Are Annuities Confusing? Understanding Annuities Shouldn’t Be Rocket Science

Hi there. Stan The Annuity Man, America's annuity agent licensed in all 50 states, including yours. Are annuities confusing? Should it be rocket science to understand these things before buying them? The answer's absolutely not. It shouldn't be that way, and if you do not understand them, Warren Buffett rule, you should never buy them. I'm going to go through all of the details of how to decide if you need an annuity, and if you do need an annuity, what type?

Before we start, I'd love for you to go to my site at The Annuity Man and download my annuity books. You can download them for free, with no charge and no obligation, because I want you to understand what you're buying if you decide to buy them from me, America's Annuity Agent, the top guy out here.

I'm an educator first and an agent second because you need to be educated on what you're considering. I know there are a lot of too-good-to-be-true sales pitches out there. Be very, very careful not to buy the dream. As I always say, "You don't need a friend in the annuity business. You need the facts." Now, that's what I'm going to bring. I'm not going to be your friend. I'm going to be a professional, which is what you want.

Breaking It Down

Can annuities be confusing? Yes, they can, so let's break it down. I've come up with two things that really strip all of this down to the basics, and a lot of agents across the country are starting to use them, which is fantastic. I'm not charging them for it because it's the right thing to do for the consumer.

The Two Questions

Number one is I have two questions you must ask yourself and answer. They are this. They are them. They are those. Which one is it? I don't know. I didn't go to that grammar class. Number one, what do you want the money to contractually do? And number two, when do you want those contractual guarantees to start? That's the first thing you have to do. I'll do it again. What do you want the money to contractually do? When do you want those contractual guarantees to start?

The PILL

The second thing I've come up with is the acronym PILL, P-I-L-L. P stands for principal protection. I stands for income for life. L stands for legacy, and the other L stands for long-term care, confinement care. Let's do them again. Principal protection, income for life, legacy, long-term care, confinement care. The reason that's important, and you need to remember the PILL acronym, is if you do not need to contractually solve for one or more of those items in the PILL, you do not need an annuity. It's just that simple.

In my world of contractual guarantees, in my world of transferring the risk to the carrier, in my world of these being commodity products, you should never, ever, ever, ever buy an annuity for market growth. Now, I understand that my friends on the Variable Annuity side are yelling at me, and they have a good argument for Variable Annuities for market growth. I don't sell Variable Annuities because Variable Annuities can go down in value. I don't sell anything that goes down in value. I sell contractual guarantees, just Fixed Annuities.

Indexed Annuities

If someone says to you, "Hey, I can get you market growth with no downside or principal protection," they're trying to pitch you an Indexed Annuity. Half of that's true. You won't lose any money because it's a Fixed Annuity. It's a life insurance product. It's not a security. However, market growth over time was not the case; they were developed in 1995 to compete with CD returns. That's exactly what they do. There are some years that it might be a little bit better than that, but a blended return is typically CD rates, which is fine. I wish the Indexed Annuity world would go in my direction of not over-hyping it and having people's expectations in line with contractual realities.

Simplistic Annuities

Let's go through the simplistic annuities. The ones that nine-year-olds can tell you how they work. Truly nine-year-olds could be annuity agents, I guess if it was legal, with these specific products. Immediate Annuities, Single Premium Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, and Multi-Year Guarantee Annuities. Let's go through them kind of quickly.

SPIAs

Single Premium Immediate Annuities, the granddaddy of all annuities, developed in Roman times as a gift, pension gift to the dutiful Roman soldiers and their families. It's a pension. It can start as soon as 30 days, up to a year.

DIAs

A Deferred Income Annuity is a Single Premium Immediate Annuity with a start date that can be as soon as 13 months or as far out as 40 years with some carriers.

QLACs

A Qualified Longevity Annuity Contract is a Deferred Income Annuity.

Okay, let me go backward. An Immediate Annuity is a Deferred Income Annuity is a QLAC. They're all kind of the same from a structure standpoint. There are no annual fees, no moving parts, and it is a lifetime income product.

MYGAs

The other simplistic product is a Multi-Year Guarantee Annuity, the annuity industry's version of a CD. We have a live MYGA feed on my site, The Annuity Man, where you can check rates, and it's approved at the state level. So, some states will have different rates than others where companies have their products approved, but it's just like a CD. It pays an interest rate for a specific period of time that you choose. The duration is your choice.

Complex Annuities

Let's talk about the complex annuities. The ones that you kind of need to be a rocket scientist a little bit to understand. And here's the thing, if you really don't understand what you're buying, don't buy it. Don't trust the person across the table when they say, "Oh, I've got this for you. This is the right one for you." No, if you do not fully understand it, don't buy it. If you get issued a high-pressured policy, call the carrier and have them explain it to you, not the agent. Don't buy the dreams because you're going to own the contractual realities. Don't have the unicorns chasing the butterflies, annuities are contracts.

Variable Annuities

The first type of complex annuity is a Variable Annuity. I don't sell Variable Annuities. Nothing wrong with them. They were developed in 1955 for tax-deferred growth, but what, in essence, they are the mutual fund choices inside of a life insurance wrapper is the best thing, but there's a lot more to it. In a lot of cases, the fees can be high. Yes, you can buy no-load Variable Annuities, but at the end of the day, the limitations are wrapped around the choices of those mutual funds, i.e. separate accounts. So, those can be complex, especially when you start attaching Income Riders and all kinds of benefits to the policy. You really have to fully understand what you're buying.

FIAs

The other complex product is a Fixed Index Annuity designed in 1995 to compete with CD returns, but it's like the go-go product now because the story is good. The story is this, you get market upside with no downside. I know you're like, "That sounds great, Stan, let's do that." It doesn't work like that. They were designed for CD-type performance, and that's exactly what they do. The return scenario is based on a call option. I know I'm losing you here, but it's pretty complex.

At the end of the day, with this product, you need to fully understand what you're buying. You need to put your expectations in line with the contractual realities. I've written a book on Index Annuities. I would certainly love for you to go to The Annuity Man and download them for free. I'd also love for you to download my Income Riders book, which you can attach to Index and Variable Annuities. The bottom line is you need to understand this stuff because it can get complex.

I mean, if I have to write a book on it, and these owner's manuals are 60 to 70 pages, easy reads, but I go through the benefits and the limitations, the good and the bad of all this stuff. But most people are buying stuff and they're like, "Yeah, I bought it at a seminar." Or "This guy called me and sent me this stuff. I bought it from an ad on the TV or the radio." Come on now, you're smarter than that. You make more detailed decisions about buying a car, buying a house, choosing a doctor, or whatever. You can't take your retirement money.

Annuities are contracts. We can send you the contract and application before you buy, and if anyone balks at that, then they're not your agent or advisor. There's never an urgency to buy an annuity, just an urgency to understand what you're buying.

I encourage you to go to my site at The Annuity Man. Schedule a time to talk with us one-on-one; do not be confused. Fully understand what you own, and I'll see you on the following 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.