The Truth About Annuities | How Income & Guarantees Really Work

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Welcome to Shooting It Straight with

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Stan. I am your host, Stan the Annuity

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Man, America's annuity agent, licensed

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in all 50 states. Please go to my

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website to run quotes using our

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proprietary calculators. That site is

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the annuityman.com.

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You can download my books, all kinds of

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stuff. Today's topic is a good one. How

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the annuity sausage is made. Now, I'm

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not going to go into the depths of the

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actuaries sitting in their closets, you

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know, running the numbers, etc., But I'm

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going to give you the 30,000 foot view

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of how this all works. And it makes

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sense once it'll make sense to you once

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I get done. First of all, who's making

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the sausage? Stan. Jimmy Dean. No, Jimmy

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Dean's not making the sausage. Jimmy

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Dean's dead, by the way, but he's still

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on commercials due to artificial

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intelligence, which is a little bit

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scary because someone said the other

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day, "Hey, Stan, you know, when you pass

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away, are they going to take your

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thousands of videos and do AI videos?"

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Well, I'm like, I I hope not. But

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anyway, I digress. Um, life insurance

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companies issue annuities. Okay, so life

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insurance companies are the issuers

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of annuities. And there's many different

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annuity types. Now, you already own the

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best annuity on the planet, especially

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when you look at it from an inflation

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standpoint. And that's called social

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security. That is an annuity. It's pays

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for life. It increases when our friends

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in Congress deem it appropriate and run

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that crazy formula. And if you have a

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pension with your employer, if you're

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one of the fortunate 9% of the the

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people out there that their employers

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are offering a pension, then you already

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own an annuity. And arguably, if you

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have an IRA and you're taking

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requirement of distributions, that's

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another annuity type payment. But how

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the sausage is made on the commercial

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side with annuities, let's just kind of

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go through the types very quickly and

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I'll explain how it's done. There's

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three types of primary uh lifetime

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income products. Single premium

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immediate annuities, deferred income

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annuities, and qualified longevity

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annuity contracts. Single premium

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immediate annuities are the granddaddy

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of all annuities. Those are the ones

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that were developed and offered in the

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Roman times for the beautiful Roman

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soldiers and their families as a pension

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and a thank you for laying it on the

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line for the empire. That's where the

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annuity space started. An ua Latin I

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believe it's for payment. That's where

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it all started. Been sold in this

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country for hundreds and hundreds of

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years. Single premium immediate

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annuities. Deferred income annuities are

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single premium immediate annuity

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structures that you that defer past one

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year. So if your income start date is

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past one year, it magically that

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immediate annuity turns into a deferred

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income annuity. Um that's what a

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deferred income annuity is. Then there's

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a there's another type of deferred

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income annuity called a qualified

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longevity annuity contract. That is

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something that can be purchased with

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qualified funds, IRA type funds. So if

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you hear someone out there never buy an

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annuity inside of an IRA, they're they

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haven't read enough, okay? They're not

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educated enough to talk about annuities

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because there's actually an annuity

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called a qualified longevity annuity

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contract that the IRS and the Department

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of the Treasury actually came out with

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in 2014 so that people can um plan for

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retirement income in addition to social

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security because social security that

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annuity was never put on the planet to

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be the primary source. So how those are

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all what I call annuitization

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products meaning once you turn once you

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start the income you've ripped the knob

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off the faucet you know visualize that

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the water faucet in the in this case the

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water is income once you turn that on

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but the pricing is primarily on these

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products BSDS and QAX primarily on your

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life expectancy or life expecties

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if it's joint now interest rates play a

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secondary pricing role but there's also

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more things involved from the standpoint

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of how annuities um are priced. Now, you

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go to my site at theanuityman.com, use

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our proprietary calculators, best in the

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business, and we'll pretty we'll quote

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quote pretty much every single carrier

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out there for the highest contractual

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guarantee for your specific situation.

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But understand that these quotes are

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like a gallon of milk every 7 to 10

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days. They change. The reason that they

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change and one of the big pricing

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mechanisms that no one ever talks about

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is what's called capacity. Meaning that

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let's just say XYZ annuity company um

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you know has a very good quote for 72

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year olds. Okay, this week and next week

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it's not high. It's not in the top 10

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anymore. Why is because they had enough

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72 year olds to fill that trunch of what

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they're trying to fill for that specific

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company. Once they fill that trunch for

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age ranges, they're going to lower the

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guarantee so that they will not attract

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you. So you look at, you know, longevity

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um longevity risk is what you're trying

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to solve for for lifetime income. Um my

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friend Tom Hegna and my Fun with

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Annuities podcast, we have Tom Hegna on

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all the time. Mortality credits, you're

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pooling your risk with other people your

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age, but just think of life expectancy,

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interest rates, mortality credits,

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capacity.

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capacity is, you know, how many 72 year

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olds or 56 year olds or whatever your

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age, how many they want. That's the

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reason you can't just quote one company.

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You have to quote all companies because

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companies are always changing on when

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they want that age range and when

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they're trying to fill that age range. I

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always tell people, think about when

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you're investing, you have small cap,

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midcap, um, international, etc. value as

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as part of your allocation. with a life

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insurance company issuing annuities for

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lifetime income. Those tanches are age

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ranges and they're trying to fill them.

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Why are they trying to fill them?

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Because they know when we're going to

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die. So, they price things accordingly.

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But the capacity issue is the one that I

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want you to stick in the back of your

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head. Capacity equals competition. Okay?

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And that's the reason that when you look

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at annuities for just the contractual

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guarantees of the policy, which is the

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reason you should buy, never buy an

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annuity for the hypothetical returns.

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always own an annuity for what it will

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do, not what it might do. And when you

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strip it down to the contractual

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guarantees of the policy, then you've

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commoditized the product, which means

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that you can go to my site, we're

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quoting all carriers for that highest

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contractual guarantee for that specific

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time. You can't time it. There's no

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sweet spot or arbitrage moment. You

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can't you're not you can't be Gordon

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annuity gecko out there. You can't be

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the master of the universe. If the

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contractual guarantee looks fair, then

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lock it in because the bell doesn't ring

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at the top or the bottom. understand

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with single premium immediate annuities,

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deferred income annuities, qualified

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longevity annuity contracts, especially

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the first two, there's a myriad of ways

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to structure them, 40 plus. Okay. Now,

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the fourth income product is what's

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called an income writer of which you can

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you can attach that income guarantee to

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a policy like a variable annuity or a an

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index annuity. But that income writer is

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also commodity. You know, when you just

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look at the contractual guarantees of of

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the product, you're looking at the

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income writer only, not the not the

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accumulation value, just the income

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writer, and you're shopping all carriers

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for that highest contractual guarantee.

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That sausage is made the same way. Life

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expectancy, interest rates, and

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capacity. So, if you're looking at

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lifetime income, that's how it's how the

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game's played. Now, looking at

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multi-year guarantee annuities, which is

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the annuity industry version of a CD,

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similar things apply. There's no

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lifetime income, so their life

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expectancy doesn't apply. But they're

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looking at interest rates. They're

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looking at capacity issues. They're

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looking at their overall bond portfolio,

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their legacy bond portfolio within the

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company, and they're trying to raise

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money knowing that they can they can

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back up that interest rate claim up to a

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point. Now, when the again, it's

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commodity products. When you go to my

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site and hit live MGA feed or fixed rate

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feed, you're going to see those

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companies and it does change because

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once those companies hit the goal of

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whatever that amount of money they want

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to raise for that duration of that

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multi-year guarantee annuity CD type

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annuity, then they're going to lower the

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guarantee in order to not attract you.

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It's that simple. Annuities are

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contracts. Annuities are not

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investments. They're contracts. They're

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commodity products when you look at the

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contractual guarantees. And that's what

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you should do. You should own an annuity

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for what it will do, not what it might

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do. Now, when we get to the the RIAS and

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the variable annuities and the index

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annuity, those accumulation values,

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that's when it gets very very very

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complicated. Um,

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and I just to me you buy an annuity for

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what it will do, not what it might do.

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Let's, you know, RIAS are uh kind of the

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newest thing on the block which which

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have some index annuity type um

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principles and shiny things. Index

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annuities are put on the planet were put

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on the planet in 1995 to compete with CD

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type returns. And there's limitations on

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the upside using cap spreads and

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participation rates. But once again,

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very very complicated. And I always say

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if you can't explain it to a

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nine-year-old,

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you know, don't buy it. No offense to

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nine year olds. Variable annuities we

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don't sell because we don't sell

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anything here at the annuity man that

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has the potential to go down in value. I

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have nothing against them, but in my

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opinion, okay, you should just go buy

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mutual funds um because that's what

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variable annuities have. They call them

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separate accounts, but me and you call

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them mutual funds. The problem is with

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with variable annuities, the the

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limitation of the choices of the mutual

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funds. That's that's the problem in my

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opinion. When you're looking at market

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growth, you should have no limitations

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if you're looking for real market

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growth. You know, you can't have your

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cake and eat it too. If it sounds too

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good to be true, it is every single

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time. With annuities, I have nothing

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against those products. We use index

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annuities as a very efficient and

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cost-effective way to deliver the income

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writer guarantee when you need income in

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the future. If you're looking just for a

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principal protected fixed rate, in my

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opinion, you're doing you're going to do

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better contractually with multi-year

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guarantee annuities because that number

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is contractual. So, when you talk about

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how the annuity sausage is made,

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understand life insurance companies

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issue annuities. When you're buying a

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lifetime income product, understand that

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life insurance companies have the big

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billings for a reason because they know

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when we're going to die and they're

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going to price things accordingly based

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on your life expectancy or if it's joint

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life expecties. And they do with

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lifetime income products, they do look

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at interest rates and mortality credits

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in con in conjunction with your life

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expectancy and then capacity, which is

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do they want your age range, you know,

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at this at this time that you're

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quoting. So there's not one company

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better than the other. There's not one

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product better than the other. It's very

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easy how to filter it. Ask two questions

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and answer them. What do you want the

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money to contractually do? When do you

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want this contractual guarantees to

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start? And from there, we can show you

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at my you go to my site

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theanuityman.com, schedule a call with

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us, and we will show you those quotes or

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you can go there yourself and run them

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247

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365. So that's how the annuity sausage

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is made. And that's why the annuity

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companies have the big buildings and the

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property and casualty companies don't

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because life insurance companies know

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when we're going to die, right? And

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property and casualty companies don't

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know when the hurricane, tornado, or

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fire is going to hit. You already own

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the best inflation annuity on the planet

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called Social Security. And you need to

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look at annuitities in general primarily

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for the even looking at the two pill the

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pill principal protection, income for

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life, legacy, and long-term care.

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Principal protection and and income for

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life are the two primary reasons people

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look at annuities and lock in those

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guarantees. They either need to add to

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their income floor or they need to just

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protect the principle. That's what we're

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seeing here at the annuity man. Of

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course, we're licensed in all 50 states

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and the the gorilla in the room, but

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we're a factual gorilla and we as my

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grandfather said, if you tell the truth,

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you don't have to remember anything. And

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with that, my name is Stan the annuity

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man. That's shooting it straight with

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Stan. I will see you next