017: Explaining Annuitization Structuring Choices

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welcome to

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fun with annuities with your host me

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stan

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the annuity man america's annuity agent

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can annuities be fun

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absolutely they can find out the brutal

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facts about annuities

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with no sales pitches or high pressure

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truth which is all you need to hear

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let's have some fun with annuities and

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let's have that fun start

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right now

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hey this is stan the annuity man

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america's annuity agent licensed in all

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50 states yes

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even yours so if you're a client

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listening to me i really appreciate you

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being a client and if you're not

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we certainly would welcome the

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conversation to see if an annuity

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actually is a good fit for what you're

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trying to achieve it might not be and

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i'll tell you my team will tell you

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we'll tell you the brutal truth

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but we want you to fully understand

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these products by the way

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i used to work for a lot of these firms

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on the street you heard of dean witter

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morgan stanley payne wherever ubs people

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always ask me what's my background

1:10
that's

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it but at the end of the day

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i am the founder of the annuityman.com

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and annuities.direct which is internally

1:19
a site

1:20
inside of the annuityman.com and

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what that is is if you want to have

1:26
one-on-one consultation

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with me or one of the handful of the

1:32
annuity experts that works for

1:34
me directly for me and for the company

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you can do that we'll put together a

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specialized plan

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customized i'm involved in every single

1:43
one of those by the way

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and and we'll walk you through it talk

1:47
you through it just like you have a

1:48
financial advisor we will be your

1:50
annuity advisor but if you don't want

1:51
that you can go to the

1:53
other internal site from the

1:54
annuityman.com called annuities.direct

1:56
and you can run your quotes yourself

1:59
do your own research and on both sides

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you can get my books

2:02
seven books that are published on amazon

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and available everywhere but i'll send

2:06
them to you for free just so you can get

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educated on all things annuity so

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today's topic is a very very good one

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and i think it's important because

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there's a lot of misconceptions and

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bad sales pitches out there concerning

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this the topic is

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explaining annuitization structuring

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choices

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now that's a mouthful right

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annuitization means creating payments

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that came from the roman times where the

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roman soldiers were given

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a single premium immediate annuity

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payment for them

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and their families for their dutiful

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service so that's where annuities

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started that's where guaranteed lifetime

2:43
income started

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annual means payment in latin

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annuitization that's the root word of

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that

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but there's a lot of people out there in

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fact i gotta call the other day i get

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this call a lot i would say i get this

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call

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five to ten times a month that you know

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they're looking at annuities but they're

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gonna lay down the law with me they

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really don't like them because

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you know when they die the evil annuity

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company keeps the money

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and that's only one of us 30 ways

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at least to structure it to structure

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that annuitization creating payments

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and not all annuities that create

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lifetime income streams

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are annuitized so you know one of the

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negatives about annuitization is that's

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irrevocable it's like visually if you

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take a

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a water faucet and you just rip the knob

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off the water faucet there's water

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flowing

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okay so with annuitization

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once you turn on the income stream

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income stream's flowing

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period it's common i mean it is what it

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is

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that's the reason that when you buy an

3:47
annuity with an annuitization type

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strategy it has to be in proportion and

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allocation

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so that you still have some liquid

3:55
assets available etc because it's an

3:57
income stream

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it can be a lifetime income stream you

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can set it up for a specific period of

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time you can do combinations of both and

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we're going to go through that but

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you know that person that calls me five

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to ten times a month

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thinks that life only which is what

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they're describing when your legit hits

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the mountain when your bentley hits the

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tree when your ferrari

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flips over you know when you cliff dive

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and your parachute doesn't open

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when you die they think money goes poof

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and the evil annuity company keeps the

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money that's that's called life only

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that is one of the

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30 plus structures okay so

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that is going to be the highest payment

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because you're shouldering some of the

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risk

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instead of transferring all of the risk

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so let's go through the structuring

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choices

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and what those look like and how they

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work

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i'll try to paint that picture to you

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visually through my beloved stand the

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annuity man

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the annuity man podcast so we talked

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about life only

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you can set it up joint life life only

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joint life is two lives

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so let's just do single life only single

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life only is as long as you live they're

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going to pay but when you die money goes

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poof

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it's going to be the highest contractual

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payout that you can find period

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in the store you can do joint life only

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so that with 100

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survivor meaning that when you die the

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income

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stream continues uninterrupted and

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unchanged for your spouse partner's life

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and then when they die money goes poof

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that's joint life only

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okay most people don't choose that a lot

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of people do but most don't

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and again part of the process when you

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work with the annuityman.com

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and all of the people on my team is that

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we're going to ask you what's your goal

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some people say well i don't have any

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i don't have any beneficiaries or i

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could give a crap about my beneficiaries

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i just want the highest payment that's

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life only that's what we'll quote

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okay the the most popular one i think

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that we do is life with installment

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refund what that means is it's going to

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pay you for the rest of your life

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regardless of how long you live

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period but the installment refund part

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of that what that means that when you

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die

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whatever's left in the account goes to

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your beneficiaries at the same payment

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level

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monthly until the money is exhausted

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that's what life with installment refund

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means

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it also means if you live forever

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they're in the accounts at zero there is

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no installment refund but let's just say

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you died early in the contract

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whatever's left in that contract money

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is left will be paid out to the list of

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beneficiaries and you can list as many

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beneficiaries as you

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as you want and give them whatever

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percentage you want

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you know just so it equals into 100

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right

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it will pay out until the money is

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exhausted

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so that's life with installment refund

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life with cash refund is similar it's

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going to pay you for the rest of your

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life that's what life means right

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regardless how long you live if you live

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150 is going to pay

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or 160 170 whatever it's going to pay

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they're on the hook

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but when you die whatever's left in the

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account gets paid lump sum

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to the beneficiaries cash refund lump

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sum now

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i think it's important right now to stop

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and remind you that

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all annuity income all annuity

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income is a combination of return of

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principal plus interest

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now annuitization products like single

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premium immediate annuities

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deferred income annuities qualified

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longevity annuity contracts

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those are the primary ones they can be

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held in iras

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roth iras non-iras non-qualified

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accounts

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those are just tax structures just it

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depends on where the money is how the

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how that income stream's going to be

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taxed

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in a non-ira setting non-qualified

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setting cash account type setting

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the income stream is a return of

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principal plus interest so that

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you're only going to pay taxes on the

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interest portion until the account's at

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zero once the account is zero then you

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pay taxes on the income stream

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all of it that's what the exclusion

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ratio is

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is a return of principal plus interest

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so we've gone over life only we've gone

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over

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life with installment refund and life

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with cash refund let's talk about

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life with period certain life with

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period certain is

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life it's going to pay you for the rest

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of your life period regardless of how

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long you live

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and then you get to choose the period

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certain so

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life with five year period certain if

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you lived two years and died then

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someone's going to get three years of

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payments

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life with 10-year period certain gonna

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pay you for the rest of your life but if

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you died say

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six years from now then someone's going

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to get four years of payments

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right life with 20 you're certain

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let's do an example there you live for

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13 years

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and die someone's gonna get seven years

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of payments

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life in 20 and you live for 21 years and

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die no one gets anything

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it's life in 20. now the period certain

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you can choose any year you can choose

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life and period 8 you're certain 10

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you're certain 13 you're certain 17

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you're certain 20 you're certain 30 or

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certain

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you can choose any amount you want you

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can customize it just understand this

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the shorter the period certain the

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higher the payment

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the longer the period certain the lower

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the payment

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so life with a five-year period certain

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will be a higher payment than life with

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a 20-year period sir

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why because the guarantee on the back

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end what i call the back stop

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is higher longer makes common sense

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right not your head

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you can also do what's called a period

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certain only

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what that means is you say you know what

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stan i've got this gap

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of 10 years i want to buy a 10 year

9:28
single premium immediate annuity

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it's only going to pay for 10 years and

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after the 10 years it's over you can do

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that and you can customize that it could

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be a seven year

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five year eight year 13 year 14 year or

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17 year whatever you want it to be

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okay now let's talk about how these

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annuitization structures are

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priced because this is important because

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everybody thinks it's all interest rates

9:48
well

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i'm going to wait to buy because

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interest rates might move well if you do

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that then you have to factor in the

9:55
payments that you miss while you're

9:56
waiting

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right rationally mathematically

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so you can't time it don't try to time

10:03
it when you buy a lifetime

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income stream whether it's life only

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life with installment refund life with

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cash refund or life with period certain

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when it says the word life in there

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whether it's life or joint life

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then you're transferring the risk for

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them to pay you for the rest of your

10:20
life and life expectancy or life

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expectancies if it's joint

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is the primary pricing mechanism not

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interest rates

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let me do that again just so you

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understand if you're buying a lifetime

10:32
income stream

10:34
life only life with that installment

10:35
refund life with cash refund or life

10:37
with period certains one of those

10:38
annuitization choices

10:41
the primary price and mechanism is your

10:43
life expectancy at the time you take the

10:45
payment the older you are the higher the

10:47
payment

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sound familiar it is social security

10:49
works the same way right

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nod your head it does now

10:54
period certain only is 100 percent

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interest rate driven because there's no

10:59
life contingency

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and that's really how it works that's

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the annuitization

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combination return of principle plus

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interest so

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in an ira setting traditional ira and

11:12
you have annuitization

11:13
income coming out of the ira 100 of the

11:16
money coming out of that ira is taxed

11:18
correct because all money coming out of

11:22
a traditional ira regardless what it is

11:24
is tax

11:24
ordinary income levels if you put an

11:26
annuitization type structure annuity

11:28
structure inside of a roth ira

11:30
100 of that income stream is tax-free

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why

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because you've already paid taxes within

11:36
a roth

11:37
to get to the roth status right in a

11:40
non-ira setting where it's it's not a

11:42
roth ira it's not a traditional ira it's

11:44
like a cash account

11:46
then there's some tax preferential

11:48
treatment of that income stream

11:49
because it's return of principal plus

11:51
interest you're only paying taxes

11:53
on the interest portion and so when you

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get a quote from us

11:57
at the annuityman.com and it's a non-ira

12:00
account

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when you see the quote you'll see the

12:03
total monthly amount and then

12:05
beside it you'll see the taxable amount

12:07
so you'll know exactly what your tax

12:10
ramifications are and what the annuity

12:11
companies are really doing is they're

12:13
spreading out that tax liability over

12:15
your life expectancy

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and once again once you pass your life

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expectancy

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and the account's at zero which is a

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good thing because you've transferred

12:23
the risk to the annuity company to pay

12:25
you for the rest of your life

12:26
they're on the hook to pay but once it's

12:28
at zero then all of that income stream

12:29
is then taxable

12:31
in a non-ira account great story the

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other day guy called me and he said

12:36
he goes i've really worked hard for my

12:38
money he'd done like some

12:39
really hard labor type jobs but was a

12:41
great guy and really amassed a lot of

12:43
money

12:45
but like a lot of us he had some kids

12:47
that were a little bit wandering

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ambiguities as i called them they they

12:50
haven't found their path yet as they say

12:53
and he wanted to handcuff them now he

12:56
got that from my books i call it

12:58
handcuffing your beneficiaries which he

13:00
loved and he's like i want to handcuff

13:01
my beneficiaries let me explain what

13:03
handcuffing your beneficiaries is

13:05
it's not literally putting handcuffs on

13:07
them even though we might want to when

13:08
they run their freaking mouths

13:10
off right so what i told him to do

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is i said do joint life with your wife

13:16
joint life with installment refund

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so he's like okay explain that again to

13:22
me stan all right here's joint life with

13:23
installment refund and he had two kids

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two wandering ambiguities one was like

13:28
rock band dude and the other was like

13:30
you know tattoo dude okay and father

13:34
wasn't thrilled to say the least

13:36
anyway i'm not putting those people down

13:38
but anyway

13:39
so i said hey it's going to pay you and

13:41
your wife for the rest your life when

13:43
you die

13:44
the income stream is going to continue

13:45
uninterrupted and unchanged for your

13:47
wife's life

13:48
you like that she liked that but when

13:51
she dies whatever's left in the account

13:53
will be paid in payment form the same

13:55
exact payment that you and your wife

13:57
have been getting

13:58
they're going to get that payment split

14:00
50 50 until

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the money's gone my joke to him and i

14:04
joke to everybody is

14:06
your beneficiaries are going to show up

14:07
to your funeral in a ferrari anyway

14:10
don't laugh why not have them making

14:13
payments instead of paying cash for it

14:15
so

14:15
that's what installment refund is

14:17
they're going to be making payments on

14:18
the ferrari

14:19
as they drive off from your funeral

14:21
happy as heck that you finally

14:23
you know bit the dust right he loved

14:26
that

14:26
it was a lifetime income stream for him

14:28
and his wife and

14:30
it was you know making sure that the

14:32
kids didn't blow through all the money

14:33
it's kind of a neat legacy place

14:35
controlling it from the grave you like

14:36
that as well

14:37
but it's legal tinder you know you know

14:40
what he's passed

14:40
outside of probate so he really liked

14:43
installment refund and by the way

14:44
installment refund cash refund

14:46
is just a fancy way of the annuity

14:48
companies figuring out

14:50
what your specific life expectancy is

14:53
okay so he was happy and i was happy

14:56
because they fully understood it

14:58
and we set that up and of course we went

15:00
and quoted every single carry for the

15:02
highest contractual guarantee

15:03
and they chose the one that they felt

15:05
comfortable with because that's how we

15:06
do business

15:06
now with that being said understand that

15:11
news of contracts they're not

15:12
investments you're you're transferring

15:13
the risk

15:14
to the annuity company to pay you most

15:17
of the time when you set up for life for

15:18
the rest of your life

15:19
okay and it's a commodity product

15:21
there's no one company that has a

15:23
better quote than the other it's like a

15:25
gallon of milk

15:26
and when i say that when you buy a

15:28
gallon of milk every seven to ten days

15:29
it spoils right

15:32
annuities are similar every seven to ten

15:34
days

15:35
those quotes that we send you will

15:37
expire unless you've locked them in

15:39
during the application process

15:41
and that's that's okay but what i want

15:42
you to understand is

15:44
you don't have to make a quick decision

15:46
and lock it in but understand that you

15:48
can't

15:48
get a quote and then call me 30 60 days

15:51
later and say that's the one i want to

15:52
do i get that a lot people will say

15:54
zen you sent me this quote a year ago i

15:56
want to move forward with this company

15:57
i'm like that's fantastic

15:58
except we can't because we have to

16:01
re-quote it you just

16:02
have to understand that quotes change

16:04
and because it's commodity type product

16:07
sometimes one week xyz carrier will be

16:10
number one and the same exact quote next

16:12
week

16:12
xyz career will be number seven or eight

16:15
and it just it just is what it is don't

16:18
allow

16:20
anyone to show you one or two carries

16:22
obviously we want you as a client

16:23
at theannuityman.com but if your

16:26
brother-in-law is trying to sell you an

16:28
annuity

16:28
do not allow brother-in-law to show you

16:30
one company or two companies

16:32
you have to quote all companies think of

16:34
it like buying a plane ticket when you

16:36
go punch in the number to get a plane

16:37
ticket unless you

16:38
are trying to get points with a specific

16:40
carrier you don't really care you're

16:41
just trying to find the best deal

16:43
that'll get you there same thing with

16:45
annuities look at it the same way

16:47
and buy annuities for the contractual

16:50
guarantees only do not buy

16:52
hypotheticals theoreticals projections

16:54
back tested hopeful agent return

16:56
scenarios

16:56
own them for what they will do not what

16:58
they might do do not allow

17:00
someone selling you either an index or a

17:02
variable annuity

17:03
say well this one's better because it

17:05
potentially could be more because if the

17:07
plan is aligned themselves

17:08
and the unicorns chase the butterflies

17:10
the income stream might exceed

17:12
the contractual guarantee that's that

17:14
stand the annuity man showing you

17:16
that's just malarkey that's crap you do

17:19
not

17:19
buy annuities like that you buy

17:21
annuities for what they will do buy them

17:23
for worst case scenario buy them for the

17:25
contractual guarantees

17:26
because i've never seen a back-tested

17:29
hypothetical theoretical proposal come

17:31
true

17:31
ever period no one can ever show me one

17:35
that

17:35
you know what this was actually did

17:37
exactly what i showed it was good

17:38
no and i really believe back testing

17:41
should be disallowed by the industry

17:43
it's like

17:43
it's telling someone well if you'd

17:44
exercised every day for the last 10

17:46
years you'd be in shape

17:48
i mean hindsight's 20 20 you don't you

17:50
don't do that with annuities so

17:52
with that being said annuitization

17:54
structuring choices we do offer them all

17:55
and and i would encourage you to go to

17:57
my site at theannuityman.com to get the

17:58
books on

18:00
immediate annuities deferred income

18:01
annuities q lakhs where i explain all of

18:04
that in detail

18:05
i also have a youtube channel called

18:07
stan the annuity man youtube channel

18:09
just type in standy nudieman when you go

18:11
to youtube it'll pop up

18:12
and i do videos on annuitization

18:15
structuring choices and how

18:16
immediate annuities work etc i also

18:19
write

18:20
a new article every day typically every

18:22
day for

18:23
you know one of the major platforms one

18:24
that i'm doing a lot with now

18:26
is thestreet.com and i'm writing a lot

18:29
there so

18:30
you know get educated don't be forced

18:32
into anything don't sign paperwork that

18:34
you

18:35
can't explain that product to a

18:37
nine-year-old buy simple products buy

18:39
the ones that you can easily understand

18:40
that are easy transfer risk

18:42
and with annuitization type products

18:45
those are transfer of risk easy to

18:46
understand products

18:48
and remember life only life with

18:50
installment refund life with cash refund

18:52
life with period certain

18:54
and period certain only are your primary

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choices for annuitization

18:58
and we can quote all of those for you

19:00
and we encourage you to contact

19:01
us at the annuityman.com so we can run

19:05
that customized quote

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for you my name is stan the annuity man

19:09
i really appreciate you joining me on

19:11
fun with annuities

19:14
thanks for listening to fun with

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annuities please hit the subscribe

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button and make sure to go to my site

19:20
at the annuityman.com where you can run

19:22
your own

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spea dia and culat quotes and see a live

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feed of the best

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mica fix rates in the country and even

19:30
get

19:30
indexed and income rider quotes as well

19:33
you can also

19:34
sign up for my six annuity owner's

19:36
manual books and i'll ship them for

19:38
free and under no obligation i also

19:41
encourage you to schedule a one-on-one

19:43
call with me

19:44
stan the annuity man so we can have a

19:46
full discussion

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of your specific situation it will be

19:50
the best

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brutally factual and truthful advice you

19:54
will ever get and that's one guarantee

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you should definitely take advantage of

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so join me next time for the number one

20:00
annuity podcast

20:01
on the planet fun with annuities

20:07
[Music]