Income Strategies Before Social Security

Welcome to Shooting it Straight With Stan. I'm your host, Stan The Annuity Man, America's annuity agent, licensed in all 50 states. And you're probably asking, "Stan, you don't have the logo gear on?" Yes, I do. I'm leaning back for everyone watching me on the YouTube channel. But for the folks reading this, everything I wear has the Stan The Annuity Man logo—except for the underwear. I'm working on that... no, I'm not. But the pants, shoes, and everything else, absolutely. And you're asking, "Why, Stan The Annuity Man?" Let me ask you, why not?

Gap-Filling Strategies Before Social Security

Today's topic is gap-filling strategies before Social Security. I get a lot of calls from people, usually in their sixties, who are thinking about waiting until age 70 to take income from the best inflation annuity on the planet—Social Security.

By the way, a guy called me the other day and started the conversation with a slam. Anytime someone does that with me, I’ll stop the conversation and correct them. He said, "Well, I don’t know many people who own annuities." I stopped him and said, "Stop. Every single person you know owns an annuity. Every single American with a Social Security number owns an annuity." I didn’t tell him that was the dumbest statement I had heard that day, but it was. It’s ridiculous. If you hate all annuities, you hate Social Security too. If you really hate them, call Social Security and stop the payments. Don’t be a hypocrite.

The Gap-Fill Solution

Now, for the people who call me all the time saying, "I'm going to wait until age 70 to turn on Social Security," I agree with them—Social Security is the best inflation annuity on the planet. But they also ask, "How do I gap-fill? I need income from age 63 to 70, 65 to 70, or 62 to 70. Is there a way to do that?" The answer is yes. There are two contractual ways to do it, and both have pros and cons. Like with anything, if it sounds too good to be true, it probably is. There are limitations to every strategy. You just have to weigh the good and bad to see if it makes sense for your situation.

First Strategy: Single Premium Immediate Annuity (SPIA)

Let’s talk about the first gap-filling strategy—using a Single Premium Immediate Annuity (SPIA) for a period certain. What this means is instead of paying for life, like most immediate annuities, you buy it to pay for a specific term. For example, a five-year period certain Immediate Annuity pays for five years, 60 months, and then after that, the money is gone. But for those five years, you know exactly what the monthly payment will be. You can opt for a seven-year, eight-year, nine-year, or even a 10-year term.

Currently, at the time of this taping, most carriers (and I represent almost all of them) do not quote less than a five-year period certain. There are some, but they’re not competitive. Things could change with rate movements, but typically, it’s a five-year period certain or more. The downside is that after the term, the money is gone. But the upside is that it pays for the entire term. It’s six of one, half a dozen of the other. You just have to understand that you’ll gap-fill the income, but once the term is over, that’s it.

Customizing the Period Certain SPIA

The way I suggest you buy that period certain Immediate Annuity is by telling us the exact monthly income needed to fill the gap. Then we can reverse-engineer that quote to figure out how little money you need to put into the annuity to solve for that monthly income goal. Simple, right?

And remember, please don’t throw inflation at us. "Well, what about inflation, Stan?" Look, annuity companies don’t give that away. You already own the best inflation annuity on the planet. If you attach inflation to an annuity payout or some guy at a bad seminar tells you, "My index annuity increases with inflation," the annuity company lowers the payout by around 30% in many cases. So, think logically: if it sounds too good to be true, it is.

The good news about a period certain SPIA is that it’s contractual. It’s locked in. Irrevocable. It’s going to happen. Whether you’re in good health or dealing with cognitive decline, it doesn’t matter. Let’s say you buy a seven-year period certain and die in year two. Someone will get the additional five years of payments.

Second Strategy: MYGA (Multi-Year Guarantee Annuity)

The other option for gap-filling is using a MYGA, or a fixed-rate annuity, which is the annuity industry’s version of a CD. You’ll need a bit more money for this strategy because most people who use MYGAs for gap-filling income don’t want to touch the principal. They want to withdraw only the interest to fill the gap, leaving the principal intact. However, I had a couple of clients recently who implemented a unique strategy where they used a Multi-Year Guarantee Annuity that allows a 10% free withdrawal every year. They’d draw down the principal and, at the end of the term, take the remaining lump sum to cover the gap.

We can do this in a number of ways. The bottom line is that while the gap-fill strategy with annuities isn’t perfect, it can work. There are upsides and downsides, but it’s worth exploring.

Alternatives: Bank or Market Accounts

If you don’t want to tie your money up in a period certain SPIA or a MYGA Fixed-Rate Annuity, you could always leave the money in the bank and withdraw it as needed over time. You could also leave it in the market and pull out only the growth, assuming you can achieve that. But many of you are looking for a contractual solution, and I get that. So, schedule a call with us, and we’ll run customized period certain quotes for you.

When to Stay the Course

But here’s the key thing: there aren’t really great options for gap-filling if it’s less than five years. If you need gap-filling income for five years or less, you might want to stick with your current plan. But if it’s five, six, seven, or even ten years, let’s look at a five-year, six-year, seven-year, or ten-year period with a certain SPIA or a MYGA with a high interest rate where you can withdraw interest without touching the principal.

Social Security Considerations

The good news is that you’re entering chapter two of your life—the stage where you plan for your lifestyle. One thing I always encourage people to think about is the decision of when to start Social Security. Should you wait until age 70 to start it? Well, there are a lot of "experts" out there who will tell you that you have to do it a certain way. But the truth is, you do it your way. Let me give you an example: people often ask, "Should I take Social Security at 65, or should I wait until 70?" My answer is: I don’t know. But if you wait until 70, you need to factor in the five years (or 60 months) of payments you miss while waiting for the higher payment. How long will it take you to make up for those 60 months of payments? It’s a data point. It’s math. And as they say in the South, “A bird in the hand is worth two in the bush.”

My Approach to Life and Income Planning

My opinion on all of this is simple: live life today. It’s a chaotic world, and I’d rather you enjoy the money now. Some people argue that waiting until 70 is the best option. I get it. But I’d rather see you enjoy the money today. Why do I say that? Because I want you to think about your life for a second. You’ve scrimped, saved, worked hard, and made sacrifices. Maybe it’s time to stop squeezing every penny and enjoy the income stream now. Live for today.

Conclusion

I want you to consider turning on that lifetime income stream now, instead of gap-filling. Gap-filling is about maximizing every penny, and I’m not against that, but I also want you to think about living your life, not just stretching your money to the limit. So, if you’re ready, run the numbers to see if it works for you.

Remember, annuities can provide lifetime guarantees and gap-filling strategies. If you’re interested in a period certain SPIA, go to The Annuity Man  and schedule a call. Or you can buy a Multi-Year Guarantee Annuity and look at the best fixed rates for your state.

I’m Stan The Annuity Man, and I’m here to help you get the most out of your retirement planning. See you next time!