How Inflation-Adjusted Annuities Work

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Hi there, Stan the Annuity Man. Welcome

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to my YouTube Stan the Annuity Man

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channel, which is just fantastic. It's

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young and growing and we want you to hit

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the subscribe button and all that stuff.

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Sorry about that. That's not the Corona

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virus. That's just old old man stuff.

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We're going to talk about today

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inflationadjusted annuities, how they

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work, if they're too good to be true, if

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they're better than sliced bread and all

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that stuff. with any type of annuity

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sales pitch. If it sounds too good to be

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true, it is every single time without

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exception. There's no exceptions

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whatsoever. Annuities are contracts. So,

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I get a lot of calls about inflation

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adjusted annuities because everybody's

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worried about inflation. That's like the

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gorilla in the room. Inflation,

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hyperinflation.

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I get all these calls about inflation.

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Bottom line is this about annuities and

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inflation. There's not a perfect annuity

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type that solves for inflation. Even

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though you'll hear about that annuity,

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supposed annuity type at the bad chicken

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dinner seminar or expensive steak

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seminar or by your local advisor agent,

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they'll tell you that they have the

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annuity that'll solve for inflation that

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will adjust for inflation. That's

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perfect for inflation. Uh, no. Your top

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agent in the country, if I had it, I'd

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already be telling you about it. I

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don't. I represent all carriers. But

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what we're going to do is we're going to

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go into the inflation adjusted sales

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pitches out there and give you the good

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and the bad and the ugly and the brutal

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truth about them so you can make a good

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decision. Not not buy the dream, not buy

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the unicorns chasing the butterflies,

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not buying some sales pitch that sounds

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really really good because at the end of

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the day you already own the best

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inflation annuity on the planet and

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that's called social security. So hang

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in there with me. We're going to do a

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musical interlude and I'm going to come

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back. We're going to go over

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inflationadjusted annuities.

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[Music]

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All right. Inflation adjusted annuities.

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Inflation. I mean, that's the that's

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like this scare tactic that the

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financial media uses. Oh, wait. You

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know, there's going to be inflation. You

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got to prepare for inflation. Um,

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there's no product that can perfectly

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track it. Nobody knows what's going to

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happen. It's kind of like interest

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rates. Everybody talks about they know

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where they're going to go. They really

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don't. Inflation's the same thing. You

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know, people have been predicting

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inflation and really just hyper type

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inflation for the past 3, four years

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with some pundits. Uh bottom line with

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annuities, you can attach uh contractual

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inflation type benefits to a policy. But

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just remember, annuity companies have

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the big buildings for a reason. They do

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not give anything away at all. I mean,

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there's no philanthropists at annuity

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companies. There's no CEOs at annuity

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companies that wake up and go, you know

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what? I really like America and I really

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like Americans and I just want to give

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away money. No, they don't do that. They

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price it in. You know, when I tell you

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you already own the best inflation

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annuity on the planet, you do. Social

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Security increases payments based on the

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political whims of our lovely DC

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politicians in the House and the Senate.

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They just increase it. You know, they

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just print money. Annuity companies

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don't do that. So let's talk about the

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first type of inflation

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um annuity type that you can buy. Now

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there are product types like single

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premium immediate annuities, deferred

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income annuities and qualified longevity

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annuity contracts. Those are annuitized

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products which are that's a way to get

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income stream return of principal plus

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interest is all annuity payments for

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lifetime income. But with those three

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products you can attach what's called a

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COLA. COLA stands for cost of living

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adjustment. So, you can attach a COLA

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writer to the policy at the time of

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application. You can't attach it

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afterwards, but at the time of

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application, here's how it works. You

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get to determine the increase of that

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income stream annually for the life of

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the policy. Hey, that sounds really

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good, right? It is kind of. But what's

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the catch, Stan the Annuity Man? So,

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let's just say, okay, I want to buy a

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single premium immediate annuity. I want

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to put $100,000 in. Stan, I've given you

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my date of birth or dates of birth if

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it's joint, when the income's going to

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start, the type of account, and how you

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the how much money, which is the

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$100,000. And so, here's the quote. And

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you want to add a 3% cost of living

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adjustment, a cola, to that. So, what

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does that mean? That means that payment

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is going to increase by 3% every year

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and just stair step the whole way. So

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next year it'll be 3% more on that total

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and then the next year will be 3% more

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of the previous year's total etc etc

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etc. That sounds fantastic. That's

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exactly what I want. Stan the annuity

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man. What's the catch visually? Here's

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how it works. Same exact annuity without

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a cola starts here. With a cola starts

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here. Just think of that. That's not

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Madonna Vogue. Remember that Vogue?

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Okay. It's not that income with an

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immediate annuity, qualified longevity

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annuity or deferred income annuity

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without a COLA up here with a COLA down

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here. So there's typically depending on

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the math and we've looked at it a myriad

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of ways, but let's just say a 6 to9 year

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break even point, meaning that it will

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take you 6 to9 years in most cases.

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Okay, don't all you actuaries out there

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don't kill me on this, but I'm just

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giving a broad brush on this. takes 6

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to9 years to get to the same payment

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level. If you use 6 to9 years, if you

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took this payment, it'll take 6 to9

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years to get to this payment. If that

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makes sense. So, does it make sense to

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attach a COLA to an immediate annuity,

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deferred income annuity, or a qualified

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longevity annuity contract? Maybe if you

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understand that it's going to take a

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while to make up for the static payment,

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the one without a COLA. And if you have

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a longevity history in your family, if

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your grand mammy and your grand papy

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live to 110, maybe that works. The other

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thing that I see and recommend as well

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is that maybe when you're buying

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immediate annuities, you might split up

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that purchase and one with a COLA and

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one without a COLA. Bottom line is you

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cannot beat the annuity companies.

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Bottom line is there's not a perfect um

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annuity product out there that addresses

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inflation. In the past years, there were

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what's called CPIU, consumer price index

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increases to annuity payments, but those

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have kind of gone away. There was a

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couple of of carriers that had them here

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recently and they have taken them off

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the board. But those were not guarantee.

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They were based upon that CPIU and CPIU

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is consumer price index of the U is for

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urban consumers. It's it's detailed,

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believe me. So, but those aren't

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available anymore. So, colas are the

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only thing available. I'm going to come

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back and I'm going to talk about indexed

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annuities and how those increases work

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as well. Okay. The other way that

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annuities are pitched for inflation to

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adjust with inflation and increase your

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income with inflation are with fixed

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index annuities. First of all, let's do

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some history on fixed index annuities. A

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lot of people out there think I hate

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them. I don't. I probably sell more than

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95% of all agents out there of index

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annuities. I just look at them

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differently. I look at them as CD

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products, which is what they are and

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what when they were first introduced in

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1995.

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Um, they were introduced as a CD

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alternative that gives a maybe a little

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bit better than CD returns, but

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historically since then that's kind of

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been the range. But here's the sales

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pitch that I really, you know, the

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problem with fixed index annuities. The

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sales pitch gets in the way of the

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reality. The sales pitch gets in the way

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of how they really work because the

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sales pitch is market upside with no

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downside. That's not true. Fixed

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annuities are not a security. They're a

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fixed product or a life insurance

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product issued at the state level. So,

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the way it's being pitched now with some

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income writers, and an income writer is

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an attachment to a policy, in this case,

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an index annuity that guarantees a

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lifetime income stream in the future.

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But there's a few annuities out there

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and a lot of good sales pitches, but not

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reality sales pitches that'll say,

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"Well, if the index part of the contract

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increases by X, then your income will

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increase by X." Now, that again sounds

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fantastic at the bad chicken dinner

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seminar. It sounds fantastic if you're

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not going to dig in to the details, and

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it sounds fantastic if you totally trust

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the person that's pitching you the

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product. Never do that. The problem with

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it is it it's the same principle as what

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I just talked to you about immediate

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annuities, deferred income annuities,

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and QAX with the COLA. If you have an

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indexed annuity with an income writer

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that has the supposed potential increase

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to the income stream based upon the

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index return that's not guaranteed,

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we're back to the Madonna Vogue. In

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fact, I should say annuity Madonavogue.

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Annuity Madonavogue annuity madavogue.

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Right, here's the indexed annuity income

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writer without the cost of living index

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increase. Here's the one with it. Okay,

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once again, Madonna Vogue, right?

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Madonna annuity. That's what I'm going

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to start talking about. If you just

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remember that, remember that they're not

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giving it away. Does that make it a bad

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product? Absolutely not. It does not. If

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you have longevity in your history,

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maybe it works. Maybe you split up the

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purchase between two different types of

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income writers. One with a static

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payment and one with an increase. But

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just remember that annuity companies

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have the big buildings for a reason.

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They do not give anything away. And any

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type of benefit like that, that really

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sounds yummy, really good that you, you

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know, elbow your spouse. You go, I

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really like that. That's pretty darn

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good right there. When you say that to

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your spouse, understand that the annuity

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company's not giving that away. All

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right. So, I've done another video that

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kind of coincides with this. It's called

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a how to build an annuity ladder which

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is really the only way to combat um you

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know inflation and trying to find

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inflation adjusted annuity products that

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work. And we've talked about Madonna

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Vogue. Remember Madonna Vogue? I I like

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that. I think I'm going to have to

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trademark that. I'm going to call

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Madonna's people after this video. Have

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my people call their people.

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It's probably not going to go well. Hey,

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with that being said, go to my site

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theanuityman.com to get all quotes. We

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can quote all of these products for you.

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all the inflation adjusted products and

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the noninflation adjusted products. You

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can use our calculators. We can do it

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for you. You can talk to me. You can get

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my books. You can listen to podcasts.

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You can read the blog. You can read the

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articles. I'm not only the top agent out

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here from a sales standpoint. And you

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know that just happens because I I think

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I'm the best educator. I want you to

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understand these products. I want you to

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understand the good and the bad, just

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not the sales pitch. Because all of

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these products, regardless of the type

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you choose, they have limitations and

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they have benefits. And you need to know

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both. So with that, I'll see you on the

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next Standing Nudity Man video.