Annuity Income: Return OF or ON Your Money?: Shootin' It Straight With Stan

Welcome to Shootin' It Straight With Stan. I'm your host Stan The Annuity Man, America's annuity agent licensed in all 50 states. I'm so happy to be here. I got a great topic today from which I believe you'll learn something. And that's what I do these for, these aren't salesy. These are informational, educational, entertaining, and edutaining, as they say. Today's topic is about annuity income. Is it the return of your money or a return on your money? So, return of, or return on. Great question, Stan The Annuity Man, America's annuity agent. Let's cover it.

‌Annuity Types

‌Now, annuities as a category, there are many different types. They're not just all for lifetime income. There are types that just protect the principal. Fixed Annuities are like CDs, and Multi-Year Guarantee Annuities are like CDs. Guaranteed interest rates for a specific period of time, principal protection. Fixed Indexed Annuities, principal protection, CD type product. It just doesn't have the same type of guarantee that a Multi-Year Guarantee Annuity has. But there's many types of lifetime income products. I'll give you an example.

‌Single Premium Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, which are Deferred Income Annuities you can use on a qualified account, i.e., Qualified Longevity Annuity Contracts. Then, there are Income Riders that can be attached to Variable Annuities, Indexed Annuities, etc. But the Income Rider is a lifetime income product. Now, before we get started, please don't throw anything at the screen unless it's like a Nerf ball or something, but you already own a lifetime income product, and that is called Social Security. You might also own another lifetime income product if you have a pension from your employer, labor union, or whoever has set that up for you. So, you might already own lifetime income products.

‌The Value Proposition

‌As a rule, with Single Premium Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, and Income Riders, when you're getting income from that, it's a combination of return of principal plus interest. Hang in there with me. You got to say, "Well, that doesn't sound like a good deal Stan. Why is that a good deal? Tell me why that's a good deal." Here's why it's a good deal. As long as you're breathing, the annuity company's on the hook to pay. If you set it up joint with your spouse, as long as one of you is/are breathing, the annuity company's on the hook to pay.

‌That's the value proposition. People say, "Why? Why would I ever buy an annuity? Just put it in mutual fund and take out 4%. Dave Ramsey said I could take out 8%." Oh, that's garbage. No offense to Dave. I like Dave and what he does to get people out of debt, but he needs to stay in his lane. He's wrong about the withdrawal thing, and there's been a lot of controversy about that. And the 4% rule is garbage as well and has been shot down by the likes of Wade Pfau and everyone else with degrees and ascots, smoking jackets, and elbow protectors on the jacket. I don't do that. I wear Adidas sweats and stuff with The Annuity Man logos on it. But you're saying, "Wait a minute, Stan. Did you just say return of your principal plus interest?"

‌The answer is yes. That's how lifetime income works. When you're getting a return of your money with Immediate Annuities, Deferred Income Annuities, QLACs, and Income Riders, it's a transfer of risk for lifetime income. It's going to pay as long as you're breathing. There's no ROI until you die. The value proposition is you don't have to worry about it. It's going to happen. It's going to hit your bank account as long as you're breathing, even if you're on a ventilator, and they're feeding it through the stomach. And it isn't good; they're still going to pay you. That's the return of your money-type lifetime income.

‌Multi-Year Guarantee Annuities

‌Now, there are annuities where you can get a return on your money, like a CD or something like that, or a treasury or money market, where you protect the principal and take interest out. In our world, and I say our because I'm the leader of this world, America's annuity agent. In the annuity world, that's a Multi-Year Guarantee Annuity.

It's the annuity industry version of a CD. You can't say, "I hate all annuities, Stan. I hate them." Do you hate CDs? You might, but if you don't, then you're going to be pretty happy with Multi-Year Guarantee Annuities because with a lot of those, not all but a lot, the majority, you have the ability to take out the interest and never touch the principal. I'll give you an example.

‌You can lock in a one-year, two-year, three-year, four-year, five-year, up to a 10-year guaranteed interest rate that's not callable with Multi-Year Guarantee Annuities. We can choose one's for you that allow you to take the interest off the top, in essence, peeling the interest off of the top and never touching the principal. That's the return on your money. Now, that's not a lifetime income stream because the farthest out you can go typically is 10 years.

‌There are some carriers that have a really long-term, like 20 years, but I believe 10 years is the value. That's where the value stops. So, a 10-year MYGA with a guaranteed interest rate, Multi-Year Guarantee Annuity, with a guaranteed interest rate that allows you to peel off interest and never touch the principal. When you get to the end of the 10 years or the seven years or the five years or the three years, whatever you lock in, you will have all your principal intact and have been taking interest off of the top. That's the return on your money. That's not lifetime income, but you can continually roll those Multi-Year Guarantee Annuities via 1035 or IRA to IRA non-taxable events on either side to continue that strategy. If you want to control that asset and you say to me, "You know what, Stan The Annuity Man, or one of my great staff in the Las Vegas office, and you say, "Hey, I don't want to lose any of this money. I've worked hard. I just want to peel off interest rates." And maybe interest rates are at a level you feel you can live off.

‌The Two Questions

‌I did a video a while back called You've Won the Game, Why Are You Still Playing? When interest rate levels get to a point where you can take the interest off of the top and not touch the principal and go live a good life, then you might want to consider that. Stan The Annuity Man himself loves doing that. I know I look young and vibrant, but I'm getting ready to turn 60 at the time of this blog. I have a long runway ahead of me in the annuity world, so don't panic. And I know I look vibrant, I know that. So, the choice is, for income, let's say, "Stan, I want income." The two questions I always ask are, "What do you want the money to contractually do? When do you want those contractual guarantees to start?"

‌The Annuity Company's on the Hook

‌But if we drill down on, "Hey, Stan, I want income." Then the question is, will just peeling off the interest and getting a return on your money solve that income need, or do you want to check off that box and say, "You know what? I want that lifetime income stream for me, or I want that lifetime income stream for me and my spouse, and I don't ever want to think about it again. I want it to hit that bank account as long as I'm breathing even if I'm not hitting on all cylinders." I always say there are three phases of retirement. Go, go slow, go, and no-go. This will happen whether you're in any of those phases, and when you're in no-go, you might not even know you're in no-go, which is okay, because the income will still hit. And if it even draws down the account to zero, the annuity company's on the hook to pay.

‌Inflation

‌We have a quadrillion clients; look it up, and the account's at zero, and they're still getting paid. So, people say, "Well, what's the return? Is that a good investment, Stan?" You tell me. Pension? Come on now. Now, let's talk about one thing, the bugaboo. I love the word bugaboo. I don't even where that comes from. Someone look it up and tell me where. The problem is that bugaboo is inflated. "Stan, I think this inflation thing, we got to address that." There's not an annuity on the planet that addresses that, regardless of the sales pitch you might hear at the bad chicken dinner or expensive steak dinner seminar.

‌By the way, those invites are getting ready to come in again. Take them, swallow the food, don't swallow the pitch. Man, you can get some good steak out there. My mom who lives in St. Augustine, Florida, goes three or four times a week. And she'll call them up and ask, "What are you having for dessert? Stan, what they talked about sounded really good. Market upside with no downside. And then they had a brownie at the end."

‌Whatever mom. Go and eat. The bottom line is, from an income standpoint, do you want to just peel off the interest, or do you want a lifetime income stream? You want to check the box off and have an irrevocable lifetime income stream. That's going to happen. Now, if you choose that, it's going to draw down. In the South, they call that subtraction. It's going to draw down from the money that you put in. But if you're okay with that, then it's fine. We can also build into those lifetime income streams contractually so that 100% of any unused money, if you die early in the contract, goes to the list of beneficiaries, and the evil annuity company doesn't get to keep a penny even though they're contractual on the hook to pay as long as you're breathing.

‌Annuity income comes in two forms. You probably didn't know that did you? That's the reason you tuned in with Stan The Annuity Man. Turn on, tune in. That sounded like Timothy Leary for a second. Look it up. You have to make a decision on how you want that income to be. Do you want to rip the knob off the faucet? Check the box? It's going to hit just like Social Security hits. Or do you want to get your return on your money like a Multi-Year Guarantee Annuity, which is the CD version?

‌There's not a way that annuity companies can price inflation. I know I got distracted. I got distracted on the seminar because my mom goes in eats there and had the brownie and the steak and as she says, "The filet mignon. Stan, I'm going to tell you something right now, that filet mignon, that filet mignon melted in my mouth."

I'm like, "Mom, it's filet mignon." She goes, "It's got a T in it." "I know, but they don't pronounce it. It's filet mignon." She goes, "I don't care what it was. But that filet mignon was good."

‌Here's the thing, no annuities adjust for inflation. So, when you're doing lifetime income, if you want to address inflation, we buy an Immediate Annuity, reverse engineering, and solve for that specific amount you need. But if anybody, any agent says, "Well, I got the one that adjusted it every time the index increases, increases your income." Listen, life insurance companies have the big buildings for a reason. They sponsor sports stadiums for a reason, and they have logos on the plane for a reason. They don't give anything away. So, typically, they're going to be low. If you say, "I don't care what you say, Stan. Let me tell you something son. I want an inflation increase." Okay, great. You already own the best inflation annuity on the planet. The annuity company will simply lower that initial payment by upwards of 30% to 40%. It takes a long time to make up for that. And in my opinion, mathematically, it doesn't make sense, even though it feels good. It just doesn't. You got to go with me on that. I'm Stan The Annuity Man, America's annuity agent. You're still laughing about the filet mignon, aren't you? That's a real story.

‌Either Way Works

‌Tying this thing back in a nice little annuity bow that only I can do. Annuity income, return on or return of your money. Either way it works. If you choose the return on, then all we're going to have to do at the end of that MYGA's maturity is roll it to another MYGA and hope that rates are at a good level. But you can also do this. You can also get the MYGA now, and if rates go down, we can always transfer that to an Immediate Annuity for lifetime income. You can play both sides. And that's the reason you use us at The Annuity Man. We only look at contractual guarantees. We will listen to you and use our mouth and ears in proportion, two to one. We will put together a customized contractually guaranteed strategy that fits your specific situation. My name is Stan The Annuity Man. I am America's annuity agent. I just happen to be licensed in all 50 states, and I'll see you next time.

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.