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

Welcome to Shooting 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 that I believe you're going to learn something, and that's what I do these for, these aren't salesy, these are informational, educational, entertaining, edutaining, as they say.

Today's topic is about annuity income. Is it return of your money, or 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; some types just protect the principal. Fixed Annuities, like CDs, and Multi-Year Guarantee Annuities, are like CD-guaranteed interest rates for a specific period of time for principal protection. Fixed Index Annuities, principal protection, and CD-type products just don't have the same type of guarantee that a Multi-Year Guarantee Annuity has.

Lifetime Income Products

However, there are many types of lifetime income products. I'll give you an example: Single Premium Immediate Annuities, Deferred Income Annuities, and Qualified Longevity Annuity Contracts, which are Deferred Income Annuities you can use on a qualified account, i.e. Qualified Longevity Annuity Contracts. And then Income Riders that can be attached to Variable Annuities, Index Annuities, etc., but the Income Rider is a lifetime income product.

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. You already own the best inflation annuity on the planet, 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. You may already own lifetime income products.

Return of Principal Plus Interest

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. So, hang in there with me. You're going to say, "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 breathing, the annuity company's on the hook to pay. That's the value proposition. People say, "Why would I ever buy an annuity? Just put it in a mutual fund and take out 4%. Dave Ramsey said I could take out 8%." All 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.

The 4% rule is garbage as well and has been shot down by Wade Pfau and everyone else with degrees, ascots, smoking jackets, and elbow protectors on their jackets. I don't do that; I wear Adidas sweats and stuff with logos on it.

You might be 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 that 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 you 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 that you can get just get a return on your money, like a CD, or something like that, or a treasury, or money market, where you protect a principal, and you can 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, 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, or up to ten-year guaranteed interest rate that's not callable with Multi-Year Guarantee Annuities. We can choose ones that allow you to take out interest off the top, in essence peeling interest off the top, and never touch the principal, which is the return on your money.

That's not a lifetime income stream because, typically, the furthest out you can go is 10 years. Some carriers have long-term ones, like 20 years, but I believe 10 years is the value; that's where kind of the value stops. 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're going to 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 event on either side to continue that strategy.

If you want to control that asset, and you say to me or one of my excellent team members in the Las Vegas office, "Hey, I don't want to lose any of this money. I've worked hard and want to peel off interest rates." And maybe interest rates are at a level that you feel you can live off that. I did a video a while back called You've Won the Game While You're Still Playing. When interest rate levels get to a point where you can just take the interest off the top and not touch the principal and live a good life, then you might want to consider that.

The Two Questions

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 got a long, long runway ahead of me in the annuity world, so don't panic out there, and I do 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?" 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 to solve that income needs? Or do you want to check off that box, and say, "You know what? I want that lifetime income stream from me." Or "I want that lifetime income stream from 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 is going to 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 is still going to hit. And if it even draws down the account to zero, the annuity company is on the hook to pay. We have a quadrillion clients; look it up: the account's at zero, and they're still getting paid. People say, "Well, what's the return? Is that a good investment, Stan?" You tell me. Pension? Come on now.

Inflation

Now let's talk about one thing, the bugaboo. I love the word bugaboo; I don't even know where that comes from; someone look it up and tell me. I love bugaboo. The conundrum, bugaboo, is inflation, "Stan, I think this inflation thing, we've got to address that." No annuity on the planet addresses that, regardless of the sales pitch you might hear at the expensive steak dinner seminar.

By the way, those invites are getting ready to come in again. Take them, go swallow the food, and 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 eat.

The bottom line is that you need to decide whether you want to take money. From an income standpoint, do you want to just peel off the interest, or do you want a lifetime income stream? Do you want to check the box 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. The evil annuity company doesn't get to keep a penny, even though they're contractually on the hook to pay as long as you're breathing.

So, annuity income comes in two forms; you didn't know that did you? That's the reason you're here with Stan The Annuity Man. You just have to decide 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 a return on your money, like a Multi-Year Guarantee Annuity? Which is the CD version.

I know what I was talking about, inflation. There's not a way that annuity companies can price inflation. I know how I got distracted; we got distracted on the seminar talk because my mom goes and eats there and has the brownie, and the steak. 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." But here's the thing, no annuities adjust for inflation. When you're doing lifetime income, if you want to address inflation, we just buy an Immediate Annuity, reverse engineering and solving for that specific amount you need. But if anybody, any agent says, "Well, I've got the one that adjusted it. Every time the index increases, it 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.

If you say, "I don't care what you say, Stan. Let me tell you something, son, I want an inflation increase." Okay, great. Even though you already own the best inflation annuity on the planet, the annuity company is going to just simply lower that initial payment by upwards of 30 to 40%, so 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. 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? I mean, I'm serious; that's a real story.

So, annuity income, tying this thing back at a nice little annuity bow that only I can do, 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 the maturity of that MYGA is roll it to another MYGA. I hope that rates are at a reasonable 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 a little bit, and that's the reason you use The Annuity Man ; we only look at contractual guarantees, we're going to listen to you and use our mouth and ears and proportion, 2:1, and we're going to 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.