When Annuitization Becomes the Final Choice: Shootin' It Straight with Stan

I'm your host, Stan, The Annuity Man. Today's topic is: When Annuitization Becomes the Final Choice. Let me explain that to you. Most people, incorrectly, and even some advisors and financial journals, think that annuities are only one type—lifetime income or Immediate Annuity. And if you die, the annuity company keeps the money. That is ridiculously stupid. When people start talking like that, they need to just be quiet because they're making a fool of themselves. There are many types of annuities: Multi-Year Guarantee Annuities, the industry's version of a CD; Indexed Annuities and Variable Annuities; Deferred Income Annuities, Qualified Longevity Annuity Contracts, Single Premium Immediate Annuities.

The Origin of Annuities

When discussing lifetime income, annuities were put on the planet back in Roman times. You can trace it to when the Roman Empire gave lifetime income pension-type payments to dutiful Roman soldiers and their families. That's where the whole annuity game started. They are the only product type—annuity—that provides a lifetime income stream as long as you are breathing. There's no ROI until you die. So, I laugh when people make correlations to investments. It's apples and oranges, player, don't even try. But when it comes to income, we're now at a point where interest rates, pure interest rates, have gotten to a point where you can buy a Fixed Rate Annuity or CDs that give a fair interest rate. It's not Jimmy Carter rates. But the fact is, you have an option of actually protecting the principal and peeling off the interest from that guarantee without touching the principal, and that's a good thing.

Options for Lifetime Income

At The Annuity Man, the top seller of annuities on the planet, when we talk to people about lifetime income, there are really two ways to go about it. There are lifetime income products and three major types of annuitization products: Single Premium Immediate Annuities, Deferred Income Annuities, and Qualified Longevity Annuity Contracts. Think of going out to the water faucet in your backyard in South Carolina, ripping off the knob off the faucet, and the water is flowing. Annuitization is visual; the income is flowing. It's an irrevocable contract that's going to pay you as long as you're breathing, and you can structure it so that 100% of the money will go to somebody in your family, not the annuity company, even though the annuity company is contractually obligated to pay you as long as you live, even if there's no money in the account. That's the transfer of risk benefit proposition.

Income Riders vs. Annuitization

Income Riders are not annuitization products in most cases. Those are drawdown products for lifetime income. Drawdown in English means subtraction, meaning they're subtracting that amount from the total of that accumulation value, whether it's a Variable Annuity or an Indexed Annuity. But we're at a point where you don't have to lock into a product for lifetime income. You can. Is it a good thing? Yes, for a lot of reasons. Number one would be if you're planning to live a long time and know you’ll eventually have cognitive issues—we all are, nod your head, all you players—yeah, it's going to happen to you and me. Having a turnkey income stream that we don't have to worry about is very good. If we have a spouse who doesn't care about markets or managing money, it’s good for them in combination with Social Security, the best inflation annuity on the planet.

Annuitization as a Last Resort

At this point, I believe annuitization, buying an Immediate Annuity or a Deferred Income Annuity, might be a last resort if you can live off the interest from the principal you have. Obviously, you need a large lump sum to peel off the interest and live off that. Many of you have done that. Visit my site at The Annuity Man, pull up the live fixed rate feeds, live MYGA feeds for your state, and see the percentages for three years, two years, five years, or four years. Look at your total and see if you could live off that percentage off your total dollar amount without touching the principal. You can't put all your money into annuities, but in combination with CDs, maybe very good corporates, and Multi-Year Guarantee Annuities, you could never touch the principal and peel off the interest and live off the interest. Jimmy Carter, anyone? Sounds good? Yeah.

Conclusion

I keep hammering it home—you might've already won the game. Why are you still playing? Why are you still chasing markets? Why are you still chasing yield? Why are you still trying to find the next Tesla or crypto? Are you addicted to the markets, or have you reached the finish line? Take a breath, look around, and say, "I think I have enough money to live off the interest." A gentleman called me, wanting to buy an Immediate Annuity.

We ran the quote and realized he didn't need to annuitize; the interest was enough in combination with Social Security and his wife's pension. He didn't need to lock in a contractual guarantee irrevocably. We decided to buy the MYGA, peel off the interest, and keep our powder dry until forced to buy an Immediate Annuity if rates drop.

This is Shooting It Straight With Stan. I'll see you next time.