Does an Annuity Count as Income?

Hi there, Stan The Annuity Man, America's Annuity Agent, licensed in all 50 states. I'm so glad you joined me today. When people often read these blogs, they're so enamored and say, "Wow, that's really informative, yet not salesy." You're right about that. That's a good point.

‌Today's topic is excellent. Does an annuity count as income? Crazy Glue 33 submitted this question. Now, let's stop there for a second. I love Crazy Glue 33. But if you really want your real name in the blog and you become famous in the Stan The Annuity Man world, then put your name down. But we do answer these questions, but I will answer Crazy Glue's question after this.

‌So, I have the official Stan the Annuity Man clipboard, licensed in all 50 states, America's Annuity Agent, as you know. But let's read Crazy Glue's question. Let me be very specific Crazy Glue 33, because there might be a 34. Who knows? "Hi Stan, great videos." Good start, Crazy Glue. "I have a question I have not found an answer for anywhere about annuities."

Man, you came to the right place. "If an annuity is your only source of income, does it count for purposes of accruing a Social Security benefit, or is annuity income excluded? I am thinking of converting a 401k to an annuity in less than 59 and a half. Thanks!"

‌Social Security

‌The lifetime income you receive from the annuity is considered ordinary income, not earned income, and that's very important. Now, you've got to think about Social Security and annuities. Number one, Social Security, as I always tell people, is the best inflation annuity on the planet. Everyone who has a Social Security number in the United States as a citizen already owns an annuity, which makes me laugh because when people say, "I hate all annuities, Stan The Annuity Man, America's Annuity Agent." You already own one, you annuity hypocrite, and it's a lifetime income stream. Pensions, annuities, yes, they're annuities, lifetime income streams, lifetime income annuities.

‌Taxes

‌So, with pensions and Social Security, you can add a lifetime income stream with an annuity, but as taxed at ordinary income levels. Let's get to some more questions from Crazy Glue 33. Disclaimer, I'm not a tax expert. Unless it's a CPA or a tax lawyer, you should not receive any tax advice from anyone other than those two categories because those people specialize in tax advice.

‌What I'm giving you is the 30,000-foot view, of which you're going to take that 30,000-foot view advice, take it to your tax lawyer and CPA, validate it, and get the absolute answer from them. However, one of the questions, which I thought was a good one, was whether annuity payments affect Social Security. It comes down to your specific situation and the income you're already receiving from other sources.

‌You can't carte blanchely say yes or no. It depends on your specific situation, the specific income you are receiving, and where that income is coming from. Mr. and Mrs. Crazy Glue 33, who submitted these questions, I really appreciate it. Once again, put your questions in the comments section of any of our YouTube videos, and we'll answer them.

‌One of Crazy Glue 33's closing comments was that they're thinking of converting a 401k to an annuity for a lifetime income stream. That's a good thought, but we have to dig a little bit further. With me, there are only two questions that you have to ask yourself and answer, and of course, we're going to talk.

‌The Two Questions

‌If you go to The Annuity Man, you'll set a time with us. We'll ask you these questions: Number one, what do you want the money to contractually do? Number two, when do you want those contractual guarantees to start? In this situation, they might think, "Well, I might need income, and I might need income from that 401k turning those assets, those growth assets, accumulation assets, into decumulation lifetime income."

‌Now, we must ask when you want that income stream to start? Do you want it to start right now? That's fine. That's called a Single Premium Immediate Annuity. Or if you say, "You know what, I'm 59 and a half, I'm not sure I need the income right now; I might need it at age 65." Then, we will quote Deferred Income Annuities, Qualified Longevity Annuity Contracts, and Income Riders if it's a 401k-type asset.

‌What's the Amount?

‌A couple of other things that I would have to ask you are: All right, you want income, and we'd have to determine whether it's right now or down the road. But do you have a specific dollar amount? In other words, do you want a thousand dollars, $2,000, $3,000, or $2,250 a month starting now, three, five, or seven years?

‌What I'm trying to get to is that you need to get very detailed about what you want to do. When I say annuities, we're talking about seven-plus types if you want to dig in, and by the way, you can download my books for free. You will get all kinds of annuity books if you click the link. But you have to come to me and say, "I need this specific amount of income," or "I'm thinking about taking this amount of the 401k and converting it into a lifetime income stream using a specific annuity type."

‌So, I need you to think about it, not just say, "I need to convert the whole thing." No. And if anyone comes to you and says, "Let's take the whole 401k, and let's take the whole 401k and lump it into this annuity," you have to say, "Hold on there, sparky agent. Slow down." Remember, and I've said this, this is somewhat controversial. I don't know why, but I've said this in many of my videos and blogs, and it happens to be a fact: the annuity industry frowns upon you putting more than 50% of your investible assets into annuities.

‌Now, are there some carriers that will allow more than that? Yeah, it's on a case-by-case basis. But as a broad picture, I want you to ask this question: Will I take my 401k and turn it into an annuity lifetime income stream? We need to dig in further than that, and I always like for people to use as little money as humanly possible to solve for the specific lifetime income goal.

‌Inflation

‌I'd rather you come to me and say, "My projections, my spreadsheet, my boxes, all my projections that I'm doing on the Excel spreadsheet or whatever you do, I need $2,000 a month either right now or five years from now, or seven years from now." Fantastic, which leads to the next question, "How about inflation, Stan The Annuity Man?" Well, annuities don't perfectly solve for inflation. You can have increases to that income stream, but remember, you already own the best inflation annuity on the planet. That's Social Security. But with commercial annuities, the annuities with the companies out, non-governmental annuity companies don't give that increase away. The bottom line is, and I went on a rant, but I went on a rant for a reason.

‌Customizable

‌Annuities are customizable. We have to discuss the specifics of what you're trying to achieve. Then, we'll shop all carriers for the best contractual guarantee for your specific situation, which will solve your specific goal and provide you with enough information to make your decision on your terms and on your timeframe.

‌But remember I mentioned the books? I have six annuity owner's manuals you can download for free and under no obligation. No one's going to call you or show up at your doorstep. You don't have to go to a bad chicken dinner seminar. I'm just going to give you the books.

‌Why? I want you to be educated. Annuities are contracts. There's never an urgency to buy an annuity. The urgency is to understand them before buying. Pretty good, huh? Hey, 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.