Annuity Payments: Are They All for Life?

Hi, I'm Stan The Annuity Man, America's annuity agent, licensed in all 50 states, including the one you're sitting in. Yes, that's your state. I'm licensed in that state.

‌What are we talking about today? We're talking about annuity payouts. Are they all for life? Are all of them lifetime income products? No, they're not, but most of them are. But we're going to go through both types so you can make a good decision if you even need one, and if you do, how to get one.

‌Brief History

‌Back in Roman times, Caesar was running the show. Caesar had a bunch of dutiful Roman soldiers who were out there laying it on the line for the empire. That is a good thing. Now, what did he do? He said, "Hey, I'm going to give those cats a lifetime income stream for them and their family that they can never outlive." By the way, that's where annuities started, back in Roman times, as a payment, lifetime income stream, for those dutiful Roman soldiers who were out there laying it on the line. Most of those dutiful Roman soldiers were getting whacked, that's Roman for killed, the income stream guarantee was for their families as well.

‌Why do I digress there? That's the original thought, the original introduction of the lifetime income stream annuity, of which Roman annuity today is called a single premium immediate annuity. Now, that's one backdrop. That's one foundational historical nugget you'll love to take with you and tell at the next cocktail party.

‌Lifetime Income Stream

‌The other nugget you will tell is that every American citizen with a Social Security number owns an annuity. That's the other thing that people don't know. That's true. Even the annuity haters, even the person that's running these annuity ads that say, "I hate all annuities," they own an annuity. Hypocrite much? Maybe. That's Social Security. It's an annuity. It's a lifetime income stream payment. Now, most people that contact Stan The Annuity Man for an income payment are looking for a lifetime income stream. A lifetime income stream is a transfer of risk. You're transferring the risk for the annuity company to pay you for the rest of your life. You're solving for longevity risk, which is the fear, the absolute fear, of outliving your money.

‌Suppose you're one of the 10,000 or more baby boomers who are reaching age 65 or retirement age every single day. In that case, that's a fear because most companies, unless you work for the government or are involved with a really, really strong union, you do not have a pension plan. You might have a 401(k), some retirement savings, an IRA, all these things that are growing, market growth stuff, but you need to transition to lifetime income. A lot of people do that.

‌Now, lifetime income streams are a guaranteed income payment that's based on your life expectancy at the time you take the payment. Interest rates play a secondary role. Obviously, the older you are, the higher the payment. Just like Social Security. Right? Mm-hmm.

‌The 2 Questions

‌Not all payments are for life with annuities. You can customize annuities. I always ask people two questions, regardless of what they want from the standpoint of annuities, and a lot of people don't know what they want, but I want to drill down and make sure we're going to the right product to find the highest contractual guarantee for their specific situation. Number one question: What do you want the money to do contractually? And then number two, when do you want those contractual guarantees to start?

Now, for annuities, they don't have to be lifetime income, not all of them. You can have what's called a period certain annuity. You can choose the duration, meaning, "Stan, I only want payments for 10 years," or "Stan, I only want payments for seven years," or 11 years, or 13 or 20, or 30, or whatever. The annuity companies will bid on that, and you shop all carriers for that specific period certain annuity.

‌Period Certain Annuity

‌With a period certain annuity, it's not about life expectancy, it's about interest rates. That's really what it comes down to because you're not transferring the risk for the annuity company to pay you for life. You're transferring the risk with a period certain annuity for them to pay you for that specific period of time. You're getting your money back with interest, and after that period of time is over, it's game over. You're not going to get any more money.

‌Why would you do that? Why would you ever do a period certain annuity? I had a call the other day from a guy who said he was a planner. Well, he's what I call a box checker, and you might be the box checker, too. He knew everything in his portfolio down to the nth degree. He knew when income streams were going to be turned on, but he had a 10-year period. He didn't have a specific amount of income that was going to fill that income floor, that guaranteed income amount that he needed to come in every month.

‌What we did was run a period of time for a certain quote, solving for that monthly amount. He needed $2300 for those ten years to hit his bank account every single month. After those 10 years, he had it covered. Some pension was kicking in, or something was kicking in to make up for that. But between now and those 10 years, he needed that $2,300. What we did was we ran a period certain quote for that specific period of time solving for that monthly income amount.

‌What does that quote look like? The annuity companies will quote that, and you will see the quote we sent to you using our annuity calculators, which is the exact dollar amount you need to put into that period certain annuity to create that monthly income stream. By the way, you can do the same thing for a lifetime income payout. You can say, "I need $2,475 a month for the rest of my life." We can reverse engineer the quote so that we'll find out how much money it will take, all the companies bidding on it, to create that guaranteed income amount. What you're going to do is look for the highest Claims Paying Ability carrier, the highest rated carrier, that takes the least amount of money to create that lifetime income stream.

‌But when it comes to annuity payments, are they all for life? No, but most of them are. I mean, annuities are the only financial product that can provide a lifetime income stream period. There's no other product like that.

‌Now you got to say, "Well, Social Security is like that." You're right, it's an annuity. "My pension's like that." You're right, it's an annuity. Annuities have a monopoly on lifetime income, but you don't have to do lifetime income. You can do that period certain that I was telling you about, but you have to be very, very careful with that, especially in low, low, low, low, low interest rate environments. You have to run the math on them and see if it really makes sense for you to do that.

‌We certainly will run the quote for you at The Annuity Man. Go there for everything, including all things annuity, blog posts, videos, and podcasts. You can download my annuity owner's manuals for free - no cost or obligation. You can learn about annuities on your time frame and make a decision, understanding exactly how they work for their benefits and limitations.

‌With that, I'll see you on the next Stan The Annuity Man blog.

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.