there's probably not going to be any money for the beneficiaries."

I told him, I said, "As a man that's been married to a wonderful lady for 34 years of my life, at the time of this taping, when we structure something for lifetime income, we always structure it joint life income, even though it's a lower payment. Why? Because the annuity company is on the hook to pay for two lives instead of one life." But there's going to come to a point in time, I know you're not going to believe this, but there will be a time when we all will not be cognitively there.

Continued Income Stream

The point is, I want to make sure that, when I pass away, whenever that time comes, my wife’s income stream is going to continue uninterrupted and unchanged for her. And typically how we structure it, too, because we both came up from lower-middle-class America, no money, that we structure it joint life with cash refund, or joint life with installment refund for my daughters because I don't want them to get the lump sum and buy a Lamborghini with cash. I want them to buy the Lamborghini with payments. So, that's joint life with an installment refund. That's the difference. Joint life with cash refund means any money left goes to the beneficiaries. Joint Life with installment refund means that money goes to the beneficiaries. The annuity company doesn't keep a penny.

Now, I told you these two stories in detail because we have a couple of filters in place when you want to structure it a certain way; we have a couple of filters in place. The first filter is me or somebody on my team. We're going to ask questions, and we're going to try to explain this in English. We consider ourselves annuity whispers. We make annuities simple. We're very cognizant of that. We want you to understand and be able to explain it to a nine-year-old, no offense to nine-year-olds, as I always say.

But there's this second level and the second filter. And that's that my application team, all W2 employees, all work for me, all great people, but all understand annuities. And they're going to verify, once again, "Do you understand that, if you choose life only and you die early, money goes poof?" A lot of people like, "Yeah, I get it. I understand it." We just need that verbal confirmation from you.

Making It Simple

But in these two specific situations, it reminded me, as someone who's been doing this for forever, three decades plus, that we have to make it simple for you. We have to make sure that you understand it. And my team is always on alert that, during the application process, they're going to explain it as well, and they probably have a different way of explaining it than I do. I hope they're not using the leer jet hits the mountain example, but that's just my southernism. I'm from North Carolina, originally, and that's just how we talk. We talk in cliches, and I want to have fun with this. But I also want you to understand what you're buying, and how it works.

Remember, you're buying a contract. An annuity is a contract. And so, you can customize that contract, especially from a lifetime income standpoint. Still, once you customize it in your head, the way you think you understand it, we will then explain it to you again, just so that you fully understand it. You can explain it to your spouse, your kids or beneficiaries, your lawyer, or your CPA. "This is how it's going to work. This is what happens when I die. This is what happens to the income. This is what happens to the lump sum."

The bottom line is that buying an annuity will be interactive and educational during the process. Even in sales, when you're buying something from us, and we want you to be a client, and we're selling it to you, it's still education. We still are educating you, up until the last point, so that you fully understand. And even the application people are in education mode as they're filling out the application, to make sure that you, our client, totally understand what they're buying.

So, it's a customized product. It's not a size fits all. There's not just one annuity. There are many types of annuity, as you know. But there are also many options and choices when customizing the income structure, how you want it to work for you, you and your spouse, you and the beneficiary, however, you want to structure it. You can get exactly what you want. I'm not saying you can have your cake and eat it too, because there's no such thing as too good to be a true annuity, but you can have exactly what you want and have it work exactly the way you want to work.

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.