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🤔 The Truth About Annuities: What is an Annuity and How Does it Work? | Stan Haithcock ✅
927 Plays3 months ago
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🧢 Stan Haithcock, also known as Stan the Annuity Man, defines an annuity and answers some common questions people have about annuities.
He identifies factors that may persuade a person to shift a portion of their net worth into annuities. And he shares his reasons why so many people blindly hate them! 😡
In this episode, Stan Haithcock discusses:
1️⃣ What is an Annuity and How Does it Work? Discover the basics of annuities, including different types, their benefits, and how they can secure your retirement.
2️⃣ Stan's Philosophies on Retirement Planning: Learn why Stan emphasizes the importance of annuities in a balanced retirement strategy and the factors that might persuade you to consider them.
3️⃣ Addressing Annuity Misconceptions: Understand why many people blindly shun annuities and what we can do to educate others on their true benefits.
🔗 Stan’s Links:
🌐 Annuity Calculators and Rates
🏥 Health Insurance Guaranty Associations
🎥 You Already Won, Why are you Still Playing?
🔗 David's Links:
🍏 Forget About Money on Apple Podcast
🎧 Forget About Money on Spotify
🔑 Key Topics Discussed:
👉 Introduction to Annuities: What is an Annuity?
👍 Different Types of Annuities Explained
👉 Stan's Tagline: "Will do, Not Might do!"
👍 Factors to Consider Before Buying An Annuity
👉 Strategies for Incorporating Annuities into Retirement Planning
👍 Contractual Guarantees and Transfer of Risk
👉 Comparing Annuities with the 4% Rule for Withdrawals
👍 Annuity Taxation Insights
👉 Misconceptions About Annuities and Overcoming Biases
👍 Simple, Low-Fee Annuities for Financial Independence
🕒 Timestamps/Chapters:
0:00 - 🎙️ Introduction to Annuities: What is an Annuity?
5:44 - 🚀 Different Types of Annuities
11:52 - 🌟 Stan's Tagline and Philosophies
14:53 - 💰 Factors to Consider for Annuities
18:54 - 🌍 Annuity Strategies in Retirement Planning
22:05 - ⚠️ Contractual Guarantees and Risks
26:00 - 🔄 Comparing Annuities with the 4% Rule
29:00 - ✅ Taxation and Legal Considerations
29:56 - 🎯 Overcoming Annuity Misconceptions
32:24 - 🎉 Simple, Low-Fee Annuities for FI
36:56 - 📈 Final Thoughts and Recommendations
41:35 - 🎵 Closing Remarks
#Annuity #retirement #financialindependence
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Disclaimer: The discussion is intended for general educational and entertainment purposes and is not tax, legal, or investment advice for any individual.
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Transcript
Introduction to Annuities
00:00:00
Speaker
What are annuities? How do they work? Why you may want one? And is the hate they receive warranted? Here we go.
00:00:12
Speaker
Welcome to the Forget About Money podcast, where we encourage you to take action today so that you can focus on what matters most to you. I am embarrassed to say that I know very little about annuities. And today I'm going to get an education on annuities from Stan Hathcock, also known as Stan the Annuity Man.
Meet Stan the Annuity Man
00:00:30
Speaker
Stan holds licenses in all 50 states and is recognized as the leading independent annuity agent and educator in the US. He has authored seven books on annuities, all available for free on his website, stantheannuityman.com.
00:00:45
Speaker
But before becoming Stan the Annuity Man, he worked at Dean Witter, Morgan Stanley, Payne Weber, and UBS, so he knows all about annuities. Welcome, Stan. Glad to be here. Looking forward to kind of dispelling some of the mis- truths and misconceptions about annuities and telling people what they are so they can make a good, informed decision whether they fit or not.
00:01:09
Speaker
Stan, you and I spoke on the phone for a bit a few days ago and I was impressed by your direct communication style. ah You helped me reframe how I think about the purpose of annuities and question if my negative bias towards annuities have been more of a hindrance than a help ah to people when I'm talking about finances money and money and financial planning.
00:01:31
Speaker
So I thank you for tactfully helping me reduce my ignorance when it comes to the topic of annuities. Today, we are going to define annuities and answer some common questions people have about annuities. We're going to talk about the factors that may persuade a person to shift a portion of their net worth into annuities. And we'll get Stan's thoughts on why there's been such a negative bias towards annuities. So let's start with just a definition, Stan.
Historical Origins of Annuities
00:01:57
Speaker
Well, let's just talk about annuities in general. They were first introduced in the Roman times as a pension payment for the dutiful Roman soldiers and their families. That's where the word annuity comes from. A-N-N-U-A is Latin for payment. So it's been around since the Roman times and been sold in this country as a lifetime income product for hundreds of years. um But there's ah there's a big misconception. And when people say annuities, they think it's one type.
00:02:22
Speaker
There's anywhere from seven to 10, depending on how you define it. But let's talk about the annuity that everyone on this podcast that's listening and viewing that already owned. That annuity is social security. That is an annuity. It's the best inflation annuity on the planet because it increases and pays for as long as you live. Another lifetime income annuity that some of you own is called a pension. That's an annuity. That's a lifetime income payment.
00:02:48
Speaker
um Another annuity that tight that I think fits into the annuity space. ah Some people disagree with me on this is required minimum distributions and requirement of distributions on your traditional IRA is money you have to take out whether you want it or not. But it's going to pay for your life again, it fits into the annuity category. So with that being said,
00:03:09
Speaker
there really is a easy way to understand what annuities contractually solve for. And one of the things that sets my company apart from everybody else is that we only look at the contractual guarantees of the policy. We represent all carriers. So we're only looking for the policy, what what it will do, not what it might do. And I've come up with an acronym that's easy to remember and understand that solves for the things that annuities contractually um you know, solve for it from the standpoint of when you get the contract.
Understanding PIL: Principal, Income, Legacy, Long-term care
00:03:40
Speaker
And that acronym is PIL. P stands for principal protection. I stands for income for life. L stands for legacy. And the other L stands for long term care. I'll do it again. Principal protection.
00:03:52
Speaker
income for life, legacy, and long-term care. If you do not need to contractually solve for one or more of those items in that pill acronym, you do not need an annuity. You should never, ever buy an annuity type for market growth. They are not designed for that, even though if you go to the Bad Chicken Dinner Seminar, that person's going to tell you that they have an annuity that can achieve market growth. It doesn't exist. We can get to that ah later in the program. The other two questions that I use with every single client, all 50 states, is what do you want the money to contractually do? And when do you want those contractual guarantees to start? From those two questions, we can determine if you do not need an annuity. And if you do, then we're going to point you in the direction of the annuity type that solves for, um that provides the highest contractual guarantee for your specific situation.
00:04:46
Speaker
Looking at the Pill acronym, the Principal Protection Income for Life Legacy and Long-Term Care, most people buy annuities for principal protection and or lifetime income. that's That's the two primary reasons, but people do buy them for legacy if they can't qualify for life insurance.
00:05:03
Speaker
or they they also buy them for long-term care. So that's the 30,000 foot view of the annuity category. And the reason that it's got a bad reputation is the sales practices out there are horrific. And if you're a breathing, mature adult, you've probably been, someone's trying to sell you an annuity, whether you need it or not.
00:05:25
Speaker
um They're not for everybody. They solve for specific things. And I think most people, you know with 13,000 baby boomers hitting 65 every day, most of those people are looking for guarantees, whether that be principal protection or additional lifetime income. So if you were just going to give a one sentence definition of an annuity, what would that be?
00:05:46
Speaker
It's a contractual guarantee transfer of risk that a life insurance company who wishes the annuity backs up by their full claims pan ability. here Okay. Okay. And I think ah many of us at some point in our life has been either approached or seen something online about annuities and it's usually not I think it's probably usually not the actual annuity that the person could use, or at least the most ideal annuity. ah What are the different types of annuities? Well, first of all, let's let's lay some groundwork about how and how annuity agents and advisors are paid. ah Annuity commissions are built in. You never see them. um And typically, most agents, unfortunately, lead with the highest commission products. Just remember this, the more complex the product, the higher the commission. The more simple the product,
00:06:32
Speaker
the lower the commission. And I have a saying, if you can't explain it to a nine year old, don't buy an annuity. um No offense to nine year olds. But just going over the basic. um Let's let's cover lifetime income annuities.
Types of Lifetime Income Annuities
00:06:44
Speaker
There are four types of lifetime income annuities. Single premium immediate annuities. That's the granddaddy. That's the one I mentioned.
00:06:51
Speaker
um that started in the Roman time. So single premium, immediate annuities is the first one. And that income will start as soon as 30 days from the contract being issued to as far out as one year. So you could defer it one year. And remember with lifetime income with annuities, there's nothing magical about this.
00:07:08
Speaker
The primary pricing pricing mechanism is your life expectancy at the time you take the payment. If you set it up joint, it's life expectancy. Interest rates play a secondary role. Let me repeat that. Interest rates play a secondary role with lifetime income products. So single premium immediate annuity is for thirty days starting in 30 days up to a year. If you defer past a year, that single premium of immediate annuity turns into what's called a deferred income annuity.
00:07:33
Speaker
A deferred income annuity, you can defer it one year up to 40 years if you want to. Same structure, there's no annual fees, no moving parts with immediate annuities and deferred income annuities. It's just a straight transfer of risk pension product and the payments for lifetime income of any type is a combination of return of principal plus interest.
00:07:52
Speaker
So anyone that tells you they can get you a lifetime income stream and and and you're either going to never touch the principal or it's going to grow, they're lying to you. Okay. The third type of product is called a qualified longevity annuity contract. So everybody out there that says never buy an annuity inside of an IRA needs to go back to school a little bit, watch my videos, which I've done a thousand of them up on the Stand the Annuity Man YouTube video ah channel.
00:08:15
Speaker
um A qualified longevity annuity contract was put in place by the Treasury Department and the IRS in 2014 to use for lifetime income using qualified accounts like traditional IRAs, some 401ks. In essence, it's the same structure as an immediate annuity and into deferred income annuity. The only difference is you got you have to use it in a qualified account and that amount in a QLAC is not part of your required minimum distribution calculations. And then the final fourth ah product for lifetime income is what's called an income rider. An income rider is what it sounds like. It's a guarantee that rides on top of a policy
00:08:52
Speaker
that can be attached to a policy at the time of application. Typically, it's an index annuity or variable annuity, but we don't look at any of that part. We just look at the income rider. If you go to my side of the annuity man, you can run quotes on all of these 24-7-365 without anyone calling or bugging you or showing up at your doorstep. You can run quotes on your specific situation on these four types. And one let's go through them again. Single premium immediate annuity, deferred income annuity, qualified longevity annuity contract, and income rider.
00:09:21
Speaker
let me Let me add one more and then we can stop and and and kind of reflect on these. Another popular type of annuity is called a multi-year guarantee annuity. It's the annuity industry version of a CD. So if you own CDs, you can't pay annuities because there's an annuity type that just protects the principal, has a guaranteed interest rate annually that you can either take out or not. Some allow you to take out the interest, some do not.
00:09:44
Speaker
But that's you could use that as an income stream without touching the principal for a specific duration. And those durations come at one year up to 10 years. Once again, if you go to my site, you can look at those rates for your specific state and and check them on a daily basis to see what they are. Typically, if it's three years and out, the MIGA rates will be higher than CD rates. if it's three If it's less than three years, CD rates will be higher than MIGA rates.
Fixed vs. Variable Annuities
00:10:12
Speaker
Okay, that was a lot. That was a lot. and i And I only covered half of them. I can imagine. the ah some Some other words that get thrown around around annuities are a fixed and variable. What is the difference between a fixed annuity and a variable annuity? And of those categories that you just mentioned, which are what?
00:10:32
Speaker
All of the categories I just mentioned are fixed. okay So fixed annuities would be single premium, immediate annuities, deferred income annuities, qualified longevity annuity contracts, MIGAs, fixed index annuities. Those are fixed annuities. Those are life insurance products that are regulated at the state level. A variable annuity is a security. It's regulated by the NASD and the SEC. You have to have a ah specific license to sell it because there are mutual funds inside of that variable annuity.
00:11:02
Speaker
um The industry calls them separate accounts, but all of us call them mutual funds. um It's, in essence, an insurance wrapper around a bunch of mutual funds, and it was put on the planet by TIAA. It used to be called TIAA-CREF in 1954 for tax-deferred growth. it still It still functions as that. The problem is most commercial annuities have an average annual fee of 3% annually for the life of the policy. So if you bought a variable annuity for growth, which you shouldn't, because you should never buy annuities for growth, you should just stay in the market and do what you're doing or have someone one manage it for you. When you buy a variable annuity, you start every year at minus three. Now, there there are some very few, count them on my hand, no load variable annuities, which have no fees. You can still get that tax-deferred growth in a non-qualified, non- IRA account.
00:11:52
Speaker
But the problem with those that I found is they have limited mutual funds, separate account choices, which limits your growth. So in my personal opinion, having managed money at some of the biggest firms in the world on the street is if you want market growth, don't buy an annuity. If you want contractual guarantees, then maybe an annuity fits. But market growth, even though every single, not every single, the majority of agents and advisors are going to tell you they have the annuity that will grow, they do not.
00:12:19
Speaker
Okay. So yeah, as some we're going to get to the difference between the philosophies of retirement planning and expecting market growth and what annuities are, at least in your opinion. So I definitely look forward to that part coming up.
00:12:34
Speaker
yeah Let me ask you a few general questions that I think people who just don't know about annuities just don't know. So if the question seems silly, please just give a good quick answer and we i'll and I'll move on. ah Can annuity be cashed out? Some can, some cannot.
00:12:52
Speaker
single premium immediate annuities, deferred income annuities, and qualified longevity annuity contracts are what's called irrevocable lifetime income stream products. Think of lipping ripping ah the knob off a water faucet just visually. If you do that, the water's coming. In this case, when you buy these products, they they are irrevocable. You're going to get your money back with a lifetime income stream. And let me just say right here, one of the misconceptions is I'd never buy that stand because if I die, the the insurance company keeps the money. That is not true. you can That's one of 40 ways to set it up. But most people, most of our clients set it up to where they're going to get a lifetime income stream as long as they're breathing. But when they die, whatever's left in the account goes to the beneficiaries and the evil annuity company never keeps a penny.
00:13:33
Speaker
period. So these can be customized. So just to understand that that's one of the biggest misconceptions out there. But that's just not true. So the income rider is is a product that that from the start protects your principal, gives you flexibility, etc. But I think the biggest thing for people to understand is these are even though they're commodity products, there's so many of them, they're customizable to your specific situation. um And that's what you know we will talk to you about if you decide to talk with us or just go on our site and run quotes. um We're very informative with 1000 videos and the books and all the stuff to get you at a point where you fully understand before you engage into a conversation with with our team. So I believe that answered your question. I hope it did.
00:14:17
Speaker
It does. ah So if I were to ask, can an annuity be inherited, does that, what you just, provided. Does that sort of answer that as well, then? That's a little bit more difficult of a question just because that's a tax question. We don't give tax advice. That's something you need to talk to your CPA and tax lawyer about just because of the secure 2.0 act recently, et cetera. The answer is yes, you can inherit annuities. There's rules around that that we will work hand in hand with your CPA and tax advisor to make sure that you dot all the I's and cross all the T's.
00:14:50
Speaker
And if, if you were concerned about that, is that something you would, you would work with the annuity sales person? Sorry, I'm not sure exactly the right word. Let's just say you, your, your father passed away and left a bunch of annuities to you and your name and you're the son or daughter. Then you wanted some good advice on how to do that. Then you would get us on the phone. We network in, um, your CPA and tax advisor. And then we would work through that based upon the current laws in place. Okay. So if I,
00:15:20
Speaker
were to purchase an annuity and I would want, and I, at some point in the future I'll die and hopefully my son is still alive or my daughter's still alive and I want, and I expect them to get something from that. That's based on how I set it up, right? So are there annuities where they just don't get anything? Yeah, that's called a life-only annuity. That's the annuity that people think that's the only one. Hey, if I i buy it and I die, money money goes poof. That's one of 40 ways to structure it.
00:15:48
Speaker
Most people that's really worked hard for their money and and do not they don't want to lose a penny yet, they want to transfer the risk to the annuity company to pay them for as long as they're breathing. They want to set it up in case there's some accident that whatever money is left goes to the beneficiaries in full.
00:16:03
Speaker
Remember too that you can also set it up joint lifetime payment with your spouse. So if something happens to you, the income stream continues uninterrupted and unchanged for that spouse's life. And then you can also set it up to when that spouse dies, whatever's left in the account goes to the beneficiary. But let's cover what happens if the spouse lives forever and outlives their life expectancy.
00:16:24
Speaker
um And the accounts been drawn down to zero. If the count's been drawn down to zero with the lifetime income annuity, those four types, the annuity company's still on the hook to pay. So people always ask me, hey, Stan, what's the return on investment on a lifetime income stream? And I go, I don't really know until you die. ah So you we have probably 5,000 clients that counts at zero and they're still still getting payments. And some of them have been getting payments for 15 years and they counts at zero. It's a pretty good transfer of risk.
Comparing Annuities to Social Security and Investments
00:16:50
Speaker
um that you know you you can't really look at annuities as an investment. You can't say, well, mutual funds outperform annuities. Well, that's not an apples to apples comparison. Annuities for lifetime income, um there's nothing that can do that except social security, which is the best inflation annuity on the planet. Annuities, if you're looking for lifetime income,
00:17:12
Speaker
that that's the only choice you have. And most people are looking to put in what I call it the income floor. The income floor would be Social Security, your pension, R and&D's from your IRA, rental property, that type of, the amount of money that's hitting your account every single month that doesn't have anything to do with the markets.
00:17:31
Speaker
or has anything to do with politics or global, whatever, it's money that's going to hit that you're going to live off of. People that are looking toward retirement in retirement, they want that guaranteed income because less than 9% of private companies offer pensions. So you have this 401k that's been accumulating all this time. You have to turn that in most people turn that into a lifetime income stream. And that's where the annuity category can come in and really really help you out. But if you say, Stan, I really don't need income, but I don't want to go backwards anymore, then you need to look at possibly a multi-year guarantee annuity or fixed index annuity. Both of those are CD type products that are going to protect your principal. So again, it comes down to those two questions. What do you want the money to contractually do? And when do you want those contractual guarantees to start?
00:18:18
Speaker
After having watched a number of your videos and having a conversation with you, I was definitely surprised because you did not fit my stereotype of an annuity salesperson. You didn't pitch me one time, you tried to educate me, and you you spoke.
00:18:34
Speaker
very direct. And I can't imagine you being everybody's favorite person at an annuity party at some Hilton lobby ah because of that. um And I think that does bring a value, especially to somebody like me who's just tired of it. like I built this wall around a new you know in front of me between me and annuities.
00:18:55
Speaker
And it's prevented me from really understanding. And that's my fault, ultimately. But there's a lot of salespeople out there that will, like you mentioned before, will sell a certain product so that they can get the most money out of it. And it's not too necessarily to the benefit of the purchaser. Financial services in general is a lot like that, too.
00:19:14
Speaker
But if ah I'm on the fence, like like probably many of the people who are listening to this are, or maybe they're already on one side of the fence and I'm trying to get them at least to the fence, are there any types of annuities that you just would never recommend? So we can just mark those off, don't even look at them.
00:19:28
Speaker
I don't want to do that because, you know, I already have to have security when I go speak at industry events. So I will tell you this, that um if it sounds too good to be true, it is without exception with annuities. So in other words, if you hear a sales pitch at a bad chicken dinner seminar, expensive steak dinner seminar, or you're your current advisor, and it just sounds too good to be true, it is without exception with annuities period. um I will tell you that we do not My company does not recommend variable annuities because I don't recommend anything that can go down in value. Everything that we recommend is fixed. um That doesn't mean we just hate variable annuities, um but I just don't think the current offering our are to the consumer's best interest. you know If we were going to say to someone, buy a variable annuity because you're you really want tax-deferred growth,
00:20:15
Speaker
then we would tell you to go look for a no load variable annuity, which means that no advisor is going to be involved. So variable annuities is something that we just don't do because in our view, my view, and I own the company, um if you want market growth and go buy mutual funds, you don't need an insurance wrapper and a 3% fee to do that.
00:20:32
Speaker
Now, the the the product out there in the fixed world that's getting oversold, overhyped, overpromised is a fixed index annuity. We have nothing against that. that was ah that product ah when When I talk about income riders for lifetime income, that's how an income rider is attached. It's attached to an index annuity. But an index annuity was designed and first introduced in 1995 to compete with CD returns. I was around in 1995 and saw it.
00:20:58
Speaker
And historically, that's exactly what they do. They are not market products. They are not securities. It's illegal to even use the word market with index annuities. But it's the highest commission product on the planet in the fixed annuity world, which is why if you went to your advisor and you told him you had a sore throat and a sprained ankle, they're going to recommend an index annuity. I mean, it's just a it's just one of those things that in and commissions can range as high as 7% to 10% on an index annuity so just remember index annuity is not growth products or cd products they're also an efficient way to to deliver an income rider so if you go to our site you can't do an index annuity quote because there's no such thing you can do an income rider quote because that's a contractual guarantee
00:21:38
Speaker
But as i as I said before, if you cannot explain the annuity to a nine year old, don't buy it. Immediate annuities, deferred income annuities, QLACs, income riders, MIGAs, those are so simple. You will understand them by either watching a video or just you know reading the 55 page owner's manual on it. I mean, you will understand it. Once you get to the index and variable side, it gets very, very, very complicated. um And from there, you know, you should just kind of step away.
00:22:06
Speaker
You know, as Warren Buffett says, if he doesn't understand it, you know, he doesn't invest in it. And we also go by the other Warren Buffett rule. Rule number one is don't lose money. Rule number two is don't forget rule number one. And that is really Stan, the annuity man and the annuity man company in general. You know, I grew up in rural North Carolina, had no money.
00:22:26
Speaker
and you know went through the brokerage firm stuff and just realized I didn't like losing any money. So guess what? My new company ah started a long time ago. We don't lose anybody money and we sell contractual guarantees. ah Last week, I had a conversation with Sean Mullaney, who is a... He's known as like the fight tax guy for the financial independence community. Brilliant guy. And he he and I...
00:22:49
Speaker
If you were to listen to that, we we'd go probably like a minute and rant against admittedly annuities based on my lack of understanding most likely. But the episode was about taxes. And when you're talking about retirement planning, you can't really talk about that without mentioning taxes and at least thinking about it and how to shape that. Are annuity incomes taxed the same as other investment incomes?
00:23:14
Speaker
They're taxed at ordinary income levels and you can use them in all types of accounts, IRAs, non IRA, non qualified or Roth. So if you're using a lifetime income stream in a Roth, obviously that that income is tax free. If you're using it in a non IRA, non qualified account,
00:23:30
Speaker
that income is a combination of return of principal plus interest, meaning that you're not going to pay taxes on the return of principal, just the interest in the industry. It's called the exclusion ratio. So that's actually tax favorable. If you have an annuity inside of an IRA, it's treated like just every other item inside of your IRA. Any money pulled out is taxed at ordinary income levels. So I think the tax argument against annuities is unfounded.
00:23:54
Speaker
And just you know there needs to be a little bit more education and how to look at it. So you know a lot of people use the immediate annuity or deferred income annuity in a non-qualified account for pre preferable tax income because that a return of principal amount is not taxed. Now, once you get to zero in the account and you outlive your life expectancy, then all of it's taxed, but it is, you know, with multi-year guarantee annuities changing gears a little bit compared to CDs and a non-Irae account, the interest gross tax deferred, as whereas the CDs you have to pay taxes on the interest annually. So there are good and bad like every other, you know, product out there, but you cannot take the word annuity and categorize it.
00:24:39
Speaker
Anytime anyone says all annuities are and whatever they say behind that is incorrect because you can't say all annuities. That's like saying I hate all restaurants and I hate all shoes and I hate all trucks. You can't hate all annuities. You already own one. It went to c social security. So I think hopefully this this podcast will open people's eyes to at least look underneath the rock.
00:25:00
Speaker
don't believe what you've heard at the at the at the cocktail dinner where the guys are un never touch an annuity or the gun TV that runs ads that say you never ever buy an annuity and I will guarantee you he's given advice on social security which is an annuity so to me that's hypocritical um I do think they have their place. They are not for everyone. Again, if you if if you went to the two questions with our team, what do you want the money to contractually do? And when do you want those contractual guarantees to start? And you said, I want a reasonable rate of return like a market return, then don't buy an annuity. It's real simple.
00:25:34
Speaker
You mentioned before, interest rates play a secondary role in the performance of an annuity. How do interest rates and affect the- Not performance, not performance with lifetime income. When we're talking about lifetime income products, interest rates play a secondary role in the pricing.
00:25:49
Speaker
Okay. The reason that life insurance life insurance companies issue annuities, the reason that life insurance companies have the big buildings and property and casualty companies don't is because life insurance companies that issue annuities know when we're going to die. Property and casualty companies do not know when the hurricane and the tornado is going to hit and the fire is going to hit.
00:26:06
Speaker
but life insurance companies know when you're going to die so that think of the people listening think of ah your age let's just say you're 70 years old think of a football stadium full of 70 year olds some of them gonna die soon some of them by early some gonna die later some gonna die right on the dot of their life expectancy. What the life insurance company is doing is they're pulling that risk.
00:26:27
Speaker
They're pooling all of you together to provide that lifetime income stream, knowing um actuaries when they come out of the closet, you know, the annuity companies, they know when you're going to die. And that's the reason they can price things accordingly. Now, when you go to our site and run these quotes, some months you'll see companies at at the top, the next month you won't see them at the top. And the reason is these companies fill tranches of age ranges.
00:26:51
Speaker
Similar to if you went to and did your portfolio, you have small cap, mid cap, international value as mutual funds or whatever you're buying. Life insurance companies, they have 55 to 60 year olds, 60 to 65 year olds. And once they 70 to 75 years, once they fill up that tranche, they're going to lower the guarantee so to not attract you. But the reason that our model works direct to consumer is that we represent all carriers. So there's always carriers that need your age range.
00:27:18
Speaker
That's the reason you have to shop all carriers because they always change. Always tell people an annuity quotes like a gallon of milk. It expires after about seven to 10 days. You got to re-quote it. Now we can lock those guarantee those guarantees in for if you want to move forward. But that's the reason that I call this a commodity business. There's not one annuity company that's better than the other. There's not one product that's better than the other. They keep changing the guarantees based upon how much money they're raising for your specific age group when it comes to lifetime income.
00:27:48
Speaker
Okay. I've umve explored your calculator and I do want to say that it's extremely easy to use and we'll talk about that in if just a few minutes. ah But I think interest rates, I want to get back to that because yeah again, I don't know exactly how they impact the pricing, but I know much like the real estate market, interest rates go up and down. And then let's say 2020, we had an interest rate of but just just just over two, I think was the average. And then now it's 7.8% or something like that. So we're currently in a high interest rate environment than we have been for like more than two decades, is now a better or worse time to buy annuities than say in 2020, when interest rates were at an all time low.
Role of Interest Rates in Annuities
00:28:32
Speaker
There's arguments for and against that. um Getting back to the interest rate part, it's a portion of the pricing for lifetime income, but it's not the primary portion, okay? um It's just not. Interest rates, however, for say like a multi-year guarantee annuity CD product drives the train. There's no lifetime income, so the interest rate is is primarily um the pricing mechanism. But even with multi-year guarantee annuities, people always ask me, Stan, why is the multi-year guarantee annuity rate higher than a CD rate? It's because life insurance has companies that issue annuities have many ways to price it. They have lifetime income products. They have um life insurance products. They have legacy bond portfolios. They have a lot of things to price off of it. And that's the reason you see a 50 basis point to 100 basis point.
00:29:16
Speaker
um difference between long-term MIGAs and CDs. not I'm not putting down CDs. I love CDs. I own CDs. It's just that life insurance companies have a different way to price it. The other thing I want to talk about is these fixed annuities are regulated at the state level. And so people are used to FDIC type coverage or in the um the brokerage world, SIPC type coverage.
00:29:39
Speaker
ah Fixed annuities are covered at the state level by state guarantee funds. you can go to a site it's I'll give you the letters N-O-L-H-G-A, again N-O-L-H-G-A dot.com to see what your state guarantee um association backs up.
00:29:55
Speaker
And it can range anywhere from $100,000 to $300,000 of coverage in case that annuity company goes under. I will tell you that typically doesn't happen. And when it does happen, the larger companies buy the smaller companies. And the reason is fixed annuities, the law is these companies have to have 100% of your money on hand day one.
00:30:17
Speaker
and And everything's regulated. They can't go crazy with your money. They're not smarter than banks. They're just more regulated than banks. Whereas a bank has to keep, I think, around six to eight percent of your money on hand. Fixed annuity companies cannot do that. So I'm not saying they're just pound the table, safe, et cetera. We do look at claim spandability. We do look at ratings. We do look under their under the hood from the financials. I used to do that with Morgan Stanley and Payne Weber. The point is um it's a lot safer than you think.
00:30:44
Speaker
um And I explain that in my videos, but you are buying the claims, paying the ability of the carrier. We do have one thing that we do is if you're buying lifetime income, we need that rating to be A plus or better because you're marrying that company. Some of the shorter term fixed rate annuities like MIGA's, we can go down a little bit from that because you're dating that company for that specific duration. But those are things we we can cross that bridge if you want to engage with us and have that conversation. Understand that my whole staff is their license, but they're not on commission.
00:31:12
Speaker
um You know my big thing is we're not a hammer looking for a nail and you can make your decision on your terms in your time frame when you're buying contracts. There is no urgency you just have to understand what you're buying period. Let's take the conversation to your philosophies and and ah how you use your philosophies or support annuities in retirement planning.
Value of Contractual Guarantees
00:31:33
Speaker
Your tagline at your business website is will do, not might do. And it's copyrighted. I saw the little symbol. So if you're listening to this, you can't take it. What does that phrase mean in the annuity business and why do you use it as a business tagline?
00:31:49
Speaker
You own an annuity for what it will do, not what it might do. The will do are the contractual guarantees. The might do is the hypothetical, theoretical, you know, unicorn chasing the butterfly returns that never come true. If you go to one of these bad chicken dinner, expensive steak dinner seminars, they'll show you these numbers that, well, if you'd owned it 10 years ago, you'd have gotten this. Fraudulent. Fraudulent is is the word for that. Should never be used in some states. It's illegal to use. So we're only looking at the contractual guarantees and people say, why you do that? Because you're going to get a contract in the mail. It's called a policy. It's a contract.
00:32:18
Speaker
We're going to buy the contractual guarantees. we're going You're never going to be blindsided um by a number. You're buying the number. That's what the number is going to be. Period. Now let's talk about inflation because ill is what about inflation? There are annuities for inflation, but the life insurance companies have the big buildings for a reason. They don't give that away. Let me give you an example. If you bought an immediate annuity without the inflation rider, they call it a cost of living rider, C-O-L-A, cost of living adjustment rider.
00:32:44
Speaker
If you bought one with the cost of living adjustment rider, the life insurance company that issued that annuity, all they're going to do is just lower that payment by 30 to 40% to make up for that increase. So again, if it sounds too good to be true, it is. I'm not putting down colas. You can buy those if you'd like, but you just have to understand you're not getting what you think you're getting.
00:33:05
Speaker
And typically that break even point can make depending on your or your age can be seven to 14 years to get to the point of where if you bought one without the cola. Remember, you already own the best cola annuity on the planet is social security. But from a standpoint of retirement planning, how does this work in retirement planning? In my opinion, in the way that we really help people and advisors, you know we work with a lot of fee only advisors and fee based advisors.
00:33:30
Speaker
to create that income floor. and okay there's There's a lot of people out there that that you know pound the table that the 4% rule is the way to go. And the 4% rule is you don't buy annuities, you have a balanced portfolio, and you just take out the 4% when you need income. That's fine. only The only thing I have a problem with is down markets.
00:33:51
Speaker
and down markets over a period of time could really interrupt that rule. My opinion, having done this on the other side of the table while on the street, why not put the income floor in place and then you don't have to disrupt the investments? So what that involves is you saying, OK, Stan, on Social Security is this and our income floor needs is $5,000 a month. We've got like a $1,500 gap to get us to the $5,000.
00:34:14
Speaker
Then you can go to my site, you can actually reverse engineer a quote, meaning use the least amount of money as humanly possible to get that to that 1500. And you put that in place, so it's going to hit every single month and you don't disrupt your investments, etc. So then the question has to be, wait a minute, Stan, that's a static ah number. What happens with inflation? Great.
00:34:34
Speaker
Let's talk about that. Everybody's situation with inflation is different. that the The media talks about inflation as it's monolithic and it and it covers everybody the same way. But let's just say that $5,000 a month, three years from now you go, wait a minute, it's now $5,500 a month. We need an additional $500.
00:34:51
Speaker
An option for you to do is to buy an immediate annuity solving for that $500 at that time using the least amount of money reverse engineering. Always tell Pooh, use the least amount of money with annuities to solve for the goal that you have in mind. And the annuity industry actually recommends that you never go past the 50 percent barrier of your investable assets. And that does not include your car, your guitar or your house or your land.
00:35:19
Speaker
this is investable assets. So let's just say you had $500,000 investable, legally 250 is about all you should even consider. Does that mean you use 250? No, we're going to try it again, use the least amount of money to solve for the goal. But for the financial planning sector, if you could take care of that income goal and not have to disrupt investments to pull out the 4%, we've seen it work pretty well. People like Wade Fowl, if you don't know who that is, it's spelled P-F-A-U, pull it up. He's been on like my Fun with Annuities podcast. He's a big proponent of that income floor using annuities, so you don't have to disrupt your investments. Does the 4% rule work when you have a good money manager? Absolutely. But I said good money manager. They're hard to find.
00:36:05
Speaker
You mentioned a pill, which is your acronym, principal protection, income for life, legacy, and long
Legacy Benefits and Long-term Care Options
00:36:14
Speaker
-term care. I think the first three, well, the first two are very clear. Can you explain more how an annuity can provide legacy and long-term care?
00:36:24
Speaker
Sure, let's talk about legacy first. Legacy is the best legacy product on the planet I don't sell. It's called life insurance. I have a ton on myself. Life insurance, I always kid, is the best and best investment ah best return on investment on your money that you'll never see because you're dead.
00:36:39
Speaker
You need life insurance, but if you can't qualify for life insurance, if you can't pass the physical and the medical, then you can buy ah an annuity with a rider for death, a death benefit rider. Now, the difference is with life insurance, that death benefit is tax free.
00:36:54
Speaker
the death benefit on an annuity is taxable. But if you can't get life insurance for legacy, you can get a guaranteed um return for death for a death benefit on a on an annuity. If if you want that for legacy, legacy is leaving money to your heirs. But again, if you if you can get life insurance, please get life insurance. Now, when it comes to long term care, there's many types we don't really sell long-term care. There's one type of an annuity that we do sell if you can't qualify for long-term care. Again, long-term care is a tax ah tax-free strategy, but you have to qualify either through medical tests or a phone interview, etc.
00:37:35
Speaker
But if you and and we refer you to somebody that that we trust license and all 50 states that handles that. But if you can't qualify for that, we can get you a guaranteed issue product that will increase your income when you can't do two of the six daily functions of life. Again, contractually guaranteed, etc. But if you have long term care currently and you're listening to me right now, keep it. Don't have anybody try to talk you out of that. um Keep it. But there are some good new long term care products that we can point you to um that can protect the principle yet provide the lifetime income stream, lifetime the long-term care when you need it. But if you die without utilizing the long-term care, your heirs are going to get the money. One of the big, I think, um misconceptions about long-term care is the same one with annuities. Hey, if I buy that and I die, the money goes poof.
00:38:25
Speaker
There's three types, three to four, if you want to count them. but Let's just say three primary types of long-term care. Only one of those three is the money-go-poof model. Not many people are using that. There are what's called asset-backed long-term care policies that you can have the long-term care in place.
00:38:44
Speaker
But if you don't you use it, the money is going to go to your beneficiary. So again, just think about all of this as transferring risk. You're transferring the risk to either protect your principal, you're transferring the risk for long for lifetime income as long as you're breathing or on a ventilator, it's going to pay. You're transferring risk for legacy or you're transferring risk for long term care. These are risk transfer products. They're not investments, they're contracts.
00:39:09
Speaker
That's a lot to think about. But all those things are things that we should think about when we're talking about retirement planning and we probably shouldn't wait till we're seven years old to actually get educated and think about how our pieces will fall into place ah one way or another and and try to look ahead and take some action ahead of time. It'd probably save us a couple of dollars too in that case. Sure. In my research of you, I've heard you say multiple times that to determine an annuity strategy rather than simply buy an annuity. Can you provide an example of annuity strategy and walk us through the logistics of how someone would implement that strategy? Yeah, going through the two the two questions we use. What do you want the money to contractually do? When do you want those contractual guarantees to start? If you said, what do you want the money to contractually do? And you said, lifetime income. And when do you want that income to start? I need it to start in three months. That's an immediate annuity. Okay.
00:39:56
Speaker
Or let's do it again. What do you want the money to contractually do? I just want to protect the principal. When do you want that to start now? That's a multi-year guarantee annuity, the CD version, annuity industry version of a CD. Or if you said, what do you want the money to contractually do? I want lifetime income. When do you want that to start? I need that to start in seven years.
00:40:14
Speaker
five years or seven years, then we're gonna quote deferred income annuities and income writers, which are the two products that would solve for that specific situation. If someone's coming to you and say they have the product that does all of it, they're lying, and it's just a commission play for the for the annuity agent. um You really need to, when you look at annuities, whatever type you're looking at, you need to see at least five different carrier quotes. If someone's coming to you with one quote and saying that this is the best one, this is the one I found,
00:40:43
Speaker
Translation, this is the best one for them. And this is the only one that they've learned. These are commodity products, period. And you have to shop them all the time for the best contractual guarantees. Again, at my site, you can run these quotes 24-7-365 with no limitations.
00:41:00
Speaker
on your situation and you can look at the live MIGA feed for your state every single day. No limitations, no signups, nobody bugging you. um We want and we put this um all you know all of our sites together so that you can get educated on your terms and your timeframe.
00:41:17
Speaker
um You're the only one that knows if it fits for you, what we can do at the very end is help you shop for the highest contractual guarantee and point you to what we feel is the the company that might have ah better claims, paying ability, or might have something within that contract that you didn't know know about. We're going to go through all of that for you. And I think the biggest thing I'm proud about is we just don't pressure anybody.
00:41:39
Speaker
i mean you bought you're gonna Our site is where you can buy an annuity. You're not going to get sold an annuity. um You're going to buy it and it's going to be on your terms and your time frame. I know that people are going, yes, sure, Stan, you guys are going to pound me and email me and call me. It's just not going to happen. We're not going to do that. I don't like when people do that to me.
00:41:57
Speaker
um So I built the business around that. And that's the reason we have the YouTube channel with thousands of videos. We have the Fund with Annuities podcast that educates. And then you can get the books and get the quotes and all that stuff. And we even have a search bar on our site. We build it like Google to where you just type in what you want to see and it'll pull up the content that I've created to match what you want to learn about.
00:42:21
Speaker
I've heard you say the phrase on the phone conversation and here today, contractually guaranteed transfer of risk. Is that an industry wide phrase or is that a your business phrase? And can you just explain it one more time? It should be an industry phrase.
00:42:36
Speaker
um But it's not. um And it's nothing unique that I've come up with. It's annuities or contracts. We only look at contractual guarantees and annuities issued by life insurance companies are transfer of risk products. You're transferring the risk to that company to solve for whatever goal you're trying to do. So, you know, they're contractual guaranteed transfer of risk products. And if you put them in your brain,
00:42:58
Speaker
as that being the solution, you're going to be very happy with the annuity type that you choose. Because you let's just say that um you needed lifetime income right now. You know you you you retired, you have this huge 401k, and you say, you know, we need $2,500 a month in lifetime
Finding the Best Contractual Guarantee
00:43:15
Speaker
income. We shop all carriers for the best immediate annuity quote, and there's probably 40 companies we'll shop. I think that's the the universe right now of companies that have passed our financial sniff test.
00:43:25
Speaker
And then we'll shop all of those and and match you up with the highest contractual guarantee. And then that income will hit your bank account like clockwork on the day you want it to hit. You tell us that. And we facilitate all the paperwork, all the transfers, all of that. And just remember, when you transfer from a 401k to an IRA, an annuity company, that's a non-taxable event.
00:43:48
Speaker
We take care of all of that for you. And I have a very good team in place that does all the paperwork. And because of who we are in the industry, we do get preferential treatment from these carriers when we we do submit applications, et cetera. um I'm very proud of the tech company that I've built. I'm not a techie, but you know we we we are constantly trying to think like the consumer, what would the consumer want? what what are they going you know How would they want to interact with our site with this money transaction?
00:44:17
Speaker
Because we're not going to meet with you faceto face to face. The typical model for an annuity agent is they sell within the 30 mile radius where they live. They sit down at your kitchen table. That is not us. I'm the pioneer in the direct consumer market with annuities. I was the first one. and And I just believe that when you're buying contractual guarantees, we don't need to know about your kids and your grandkids. We just need to know about you, see if it's suitable and appropriate.
00:44:40
Speaker
For you, we'll tell you that. We'll tell you if you're putting too much money in, we'll try to use the least amount of money possible. But that's kind of how the process works. When you say transfer of risk, the risk that comes to mind for me is just market volatility. And if if it were if we're speaking about this in the context of the 4% withdrawal strategy, yeah which many listeners are familiar with and probably plan to do, at least with the significant portion of their yeah net worth and retirement, are there other risks other than market volatility that you're transferring?
00:45:12
Speaker
longevity risk and longevity risk is outliving your money. you know One of the big fears with baby boomers and retirees is outliving your money, not having enough money at the end with the income. With an annuity for lifetime income, those those four types, you can solve for that lifetime income stream that combines with social security. And if you want to look at the 4% rule and you say, you know, I still like that stand, why not do a 2% rule and the other 2% and a lifetime income stream annuity, and you don't have to disrupt as much of those investments.
00:45:41
Speaker
So, you know the 4% rule has been around forever. you know There's people that like it, there's people that don't like it. What I'm saying is, if you can lessen that dependency of taking out that that larger percentage, and 4% can be a large number if there are down markets, you know why not buffer that a little bit with lifetime income guarantees with an annuity type in conjunction with the one you already own, Social Security?
00:46:04
Speaker
yeah I went to your free calculator on your site, stanetheannuityman.com, and I entered what i that I had $500,000 to purchase an annuity and the income begins after 12 months. ah What came up was an s SPIA, ah which was single premium immediate annuity.
00:46:27
Speaker
and And the options showing was basically lists of potential monthly payouts under six guaranteed income structures, including single life only, single life with cash refund, and single life with five years certain, and some others. ah Can you explain the nuances of each of those income structures? Sure, I can. And remember, there's 40 ways to do this. So that's just the top. and Maybe not all 40. Maybe let's just focus on the best part. We list the top ones that people typically choose. One other thing that I want to start with is that um if you're less than 50 years old, you've got to convince us why you need an annuity of any type. Typically 50 is the type is is kind of the the the bogey for us to have that conversation. But youngsters out there, you need to stay in the market and get growth.
00:47:12
Speaker
period. But let's just go through the immediate annuity structures. This also would would dovetail into deferred income annuities as well, which is ah an immediate annuity that you defer. Life only means it's going to probably be the highest payout. um It's going to pay for as long as you're breathing. And this is the one when your Learjet hits the mountain money goes poof. Not many people choose that. Life with a period certain, which is life with a five year certain, life with a 10 year certain, life with a 20 year certain, life with a 30 year certain.
00:47:37
Speaker
That means it's gonna pay as long as you're breathing but that certain period is the guarantee. So let's just say you you bought a life with a five-year certain and you died year three, you have two more years of payments going to your beneficiaries. Let's do life with 10. Life with a 10-year certain is gonna pay as long as you're breathing, but let's just say you die at your five, you have five payments, five years of payments going to your beneficiaries. Life with a 20-year certain,
00:48:00
Speaker
um If you live 21 years and die, there's nothing for your beneficiaries, right? Because 20 years is the minimum. Let's just say on that structure, life in 20, you died year seven, there's 13 more years of payments to your beneficiaries. Life with cash refund and life with installment refund are are pretty, um kind of makes sense if you think about its life. Anytime it says life in front of it, it's going to pay for as long as you're breathing.
00:48:23
Speaker
period. People say it was at 150. Yeah, if you're breathing, 150. How about 170? Yeah, if you're breathing, 170. But the point is with cash refund, 100% of the money that's left in the account when you die will go lump sum to your beneficiaries. Life with installment refund means that when you die, whatever in the account goes in payment form to your beneficiary. So another all my life within lifetime payments or structured life with installment refund, because I don't want my two girls to buy Lamborghinis with cash. I want them to make payments on it. So, you know, that's the joke. You can limit, you can handcuff your beneficiaries with that. And then also with the periods, you can do a period certain immediate annuity. In other words, there's a lot of people say, Stan, I've got a gap of income I need to solve for. It's like a 10 year or 12 year gap.
00:49:08
Speaker
You can buy an immediate annuity that just pays for those 10 and 12 years and there's no life contingency. I think this is a good example of how customized this can be. You just have to tell us exactly what you want to get solved and exactly how you want your beneficiaries to get paid in case something happens to you. And in addition to that, do you want to Add your spouse as a joint lifetime income participant. Understand that, again, life insurance companies that issue annuities don't give anything away. If it's a single life payment, it's going to be higher than if it's a joint life payment. okay Because that they're only going to back up one life instead of two.
00:49:46
Speaker
But for all of you out there, I mean, all of my stuff is joint life with my wife of 36 years. That income is going to continue uninterrupted and unchanged for her life. And then we have installment refund on the back end in case something happens to her, then whatever's left goes payment form, same exact payments we were getting, those payments will go to my two girls.
00:50:05
Speaker
Something caught my interest. Well, all of it's interesting, of course. But one thing in particular caught my interest that you were just talking about, because the financial independence community retire early. They usually have to solve for a problem. Most of us don't get pensions. ah Most of us are planning on Social Security at some point and later, or many of us actually aren't planning on Social Security, which is a conservative planning strategy.
00:50:28
Speaker
But let's say ah you've saved enough net worth to retire at 40. And now you can't start getting into your tax deferred counts until, well, you can, but you ideally you probably don't want to until 59 and a half. So I know you said that you don't entertain annuities for people really under 50 years old. I think you said that. and we can there might We can, but there might be a specific circumstance.
00:50:57
Speaker
I'm thinking this specific circumstance might be someone who has built a net worth and is looking to solve for the problem of, okay, I need, how am I going to live from 40 to 60? How can I guarantee some income there? yeah think a twenty years so yeah The year certain would be the way to do it. Understand if you do a lifetime income stream at age 40 or 45,
00:51:19
Speaker
or 50, whatever, it's still on life expectancy and your life expectancy is into your 80s. So what they're going to do literally is take your life expectancy, divide the payments by that. So the younger you are, the lower the payment. um You know, that's the reason that we tell people this, you know, unless a specific specific circumstance, you probably shouldn't be buying. But if you want to do a gap fill, like you just said, which is a 10 year gap or 20 year gap, you can buy, um you know, ah a single premium immediately a period certain for that time period and pull that off. Now, we're going to run the math against just basic things like CDs and my gust to see if it makes sense to even do a period certain. And it might not mathematically make sense for a lot of the people that are do-it-yourselfers market people. They almost throw up when they see those numbers. You know, the positive about a period certain or an annuity guarantee period is that is a disciplined approach that's contractual.
00:52:15
Speaker
If you're really good at managing your money, you probably probably aren't going to do that because you know how to maneuver you know volatile markets and get in and out and out of the way. But for the vast majority of the public, they either don't know how to do that or don't care to know how. So it's just a case-by-case basis. you know We do have specific clients that that like putting you know income streams in place for them and their wife, even if they're young. They have to convince us why that makes sense.
00:52:41
Speaker
um Obviously, it comes down to a suitability and appropriateness standpoint on a case-by-case basis. But most people, if they're young, I see some horrific sales practices. People buying index and variable annuities at age 25 and 30 and 35 and 40, that should be illegal, in my opinion. I don't agree with that. um But there are specific cases that we'll listen to and it will probably be escalated up to me because I need to know exactly what you're trying to do and why. We do have some people out there with really, really high net worth that do this just from our diversification standpoint. I get that, but you you know most people, I just don't think anything below 50 you need to be doing that.
00:53:20
Speaker
I do believe in the 4% rule and ah you know just based on however much one can read and and debate and and think rationally or irrationally about it. Anyway, in my core, I do think the 4% rule works, you know plus or minus a fraction. Sure. And then over real life, you know you make minor adjustments to whatever your living lifestyle is and and you can you can get through it. But I do want, I preface my next comment with that because What I'm about to say might be pro annuity. And I want you to try to play devil's advocate against the annuity to show me where I might be wrong. Let me give you context. I was on your calculator. I put $500,000 in. It came out with the SPIA, the monthly payment for the SPIA to me, what came out to be across all but the very last one, which was I think a very special case.
00:54:13
Speaker
was $2,600 per month or $2,000 per year. ah Excuse me, $2,600 a month or $31,200 per year. Now, if I did that same thing with the 4%, if I did the $500,000 using the 4% rule, invest in a low cost broad market index fund, and then you use the 4% rule to make the cats cash withdrawals, that would be $20,000 per year or $1,667 per month.
00:54:41
Speaker
So if on its surface, it looks like the annuity is a much better way to go because it provides payments for life if 50% greater. So my monthly payment would be instead of $1,667 per month using the 4% rule, it would be $2,600 a month using the SPIA.
00:55:03
Speaker
Yeah, let me try know shits add to apples to apples yeah but i'll shoot that down from from the non-annuity standpoint. The reason that you wouldn't do that, especially at your age, is that that money's gone. Poof. In other words, you've you've locked it up, it's irrevocable, you rip the knob off the water faucet, and it's not accessible to you. Yes, it's coming to you in a monthly payment.
00:55:22
Speaker
Yes, it's contractual, but at your age, and again, this is an age thing, at your age, i'd I would rather you have full control of the asset and not tie up that amount of 500,000. Now, if you came to me and said, Stan, I'm 65, and I ran the same calculation, that's a different animal because you know you probably do need to lock in those guarantees. So it really comes down to your age. And because you're less than 50 years old, I would just say no, because the the prospect of you having more growth off of that $500,000, I think outweighs the guarantee of that amount, even though it's more than the 4% that you can pull out. My opinion, just having been on the other side of the table, and I would probably try to talk you out of that purchase of the annuity. Okay. Refreshing and thank you. We want happy clients. I don't want people mad at me, you know? Plus the truth's the truth. I mean, um you know,
00:56:20
Speaker
but Like I said, annuities aren't for everybody, and we're brutally factual about these things. We don't try to polish them up. They are what they are when you're buying contractual guarantees. But again, you know, that 50-year-old rule, the reason we say 50 is you're nine and a half years away from the you know from from the taking money out of your IRA at 59 and a half. But even at 50, we scratch our heads and go, I don't know. I mean, truly, I probably need to move it to 55.
00:56:48
Speaker
Cause at 55 you're kind of turning the corner. You know, think of you're running four laps on the track. You're, you're, you're, you're third lap, you know, round in the corner. You can see retirement at the end. You probably need to be people thinking, exploring, looking at the contractual guarantees in place. so You can go live your life.
00:57:05
Speaker
But long-term market growth, long-term S and&P 500 returns, we all know what those are. And you can't argue with those because the the track record is is unbelievable. the the The difference is when you start pivoting toward contractual guaranteed annuities and transferring that risk,
00:57:25
Speaker
You're either coming down the home stretch or you've crossed the finish line and you're going into what I call chapter two of your of
Retirement Planning with Annuities
00:57:32
Speaker
your life. And chapter two is all about guarantees and lifestyle and not about tracking markets as much as you did when you were younger. My opinion. How do you think the decision to leave wealth to your children upon your death factors into the decision on whether or not to establish an annuity? Well, I've done some I've done some controversial videos called handcuffing your beneficiaries and um I've done that with my daughters who are twenty currently at the time of the statement 25 and 27. I've set up deferred income annuities that will start paying them a lifetime income stream um at age 50. You can do that. You can handcuff them. They're going to cuss me every every time that monthly amount hits their checking account, they'll cuss me out and that's okay.
00:58:14
Speaker
because they didn't get the lump sum. But you know there are specific situations we do. i call so there's so There's a strategy I have called the legacy income monster that I actually had a client that is in his 80s. He bought a single premium immediate annuity joint life with his great grandson who was three. So they based the payment on the three year old, but the three year old is going to get payments for the rest of his life on a monthly basis. And this was the grandpa saying, I don't want to give him the lump sum, but I want to give him a payment.
00:58:43
Speaker
And so we there are some situations we'll look into for you, but annuities for lifetime income is a very unique way to take care of your children. And sometimes your children are what I call wandering ambiguities and they don't need to get a lump sum, but they need to get taken care of. it The other reason I did this for my daughters is I don't know social security will be around for them. So I created their own social security for them and ah and a pension payment because they probably won't have one.
00:59:12
Speaker
so So, annuities do fit from the standpoint of um legacy planning. um There's also, I want to throw this idea out to a lot of people, there's a lot of of people out there that either male or female, somebody's running the money, they're very, very good, but the other spouse is not good at it. And they're going to need a lifetime income stream. What I would tell you to do is consider talking to your estate planning attorney and saying upon my death, because I'm the master of the universe running the the portfolio,
00:59:40
Speaker
I need an immediate annuity purchase for my spouse at the time my Learjet hits the mountain because they don't want to manage the money. They just need a lifetime income stream. You don't buy it now, but you set it up in your trust so it triggers upon your death so that an immediate annuity purchase for them. I know for a fact, like like a lot of my clients have done that because I've done that. My wife care less about the markets. She could care less about anything. All she cares about is seeing the kids and the grandkids.
01:00:06
Speaker
That's fine. Upon my death, there will be a large immediate annuity purchase for her to solve for that specific dollar amount. So I call it handcuffing your lovingly handcuffing your beneficiaries. But remember, because they're contracts, you can customize that contract to work exactly like you want to.
01:00:23
Speaker
And in essence, control it from the grave. That's a lot to think about. But yeah, but I think the point is, is, you know, and and I think that's what people are going to get out of this episode is there's a lot more to it. There is. fan and And it shouldn't be shunned just with lack of education, along with lack of education, which is an asset that you need to learn about. That doesn't mean you would need to buy one.
01:00:48
Speaker
but you should be um educated on the asset class to understand how what they saw for and how they contractually work so that if it fits your situation, then that's a possibility. You can't just broadly say, I hate all of it. You just can't. If you're going to say that, then call the Social Security Office and and cancel all those payments that are coming to you. Seriously, I'm not being You know, funny about that, but I want you to open your mind um as as listeners out there to the category, just the category. And there's a lots of different types of annuities that solve for lots of specific things. And there's not one that solves for all of it. There's not a one size fits all.
01:01:30
Speaker
The reason you and I are having this conversation today is, honestly, this is a very personal conversation for me. this like When I'm doing a podcast, I'm like, oh, what would people want to hear? What would people want to listen to? But in this case, this was for me, and then have other people can get benefit from it. Great. But I know a few very, very smart money people. Christine Bens, Paul Merriman,
01:01:51
Speaker
And in my very candid conversations with them, they they're not anti-annuity. And the reason why I reached out to you and is because if these smart money people who I respect, who also believe in like the Boglehead strategy and and financial independence, those kind of things, then what am I missing? So then I really had to admit that erroneously, I just stiff-armed annuities as a whole. Mm-hmm. And specifically in Christine Benz's conversation.
01:02:26
Speaker
It's not in the podcast with her. We actually talked after the podcast recording. Sure. But we we talked probably for another 15 minutes about annuities. And she referred to again, a phrase of vanilla annuity. That's a no and financial. Yeah. In a fin up financial independent space, we've got JL Collins. He's a well-known guiding figure. Sure. And he recommends simplicity, which means investing in low cost, broad market index funds. Is there a similar preferred, simple vanilla, low fee annuity that solves a problem for Most no who are looking for this? No, no you're going you went back up to 30,000 feet and there's no 30,000 foot annuity. that's how and That's how annuities are improperly sold. um You have to go down into your specific situation and solve for your specific goal. And the mistake that's happening is in the annuity industry is
01:03:16
Speaker
that people are being pitched that one product, you know that one alleged simple product. when it When it comes to your money, it shouldn't be you shouldn't have to you shouldn't take that approach. You should take the approach of, what am I doing here? you know When you buy a stock, you don't buy a stock because the name sounds right. You do the research. You don't buy a mutual fund because of past performance or or who the manager is. You do your research.
01:03:40
Speaker
Same thing applies to this to this asset class, which is annuities. One of the reasons I chose to come out here, and when I did my research on you know small business years and years ago, was nobody everyone was just selling out here. No one was really talking about how they work, how it applies to a specific portfolio, you know the fact that not everybody needs an annuity. And there was so much misinformation that it was just it was an easy industry for me to come out here and dominate the educational space because no one was trying to educate. So what I can tell you is, no, there isn't just a simple annuity. Okay.
01:04:15
Speaker
um it the misconceptions of fees and things like that. Let's cover that. Annuities as a category, all the commissions are built in, you never see it. that's That's good and bad. I wish it wasn't like that, but it is. Just remember, the more simple the product, the easier to understand, the lower the commission, the more complex, the higher the commission.
01:04:35
Speaker
um but you know you solve it for what you're trying to solve for. if That's income fine if it's principal protection fine, but if it's market growth, please don't. Just please don't do that. And I am the only person out here that says that because most people in the annuity world have never managed money They've never passed a series seven test. They couldn't, most of them, or series six. They're not registered investment advisors, which leads me to another thing. if If someone's charging you a fee um to manage your money, have they managed your money? They shouldn't be selling you annuities, my opinion. And if they're wrapping a fee on that annuity, that's wrong too, in my opinion. so
01:05:13
Speaker
um We're trying to clean it up. We're going to eventually, you know, we're breaking through in a lot of spaces. And I think when people hear what we're doing and how we're doing it at the Annuity Man, it's refreshing because it's a non-hype, non-selling, non-product specific approach.
01:05:29
Speaker
to the space and leaving you alone to make your decisions on your terms and your timeframe after you've been educated. And that's really my role at this point. I look back and wonder why I feel the way I do about annuities. Why do you think there are so many people like me out there that just blindly shine annuities as a practical tool?
01:05:48
Speaker
Well, without mentioning names, because it doesn't it's it's not personal, um there are people running ads that say, I hate all annuities, and they put annuities down in a broad brush on their on their advertising, wanting you to give them their money to charge a fee to manage their money. So those people are out there. And also, I think the financial journalists are not up to speed on the details of annuities and they just carte blanchelly do not like them. Wall Street hates annuities because it takes money away from their liquidity that they're seeking from the small investor. um and they you know Anybody that's a ah money manager, Wall Street guy, they're they're You know, they're ultimately positive and and historically they can be about market returns, but there's a lot of people that have done the market return cycles.
Transitioning to Contractual Guarantees
01:06:34
Speaker
They've seen ups and downs and market ups and downs, and they just want to go live their life in chapter two and have the contractual guarantees in place.
01:06:41
Speaker
And there's not what I'm telling people, there's nothing wrong with that. I did a video and if you want to pull it up and just type in, it's called, you've won the game. Why are you still playing? There's a lot of you out there that have won the game. You have enough money to retire. You have enough money to either live off the interest or create lifetime income streams and not worry about markets again. My question is, why are you continually to do that? Just because people tell you you need to do that.
01:07:04
Speaker
So I mean, if you want to watch a fun video, it's that one because, you know, if you've won the game and the cheerleaders are packing up and the band's walking out of the arena, why are you on the court dribbling and still taking shots? You don't have to do that. A lot of people out there with it's okay to put contractual guarantees in place. It's okay.
01:07:23
Speaker
to have just principle protection in place. You don't have to keep taking shots at the market if that's not what you want to do in Chapter 2 of your life. Now, do I believe in markets? Absolutely. I come from that side of the table, but I'm also a person that understands that out of 13,000 baby boomers hitting at age 65 every day, there's a vast majority of them that don't want to do it anymore. They just don't, and it's okay.
01:07:46
Speaker
you can you can lock in guarantees that take you to the rest of your life and you can live comfortably. So that' that's my statement to America. It's okay to transition away from markets.
01:08:00
Speaker
Well, Stan, thank you so much for taking the time and educating me and and our listeners on this. I know this is a blind spot for many in the financial planning, retirement planning communities. And ah I feel, I know that they're probably not going to fit mine because I do have it for just, I'll throw it out there. It's not my negative bias. It's I have a pension, a a very hefty military pension. Sure. And so I don't, ah my income floor is set. There you go. At least for now. And it's a gesture for inflation. So I think I'm good.
01:08:29
Speaker
But I do appreciate the concept of are you focusing on the income floor, setting an income floor, because I think that can reduce a lot of anxiety for people in retirement. Absolutely. And using annuities to do that is one option. So I appreciate that focus. And I know you're a busy man. You're the licensed in all 50 states, helping a lot of people retire more securely. So thank you for what you're doing out there and thank you for educating me. And hopefully this is not our last conversation. No.
01:08:58
Speaker
Totally. I really enjoyed it. Everybody go to theannuityman.com. You know, just run the quotes and look around and no one's going to bother you. Again, thank you for being here and thank you all for watching and listening.