Annuity Retirement Plan: How to Create One

Hi there, Stan The Annuity Man, America's Annuity Agent, licensed in all 50 states, here to talk about how to create your own annuity retirement plan. That’s a good thing, right? Yeah. I mean, everyone needs income in retirement, a lifetime income stream. Let's get into it.

The Importance of Annuities in Retirement

Retirement plans and annuity retirement plans are essentially the same thing. By the way, I'm wearing a shirt that says, "Never Read the Comments." But we do read the comments. If you’re on our YouTube channel and comment, we’ll read it. Just be nice. You don’t have to be mean—just say, "Hey Stan, I don’t like the hat, the shirt, or buying," whatever, but be respectful and professional.

Now, when it comes to retirement, it’s all about income. It’s about lifestyle. Annuities have a monopoly on lifetime income, and I’m assuming if you’re watching this, you're thinking, "I need more income. I need more guarantees in my portfolio."

Markets are volatile—up one day, down the next. As you approach retirement age, you start thinking about how much risk you want to shoulder and how much risk you want to transfer. Annuities are risk-transfer products. You’re transferring the risk to the insurance companies that issue them. Depending on the option, they’re paying you for life or you and your spouse’s lifetime. Annuities are not investments; they are a transfer of risk—a pension plan for the future.

Building Your Income Floor

When it comes to retirement income, you need to establish your income floor. I call it the "income floor," which includes your Social Security, your pension, your RMDs from your IRA, dividend income, or whatever other income sources you have. If you have a side hustle—selling popsicles at the fair, for example—add that to the mix. What’s your monthly income, and how much more do you need? If you don’t need more, an annuity might not be necessary right now. Or you may want to plan for future income to address future inflation.

Immediate vs. Future Income

Let’s break this down. We’re talking about creating your Annuity Retirement Plan (ARP), which comes down to two things: income now or later. Do you need income to start right now (within 30 days to a year), or income later (say, 13 months or 20 years from now)?

If you need income to start right away, it’s an Immediate Annuity—specifically, a Single Premium Immediate Annuity (SPIA). We will quote all carriers, and that’s how simple that income plan is. You just shop all carriers for the best contractual guarantee based on your situation.

For income later, if you don’t need the income to start right now, maybe you have a few more years of work or current income to live off. Still, if you want to plan for the future, there are three main products to consider: Deferred Income Annuities (DIAs), Qualified Longevity Annuity Contracts (QLACs), and Income Riders.

You can use any type of account—IRA, Roth IRA, or non-qualified. However, note that QLACs can only be used in a traditional IRA and specific employer-sponsored plans. QLACs are being included in more employer-sponsored plans, but we’ll quote everything based on your specific parameters.

Pricing and Customization of Annuities

Now, with lifetime income annuities, the primary pricing factor is your life expectancy when the payments begin. Interest rates play a secondary role, and the income stream is a combination of the return of principal plus interest.

Let’s get into customizing your retirement income plan using annuities. You can structure it in a variety of ways. When you contact us at The Annuity Man or use our proprietary calculators, you can structure it as single life, joint life, or for a specific period (period certain). You can also choose options like "single life with installment refund," "single life with cash refund," "joint life with installment refund," or "joint life with cash refund."

So, what does all that mean? "Life" means life—you’ll never outlive the payments. The annuity company is on the hook to pay you for the rest of your life, no matter how long you live. That’s the true benefit of annuities: lifetime income guarantees.

Life-Only vs. Refund Options

The question is, how do you want to structure the backside of that guarantee? If it’s single life only or joint life only, the money goes "poof" when you die. In a joint life scenario, if one spouse passes, the income stream continues for the survivor, but once both pass, the payments stop.

Most people, though, don’t choose life-only options. You’ve worked hard for your money, and you want to make sure that, yes, you get a lifetime income stream, but that your hard-earned money goes to your family when you're gone. I’m guessing that’s the case for you, too—just like it is for me and most of my clients. If you ask for a life-only or joint-life option, I’ll ask, “Why? Why other than the highest contractual guarantee?”

You do understand that if you choose life-only and you die shortly after, the money disappears, right? Once people understand that they often make a logical decision. But many don’t want that, which is why refund options exist.

Refund Options: Installment vs. Cash

The installment refund option is one of the best guarantees you can have. With installment refund, any unused money upon your death goes into payments to your designated beneficiaries.

Cash refund works similarly but pays your beneficiaries a lump sum upon death. I like to joke that you chose an installment refund so your beneficiaries would show up at your funeral in a Bentley or Ferrari—they’d get their payments, right? Personally, if I pass with all my life insurance and annuity funds, I’d expect my daughters to be helicoptered in. Just kidding—they’re great kids. But you might want to ensure your beneficiaries are properly provided for with the installment refund option.

Choosing the Right Annuity Carrier

When creating your annuity retirement plan for lifetime income, it’s important to understand that when you buy an annuity, you’re transferring the risk to the annuity carrier, and they must have the Claims-Paying Ability to fulfill that promise.

Conclusion

These steps are essential—finding out what you need, determining how you want to structure your annuity, getting the best quote, and reviewing the carriers Claims Paying Ability. At The Annuity Man, we’ll guide you through these steps so you can make an informed decision about your retirement income.

As always, go get my book, to sign up for our free annuity owner's manuals.

Thank you for joining me, and I’ll see you on the next one!