Annuity Income: Do I Lose Control Of The Money?

Hi, I'm Stan The Annuity Man, America's Annuity Agent. Let's get to the real question: When it comes to annuity income, do you lose control of your money once the income stream starts? The answer? It depends entirely on the type of annuity you choose.

Now, there are two types of lifetime income stream products. I know what you're saying, "Stan, there's only one type of annuity." No, there's not. There are many types. And when it comes to lifetime income or income from an annuity, you can have an annuitized product. Annuitization means the income's coming. It's an irrevocable income stream that you could never outlive. It's going to pay you for the rest of your life. It's going to solve for longevity risk, which is the fear of outliving your money.

Annuitization

So, annuitization products, think back to when you were a kid, and you turned on the spigots outside. Think about ripping the knob off of that spigot, and the water starts flowing. That's annuitization. Once you turn on the income stream, that income's coming. You can't shut it down. It will hit that bank account every month regardless of how long you live, which is a good thing. If you set it up joint with the spouse or partner and you die, it continues uninterrupted and unchanged for their life. You can also structure it to where there's a period certain attached to it, and your beneficiaries may get that payment as well.

Here are some annuitized products: Single Premium Immediate Annuities, Qualified Longevity Annuity Contracts, and Deferred Income Annuities, those are all annuitization products. And yes, you do lose control of the money with those specific types.

Now, with annuity income, do you lose control of the money? Well, again, it depends on what type. We talked about the annuitization types, which are Single Premium Immediate Annuities, Qualified Longevity Annuity Contracts, and Deferred Income Annuities, ripping the knob off a water faucet and having income flow for the rest of your life. It's irrevocable. It's going to happen.

Products You Can Control

There are lifetime income stream products that you can control. You can shut on and off. The primary one, the only one really, is an Income Rider. A lifetime income benefit rider that you can attach to a policy at the of application. Those policies are Variable Annuities or Indexed Annuities. Think of a Variable Annuity or an Indexed Annuity with an Income Rider as a delivery system for that income guarantee. In fact, when we use Indexed Annuities, I don't sell Variable Annuities because I only sell contractually guaranteed fixed products. That doesn't mean Variable Annuities are bad. However, when using Fixed Index Annuities, we primarily use them as delivery systems. A very efficient delivery system for that income benefit rider.

When you receive a lifetime income stream, regardless of if you're using an Immediate Annuity, Deferred Income Annuity, QLAC, or Income Rider, it's a combination of return of principal plus interest based on your life expectancy at the time you take the payment. Interest rates play a secondary role. But with an Income Rider, and one of the things from a benefit proposition standpoint that makes it stand apart a little bit, it's a drawdown. It is a subtraction, even though it's a lifetime income stream. So, in other words, they're taking money out of your account. They're not annuitizing that. They, the annuity company, is not ripping the knob off the faucet, but they are paying you a lifetime income stream. Can you shut it off? Yes. Do you have to use your lifetime Income Rider? No. Do you have to turn on that income stream from the income rider? No. But suppose you attach it to a policy like a Deferred Annuity, like a Variable Annuity or an Indexed Annuity. In that case, you probably need to buy that Income Rider with the idea of using it because those Income Riders typically come with a fee.

Not to get in the weeds, but just because all of the advisors that read this will say, "But you didn't talk about that one Variable Annuity Income Rider that is annuitized." Yes, Variable Annuities have one Income Rider that's annuitized, but 90% and probably almost 100% of all Income Riders currently being sold are what I call drawdown riders. This means that if you control the asset, you can shut off that income stream and turn it back on. Understand when you turn it back on, it will be at that same level that you shut it off at. But it does give you that flexibility of, hey, I want a lifetime income stream. I'm unsure if I will use it, but I may. And if I do use it, if life changes, I want to be able to pivot and shut it off.

Client Example

I got a call the other day, and we looked at what I called income later. In other words, you want income to start at a future date. Well, we'll quote two products or three if it's your IRA. Deferred Income Annuities, Qualified Longevity Annuity Contracts, which are kind of the same thing structure wise, but a QLAC can only be used in an IRA. And then we quote Income Riders. And we go through the benefit propositions of each. Both of them get to the contractual goal using different paths to get there, but both of them provide a lifetime income guarantee that you cannot outlive. The reason this guy called me about the Income rider was that he was going to use or need that income, but he wanted to make sure he had it just in case.

We shopped all Income Riders because you have to shop everything for the highest contractual guarantee for your specific situation. And then I told him at the end, I said, "Well, let's choose this. This is the highest contractual guarantee." Fortunately, it was with a highly rated company. He said that's fantastic. I said, "Let me tell you one more thing: you can shut it on and off if needed." His question was, "Why would I ever do that?" It's a good question.

Most of the time, I think that you probably wouldn't need to do that. But let's say that in the future, they will raise our taxes to 90% to pay for all this deficit. They just come out and say, okay, all you rich people or all you people out there that they think are rich, but you're really not. You just worked hard to put money away and saved and did without. You're the evil rich too, by the way. But I said that could happen under that scenario. If you're getting income, we might shut it off until the crazy politicians calm down and aren't so confiscatory as they say in trying to take all your money away.

If you're looking for a lifetime income stream and don't care about controlling the money, then an annuitized product makes sense. If you do care about the money and the control of it and say, hey, I'm not sure I want to turn it on and off, blah blah, blah. I might want to change my mind, I might want to pivot, then an Income Rider is going to work for you regardless. We will quote all carriers based on when you want that income to start. And then, we can reverse engineer the quote, or we can quote the lump sum. It's up to you, it's customizable.

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.