Principal Preservation: Are You at That Financial Stage?

Hello out there! My name is Stan The Annuity Man. You're at the Stan The Annuity Man website, which is growing. I'm releasing weekly videos Monday through Friday. By the way, I'm 100% eating healthier. Three years into eating healthy, you go, "I hate you, eating healthy. You try to impose your will." No, I do nothing in moderation. I mean nothing. I do videos every week. I write blogs every week. I do a podcast every week. I'm all in.

‌So, when I did this, great story, my daughter told me to get my shiato together, Pops, and try eating healthy. Now, prior to eating healthy for three years, I was Paleo, which means I just ate nothing but meat. I'd go in and order: "I'd like the bacon with the sausage, and then I'd like the steak as well, and then I'd like the steak tartare as the first thing you bring out," the appetizer. I mean, I was all-in on that for five years. That didn't go so well. I think I was skinny, but it didn't go well.

‌But long story short, eating healthy has been great for me. What does that have to do with principal protection? Actually, a lot. You make the change to eat healthy because for me, my body and my body type, which is weird, will provide some longevity. I feel better. I'm working better, blah, blah, blah. My brain's working better.

‌But from a principal preservation stage, you're trying to preserve your health, but a lot of people are at a stage now. They're trying to preserve the principal and not take the market losses like they have been. Maybe that's you. You may be reaching that principal preservation stage. Let's talk about that, and let's talk about how annuities could play a role in your principal preservation strategies.

‌Breaking It Down

‌Principal preservation comes down to this. Look at it like you're running a mile at high school and have four laps on the track. So, the principal preservation stage is when you're at lap 3 1/2, and what that means is you're really close to retiring, or you're thinking about retiring, or you can see retirement. You have to make sure that you're not going to lose money. Even though you might give up some gains, you're going to preserve the principal more, and maybe you're at that stage.

‌The PILL

‌The question is: Do annuities fit? How do they fit? Never tell an annuity agent that you're getting ready to retire because they'll try to sell you an annuity. You might not need one. Annuities solve four primary things. I use an acronym that's easy to understand and remember called PILL. P stands for Principal protection. I stands for Income for life. L stands for Legacy, and the other L stands for Long-term care, confinement care. So, if you don't need to solve for one or more items in the PILL, you don't need an annuity. There's no G for Growth. There's no M for Market. There's no S for Stock market. It's P-I-L-L: Principal protection, Income for life, Legacy, and Long-term care.

‌The 2 Questions

‌The other thing I use that's very simple to strip all this sales-pitch nonsense away is two questions. Number one: What do you want the money to contractually do? And then the second question is: When do you want those contractual guarantees to start? Why do I pound the table on contractual? Because you should always own an annuity for what it will do, not what it might do. Don't buy hypotheticals and theoreticals and projected and back-tested return scenarios that that hopeful agent's show you, because they never come true.

‌Anyone can juice the numbers. Buy annuities for Armageddon, buy annuities for the Coronavirus, buy annuities for the worst-case scenario, and buy annuities for contractual guarantees, which leads us back into principal preservation and that financial stage that you're in.

‌Suppose you're just looking to preserve the principal and never lose another penny. In that case, you can buy a Multi-Year Guarantee Annuity, which is the annuity industry's version of a CD. You can also purchase a Fixed-Indexed Annuity, which is another CD-type product, but be very careful with that one because a lot of agents pitch that as a market-growth product, and it is not. Historically, Indexed Annuities have provided CD-type returns, which is a good thing with full principal protection.

‌So, in principal preservation, you say, "I don't need income, but I just don't want to lose any more money. I want to hit bunt singles, which is a baseball analogy. I just want to incrementally make some money." Then, a Multi-Year Guarantee Annuity or an Indexed Annuity, Fixed-Index Annuity fit. In a minute, we'll talk about income and how it also fits in principal preservation.

‌Lifetime Income

‌Principal preservation: How do you do that with lifetime income? Lifetime income is a combination of the return of principal plus interest. So, you are deducting down from that account, even though the annuity company's on the hook to pay for the rest of your life, regardless of how long you live, solving for that longevity risk, which is the fear of outliving your money. Principal preservation with income comes down to making sure that 100% of that initial money put into that income type of annuity will either go to you or, if you set it up with your spouse or partner, you and your spouse or your beneficiaries.

‌In other words, somebody in your family will get all that money, regardless of what happens. If you die early, and it's just you, the beneficiaries are going to get it. If it's joint life, the spouse or partner will get income for the rest of their lives, and when they die, whatever's left in the account goes to the beneficiaries. That way, you can ensure that 100% of the hard-earned money you've worked hard for goes to somebody in the family, so you're preserving the principal: principal preservation. But yet you're transferring the risk.

‌All right, so what I was talking about with lifetime income and principal preservation, it's a little different than if you're going to peel off interest from a Multi-Year Guarantee Annuity or an Indexed Annuity where the principal is intact, never going to go down in value, etc. With lifetime income, remember that lifetime income is a combination of return-of-principal plus interest. It's going to draw down. That means subtraction in the South. Draw down from your account, but you can make sure that 100% of that money is going to be used by somebody in your family, even though the annuity company is on the hook to pay you for the rest of your life, which is the key, what you're trying to do with lifetime income.

‌Thanks for joining me today. I hope you were able to learn something from me today. If you have any questions, please don't hesitate to contact my team by booking a call with us. 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.