Does Annuity Income Fluctuate?

Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Yes, that includes your state, too—even if you're in Hawaii. Somehow, in my life, I have always wanted a place in New York and a place in Hawaii. Well, one daughter lives in New York, and the other lived in Hawaii, so I guess I have a place in both. They're living my dream.

Let’s Talk Annuities

Okay, so we’re talking about annuities. Does it fluctuate? The answer is not usually, but it can if you want it to. Remember, annuities are customizable. There’s no one-size-fits-all approach. They’re commodity products you shop for across carriers to get the highest contractual guarantee for your specific situation.

This leads to the two questions that only Stan The Annuity Man, asks. Other agents should ask them, but they don’t—I don’t know why. If you’re an agent watching this, here’s what you ask:

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

For example:

• What do you want the money to contractually do? "I want income."
• When do you want those contractual guarantees to start? "I want the income to start two months from now."

Great. We run the quote using your date of birth, joint dates of birth, state of residence, how much money you’ll put in, and the type of account. Then, we quote all carriers to find the highest contractual guarantee for your specific situation.

Static Income vs. Inflation Adjustments

In most cases, income is going to be static—that means it stays the same. Or, as I like to say, "It’s static." It doesn’t go anywhere.

Some people say, "Wait, Stan The Annuity Man. What about inflation? It’ll kill me if it’s static." First of all, you already own the best inflation annuity on the planet: Social Security.

Social Security is the best inflation annuity because politicians raise the income to win votes and address the cost of living. Annuity companies, on the other hand, aren’t as patriotic. They don’t give anything away. If you want your annuity to increase, you must attach a Cost of Living Adjustment (COLA) rider at the time of application.

But remember nothing is free. If you attach a COLA to, say, a Single Premium Immediate Annuity (SPIA), the initial payment will be lower compared to one without a COLA. You have to run the math to determine the breakeven point.

COLA Pricing

For example, a client asked for a 5% COLA. I ran the numbers and showed him how much the annuity company would lower the initial payment to account for that increase. He was shocked. Ultimately, he chose a 2% COLA because the reduction wasn’t as severe.

You get to decide the increase percentage at the time of application but understand that annuity companies don’t give anything away for free.

Indexed Annuities and Income Riders

One of the great sales pitches is that indexed annuities with income riders can increase your income stream based on index performance. It sounds fantastic—like unicorns chasing butterflies. But remember, anytime you attach an increase or potential increase, the annuity company lowers your initial payment.

For example:

• Without an increase: higher initial payment.
• With an increase: lower initial payment.

If you want me to run quotes comparing these options, I’ll do it. But understand this: the option with the highest contractual guarantee is rarely the one with the potential increase.

Final Thoughts

To answer the question: Does annuity income fluctuate?

• Yes, but only if you choose for it to fluctuate up.
• It does not fluctuate down.

Annuity companies have the big buildings for a reason. They offer a lifetime income stream, but nothing comes for free.

By the way, I’ve written books on all the products I’ve mentioned, and I want you to download them for free—no obligation. If you want to talk annuities, schedule an appointment with us.

Thank you for joining me today. 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.