What does the maturity day on an annuity mean? Great question. Why do companies put maturity dates on policies? We will go over what that means, what your choices are, etc., so that when you get your policy and this maturity date on the policy, you'll understand precisely what to do.
The purest definition of the maturity date on an annuity is when you annuitize that contract, which covers all types of annuities. Let's just look at an example. If you have a single premium immediate annuity right now, and you're already getting an income stream, you've already hit the maturity date. So what happens when you reach that maturity date that you see on the policy? Well, depending on the policy, you have choices that you can make at that time. I'll give you a story that happened the other day.
A person bought a five-year multi-year guarantee annuity from me, a CD product known as an annuity version of a CD. So it's a five-year guarantee, but the policy had a maturity date of 50 years from now. So the guy calls me up, and he goes, "Wait a minute. I bought a five-year policy with the guarantee. So why does it say 50 years from now there's a maturity date?” That means if it gets to that date and you have not contacted them, there will be choices and the possibility of you having to annuitize it then.
Will that happen? Probably not, but that's what that maturity date means on your policy. So the question is, why do companies even put these long maturity dates on these products? Well, first of all, that's the law. Remember this; annuities were put on the planet for a lifetime income. So that maturity date is, in essence, saying that if the company doesn’t hear from you by that date, they’re going to turn it into a lifetime income stream.
The biggest question of all is, do you even need an annuity? I've come up with two very unique ways to determine if you need an annuity. The first question is, what do you want the money to do contractually? And the second is, when do you want those contractual guarantees to happen?
I'll give you a couple of examples. What do you want the money to do contractually? I want income. Second question, when do you want those contractual guarantees to start? I want income to start now. Well, then we've determined that you might need a single premium immediate annuity. Let's do it again. What do I want the money to do contractually? Income. When do I want those contractual guarantees to start? Seven years from now. Okay. We've narrowed it down to deferred income annuities, a QLAC, and income writers. I'll quote all carriers to find the highest contractual guarantees and discuss them from just those two questions.
Now, the second thing I've come up with is an acronym called PILL. P stands for principal protection. I stand for income for life. L stands for legacy, and the other L stands for long-term care/confinement care. If you do not need to contractually solve for one or more of those items in the PILL acronym, you do not need an annuity. There's no G for growth. There's no M for the market. There's no S for stocks.
Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.