Building a Pension from Scratch: Shootin' It Straight With Stan

I'm your host, Stan The Annuity Man, America's annuity agent, licensed in every single one of our beautiful 50 states. God bless America—I love those states. I think I've been to every one so far and would like to return, dig in, and drive around in the RV, if you know what I mean. But I don't want to go to the bathroom in the RV; I'll pull off to the Hilton and go. That's a whole other story.

Today's Topic: Create Your Own Pension

Today's topic is creating your own pension. Yes, I'm talking to you, the person out there who doesn't have a pension, or the person who has a pension and wants more money, or all of you who already have a pension called Social Security, the best inflation annuity on the planet.

A long time ago, companies would offer the gold watch and pay a pension to their workers. That went away long ago when the 401(k) started taking over. That's a defined contribution plan replacing the defined benefit plans. The 401(k) is an accumulation vehicle that, at some point, you have to turn into an income stream.

Understanding Annuities

Whether you hate annuities or not—I hope you don't and haven't fallen for that nonsense line—you already own one: Social Security. Regardless of what you think about them; annuities are the only product and strategy that will pay as long as you are breathing. You're transferring the risk to the annuity company to pay as long as you're breathing. If it's joint life, as long as one of you is breathing, it's called longevity risk in the business. What you're trying to do is create income—that income floor that you can never outlive, hitting your bank account every single month.

I always ask people two questions to see if they even need an annuity:

1. What do you want the money to contractually do?
2. When do you want those contractual guarantees to start?

That determines the product type, and there are many different types of annuities. Not all annuities are the same. To determine which product type provides the highest contractual guarantee, you buy the contractual guarantee, not the hypotheticals or theoreticals. There are four product types in the annuity space that provide lifetime income.

Types of Annuities

Single Premium Immediate Annuity (SPIA)

The acronym is SPIA, Single Premium Immediate Annuity. This is when you want income to start as soon as 30 days from the policy being issued and as far out as a year. No moving parts, market attachments, or annual fees—a very simple risk transfer. The big companies play here. We shop all carriers for the highest contractual guarantee. You can go to The Annuity Man and use our proprietary calculators to run quotes to your heart's content because we're pulling from all carriers, showing the highest contractual guarantees.

Deferred Income Annuity (DIA)

This is similar to an immediate annuity. There are no moving parts, market attachments, or annual fees. It's a transfer of risk that you can defer. The big companies you know by name play here. We quote them all for the highest contractual guarantee. Remember, SPIAs and DIAs can be used in non-IRA accounts, Roth IRA accounts, or non-IRA accounts. The guarantees are the same; only the taxation of the income depends on the account type.

Qualified Longevity Annuity Contract (QLAC)

Introduced in 2014 by the IRS and the Department of the Treasury, a QLAC is a structure you can use with your traditional IRA money. It can defer as far out as age 85, with some tax advantages when you take RMDs if you own a QLAC. Many 401(k) plans now offer QLACs as a future pension plan.

Income Rider

This is an income benefit attached to a policy, typically an Indexed or Variable Annuity. If you need income to start in a few years, we quote Deferred Income Annuities, Income Riders, and QLACs if you're using traditional IRA money, and the age makes sense.

All four products—SPIAs, DIAs, QLACs, and Income Riders—pay as long as you're breathing. They can be set up so that 100% of any unused money goes to the beneficiaries.

Creating Your Personal Pension

With over 11,000 baby boomers hitting age 65 every day, more people are looking to retire earlier and go live their lives. COVID was a wake-up call for many to live their lives.

You need to look at how to create your own personal pension. You can attach increases to these products to combat inflation, but annuity companies don't give that away. They drastically lower the initial payment to compensate for any potential or contractual increase, like a COLA attached to an Immediate Annuity. Mathematically, it typically doesn't hold up. We can run those quotes for you, but if you're under the belief that any company has a product that addresses inflation, they do not. You already own the best inflation annuity: Social Security.

Conclusion

If you're thinking about creating your own pension, annuities are the only product type to do that, with four ways to do it: SPIA, DIA, QLAC, and Income Riders. You can quote all of these at The Annuity Man. I've written owner's manuals on every one of them, detailing everything factually—the good, bad, limitations, and benefits.

Let's create your own pension, live our lives, and have money hitting that account regardless of what the markets and politicians do. It's called your income floor. Let's put it in place contractually. My name is Stan The Annuity Man. See you next time.