Do You Need More Annuities Than Social Security?

Hi there, Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Today's topic is: Do you need more annuities than Social Security? So, all you out there saying, "Oh, I’d never buy an annuity, Stan. Terrible. I’d never buy one," first of all, that’s not smart. But I’m going to give you a break because you just don’t know better, and I’m getting ready to tell you why.

Social Security: The Best Inflation Annuity

First of all, you already own an annuity called Social Security. It’s the best inflation annuity on the planet. If your employer offers a pension, you own another annuity. But 91% of us have employers that don’t offer pensions. Then, your Required Minimum Distribution (RMD) from your IRA is kind of a pseudo-annuity payment. Regardless of whether you need the money or not, the IRS taps you on the shoulder and you have to take it out, which is a form of annuity payment.

Do You Need More?

Now, do you need more than that? Let's look at it from two angles, primarily focusing on income for life. Do you need more income for life? Do you need an income floor?

What is an Income Floor?

An income floor is the money that hits your bank account every single month, regardless of who's in office, what party’s in power, what’s happening overseas, or any black swan events. That money keeps coming in. For example, Social Security, pensions (if you have one), dividend stocks, rental properties, or even peeling off interest from Multi-Year Guarantee Annuities (MYGAs), municipal bonds, or CDs. What’s your income floor? What do you need to hit that bogey every month, knowing that if inflation hits, you can come back and buy an Immediate Annuity or some product to fill that gap?

Income for life or income needs are pretty self-explanatory. You already have the pillar in place with Social Security. The question is: Do you need more than that?

Principal Protection in Chapter Two

For those of you transitioning into "Chapter Two" (which I don’t call retirement, I call it Chapter Two), you might want to protect your principal. If you want to protect your principal, I like two products: the Multi-Year Guarantee Annuity (MYGA) and Fixed Index Annuities (FIAs). MYGAs are CD products with a guaranteed interest rate, while FIAs are CD products, but their yield is not guaranteed and fluctuates within cap spreads and participation rates.

I’ve written a book on it and made many videos on Index Annuities, but we primarily use them as a delivery system for Income Riders. There are really five places to go for principal protection: money markets, CDs, treasuries, municipal bonds, and MYGAs. You can also consider placing FIAs next to MYGAs because both are CD products you won’t lose any money on. Personally, I prefer MYGAs over FIAs because their yield is guaranteed. You know what you’re going to get.

Do You Need More Annuities?

So, do you need more annuities? You might not, and that’s fine. Remember the acronym PILL: Principal Protection, Income for Life, Legacy, and Long-Term Care. We've already covered income for life and principal protection, but you might need an annuity for legacy if you don’t qualify for life insurance.

Life Insurance vs. Annuity Death Benefits

Life insurance is the best legacy product because its tax benefits go to your beneficiaries tax-free. I know what you’re thinking: "Wait a minute, Stan, life insurance companies issue annuities. Are annuity death benefits tax-free?" No, but life insurance death benefits are tax-free. I understand the confusion.

Long-Term Care and Annuities

Another consideration is long-term care. Do you need long-term care coverage? Do you qualify for it? Do you have a life insurance policy with a long-term care rider? Or do you want to use Fixed Annuities with long-term care coverage as well? These are the ways you determine if you need to transfer risk to a life insurance company issuing an annuity to solve for this specific goal.

Annuities: Not a One-Size-Fits-All Solution

You don’t just go to a steak dinner seminar and buy something because it sounds good. Annuities are not a one-size-fits-all solution. If it sounds too good to be true, it is. With annuities, you have to have a specific goal in mind. Once you define that goal, you then shop all carriers and quote them using our calculators at The Annuity Man. Annuity products change every 7 to 10 days as companies adjust their guarantees based on what they’re trying to attract.

Planning for Chapter Two

As you move into Chapter Two, the first thing you should focus on is your income floor. Do you have enough income in place? What’s your plan if inflation hits? If inflation does hit, you reverse engineer the quote to solve for the specific dollar amount you need to fill that gap.

Once you have the income floor in place, then focus on protecting your principal. Do you need to protect your principal and never lose a penny? Remember, money markets, CDs, treasuries, AAA municipal bonds, and MYGAs are all options.

Lastly, think about long-term care and legacy, especially if you can’t qualify for life insurance.

The Annuity Man Approach

It’s really that simple. And here at The Annuity Man, we’re proud of the way we do things. A lot of people in the annuity world are just hammers looking for nails. They're going to sell something regardless of whether you need it. But if you don’t need an annuity or if you already have too much in annuities, we’ll tell you that. We’ll be brutally honest. We want you to be a long-term client, a happy client, and a client who refers people to us.

My name is Stan The Annuity Man, America’s Annuity Agent. 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.