SPIA vs GLWB

[00:00:00] Hello and welcome everybody to the Annuity Straight Talk podcast, episode number 181. My name is Brian Andersen, founder and creator of AnnuityStraightTalk.com wrote everything on the website. It's a product of my research and real world experience over going on 23 years in the business, lots of transactions. I've done business with hundreds of people. I've talked to thousands and thousands of people about their situations. I know what everybody's doing across the country because I get reports from Florida to Washington, California to Maine. Does that crisscross it enough? Actually did somebody in Alaska last week and helped her with a few things. [00:00:38] Please like subscribe or comment on any of your favorite podcast platforms or on YouTube. If you want to share it with your friends, that'd be great. Anybody that could use the information, go ahead and send it out to them. I'm not here to sell people things, I'm here to advise. I do sell annuities to make a living, but it's only after you choose what you think is best for you. After seeing all the options. Going to talk about something that I cannot actually. I can't believe I actually didn't do this. I've done something really close to it, but in light of having the income calculators I talked about a couple weeks ago probably should give. I was we're looking at maybe putting some videos on there, a little more instructional so everybody that sees it has a chance to really look at it and know how to use them both to make sure you find the best deal. Because it could go either way and depends on the situation. I don't know what it is and oftentimes I kind of know what path you should take, but I don't know the specifics of it. It could go spia, DIA could go glwb. So we're going to talk about SPIA versus GLWB and I'm going to share the newsletter that I wrote. [00:01:41] What's interesting about this is I kind of had this idea a few weeks ago. Well, when I was recording the episode on the calculators and I looked at it, I was like, how do I not have something SPIA versus glwb, single premium, immediate annuity or guaranteed lifetime withdrawal benefit. [00:01:59] And so I sat down and I wrote a couple of bullet points about the factors that you could consider to compare the two. [00:02:06] And then when I had time, I sat and rattled off a thousand page letter explaining the whole thing. [00:02:13] I'm like, man, I've learned a lot over the time. And it just really comes right off the top of my head. I want you guys to understand I've put down a lot of work for this and I hope you appreciate it because it's a great resource for you guys. So this episode is going to be all about the options you have if you want to maximize income within the first year of buying an annuity. Most agents, or certainly a lot of them, are only going to show you one without the other. [00:02:36] And it could be because they don't know there's another option or they just don't want to do the work or they got a favorite thing, they're comfortable doing it. Probably not a bad deal, but it is the best deal. [00:02:48] I would say naivete leads to less than optimal results in far too many cases. [00:02:54] See it a lot. [00:02:56] But more and more I am getting people calling in, hey, what do you think of this? What's this deal look like? I'm like, guy did a good job. Pat him on the back for me. Go for it, do the business. [00:03:06] I mean, I'm not gonna spend four hours trying to blow apart a good plan. [00:03:11] I'll just take my five minutes, congratulate em on finding a good deal, Wish him luck in retirement. [00:03:16] So the single premium immediate annuity and the guaranteed lifetime withdrawal benefit, they share unique differences that you can analyze to find the best combination of benefits for your situation. I already compared dias, which are deferred income annuities, to GLWBs. We did that from the standpoint of a legacy where someone might want to give up maximum income in exchange for a better legacy. [00:03:38] And that's essentially the same thing as a spia. For all intents and purposes. [00:03:43] What I'm going to talk about is going to apply to both, but it's going to fill in the gaps of things I should have talked about last year and should have done this a long time ago. [00:03:52] So I got six differences on a list. [00:03:54] I'm going to go through each of them now. If you guys think I missed anything, go ahead and let me know in the comments or reply to the email when this goes out on Saturday. [00:04:04] And I'd be happy to correct it or if I feel it's not relevant. It's a good. That's always a good way to start a discussion. Don't feel bad about asking questions. You guys asking questions is how or what kind of what gave me the motivation to do all the research I needed to do to get this information out there. Because as AI takes over, there's fewer and fewer places where you can get really unbiased general information like this. So number one thing you compare is the amount of income you expect to get. And this is easy. Which one pays more? It can go either way. And I told the story a few weeks ago. We talked about the calculator. I said, this is why you got to look at both of them. There were two couples, and they did it at about the exact same time. [00:04:48] One had only seen SPIAs but got more guaranteed income out of a GLWB, and the other had only seen GLWBs but saved a lot of money by using a SPF. You got to look at both of them if maximum income is your goal. And most times it's very close. [00:05:04] So the other factors will come into play for that. [00:05:07] So a lot of times, and I already know, looking at it, in most situations, immediate income, they are going to be very close, and that that's going to stand typically for, you know, or if you're like age 55 to 75, past like in the 70s, late 70s and stuff, the speed is going to really gain an advantage the older you are, just because of how they're built. [00:05:27] So, yeah. How much income you get? Where can you get the most? [00:05:31] The income start date is a big factor that I've seen a couple issues with in the past year. [00:05:38] If you buy a SPIA or a dia, part of the application is you tell them when you want to start and the quote you're going to get. If that start date changes by a day, you're going to get a different quote, very actuarially sound. So a SPIA is up to 12 months. A DIA is longer than 12 months, but you get to pick the start date, and once the contract is issued, you cannot change that. Now, some of the dias, I think they'll let you change it one time, but for the most part, you can't. And SPIAs, you can't. With the GLWB, you do not elect income until you want to start receiving it. I talked to a guy this morning who is looking at neck and neck with two contracts. The SPIA pays a few hundred bucks more per year than the than the glwb, and he wants to start it in six months because he's quitting his job. But he said there might be another opportunity. What if I decide I don't want to take it in six months? In that case, Aspia, he'd be locked into that payment, which he decided is not a deal breaker, because he could. Then if he gets a job, he could have a 401k, maximize it and deduct a lot of that income or basically offset that income with contributions and just build it up. [00:06:51] But the GLWB would give him more flexibility and if he didn't need it, it would actually increase every year he waits. [00:06:57] So that's a nice thing about glwb, you give the nod to that if the two payments are identical, and that's important to you. One couple bought a SPF to bridge the income gap until they wanted to take Social Security. [00:07:13] You guys know, most of you guys know that I usually recommend taking Social Security as early as you can get it. But the other factors they had at play here, it made sense to spend the money, delay Social Security for several different other reasons. But they were going to have a seven year SPIA that started six months after they bought it or so. [00:07:30] And, well, the wife ended up getting a really good job offer that's going to last for a few years and she enjoys what the job entails, wants to do it. They're still, you know, relatively young, they're early 60s and she's got the energy to do it. She wants to do it, but we tried and unfortunately we cannot stop that. So they're going to get income they don't need. [00:07:52] Now, a GLWB would not have been the answer to that. [00:07:56] And so this is a good problem. They've got additional income, she's going to enjoy her work, it'll be fine. But when you do a spia, you really have to have that income start date nailed down. [00:08:07] It's usually not that big a deal. But if you have variability or potentially do, that's one thing to seriously consider. Okay, Accumulation value, cash value and an account. When you buy a spia, you trade the premium amount for a legal contract that guarantees monthly payments. [00:08:24] The money is gone and in its place you get a guarantee from an incredibly stable financial institution that says they're going to pay you forever. [00:08:33] Okay. Or whatever terms you decided. We got one issued earlier this year and the lady who bought it called me a couple months, hey, the payments are working. But when I log into the account, there's no statement. Do they ever send me a statement? [00:08:47] Well, it came out of an ira, so no, they're not going to send you a statement, but they will send you a 1099 at the end of the year. There is no statement because there's no cash value. [00:08:56] And that's. We talk about that in the beginning and people know that going in, but it's so different from what you've always experienced that it's still something you have to get used to. [00:09:05] GLWBs are a rider that is attached to a variable or fixed index annuity. Those two contracts, variable or indexed, have a cash value component in them and the rider is in addition to it. That's a cash value that can be managed over time. You have online access to it. You log in, you see you put 100,000 in. You log in, you got 100,000 bucks in there. Payments reduce the cash value eventually to zero. And that's what the rider does, is guarantees that if the count goes to zero, you'll get paid for the rest of your life. And so for people that really like the idea of maintaining an asset base, there's some growth that could go along that as well. We're going to talk about that in terms of legacy in just a second. But again, so you got cash value and you got an accumulation value on one side and you got nothing but a guarantee of payments on the other side. This is not to say what's right or wrong. It's just these are the things you want to. If that's really important to you, then maybe what if the GLW is paying a little less? But you like to know that you've got that asset. There's that's up to you. Required minimum distribution. Nobody likes them, but everyone's got to take them. If you got an IRA at some point, it's going to happen. Each of these will affect what you need to withdraw differently. [00:10:15] So when you use an IRA to buy a spia, the payment becomes the set distribution for the money that you put in the spia. So automatically satisfies RMDs for that portion of money on its own forever. Never have to worry about that portion of money. [00:10:32] The payout is higher than what you would have to take if you just had a cash balance of that. But it's still set to that higher amount. And you can't use that additional to offset what's required from another ira, because most times people are not moving their entire IRA to this. [00:10:48] So if you have an other IRA money, you're going to have to take the SPIA payment and an additional distribution. The SPIA payment's higher, but it only counts on that side. Then you got to take an RMD from the other side. [00:10:58] You're going to have more taxable income and be pushed into requirements of withdrawal that are higher than maybe what you want. [00:11:07] So GLWB on the other hand, because it has a cash value. You get a fair market value letter and your RMD will be the same proportionally on the annuity contract as it is on your other IRA money. So the higher payments from the GLWB will reduce what is required to be pulled from the other side and the rest of the Iraq. [00:11:27] Some people really like that. I've had a question about what happens when the cash value drops to zero. The insurance companies tell me, oh, it's the same thing, right? [00:11:35] Fair market value is zero. [00:11:38] That payment could offset. We'll have to see. It could be a benefit that really helps you out for the first 12, 15, 17 years, however long it takes for that cash to go to go down. But if anybody's really concerned specifically about that point, then I'm gonna dig and answer that question. [00:11:54] See, these are the things that I do, like the little things that I do. I go and figure this stuff out. Nobody's been able to answer that question. CPAs don't know the stuff. [00:12:02] They know to put a 1099 on your 1040, right? [00:12:06] I had a CPA last week. We're transferring from IRA to IRA and the CPA was like, hey, hold on. [00:12:14] Are you gonna have to pay taxes on this? No, of course not. It's a tax free transfer, IRA to ira. So yeah, the rules, no, nevermind. Different subject, right? [00:12:23] Insurance company strength is a big one for me in the past few years. Private equities coming into the annuity business, we've talked about that a little bit, we'll probably do a little bit more on that. [00:12:36] But you've got private equity companies buying, small companies are being very aggressive and a lot of people kind of disregard that. Hey, it's a higher payment. Sentinel Security got in trouble last year. I talked to a few people, well actually probably a couple dozen now who have guaranteed income contracts with Sentinel Security are really concerned about what's going to happen not just in the short term, whether they're going to be allowed to do business, but for the rest of their lives if they decide to keep taking the income. So a lot of people disregarded it. Oh well, it's a B plus company. The guy said it's not, it's not a problem. Well, it's not fun to deal with, that's for sure. [00:13:09] A couple people had substantial amounts of money there too. [00:13:13] So fortunately for SPIAs, the best payouts come from the strongest companies in the market. [00:13:19] New York Life, Integrity Life, Guardian Life, Penn Mutual Mutual companies. Big solid 95 to 100 Comdex, double A plus. [00:13:31] So if you go the SPIA route, you're going to get the highest payout from some of the strongest companies. You don't even need to think about this. [00:13:38] But when you compare it to a glwb, if you're going double A plus compared to a B plus, those are not the same thing. I mean any, any chief investment officer is going to make is going to charge a much higher rate on the B plus company, which means it would have to be a lower payout to make up for the fact that it's a lower credit rating. [00:14:03] You know, think about bad credit, bad loan. [00:14:06] I mean you are loaning money to the insurance company. They're borrowing it to invest it and pay you back along these terms. Okay? So yeah, so glwbs, a lot of substandard carriers that compete aggressively for your retirement money has always come from the top AA plus or higher company. For glwbs, I recommend no rating lower than a standard A, not an A minus, not a B plus. [00:14:30] The reason being you don't have to give up that much. A lot of times there's A or A plus companies that are at the very top of the market and you're just fine doing that. [00:14:37] But you're talking about a lifetime commitment and you want, if you're looking for an annuity that pays you $50,000 a year, you want 51,000 with a B plus just because it's an extra thousand dollars, it's 80 bucks a month. [00:14:50] What's your peace of mind worth? I don't know. It's up to you. [00:14:54] I won't sell it. [00:14:55] Okay. And lastly, I believe this is legacy. [00:14:59] So this is going to be up, certainly up for some debate. And I take the conservative track on this. I can prove that my opinion is correct. SPIAs come with a better all caps guaranteed legacy if that's what you choose. [00:15:13] Now you can add any type of term guarantee to a SPIA. [00:15:18] So if I don't live 10, I want it to pay at least 10. If I don't live 20, I want it to pay at Least 20. If I don't live long enough to get by my premium, I want to make sure that my heirs are refunded. What was left the difference. And a lot of times like with good rates and stuff, we can add depending on your age. Like I looked at one today for a 60 year old and they could get a 20 year certain. So if they only live 11, they get paid for nine more years. [00:15:47] They could get that and only affected the payout by a few dollars a month. So that was on an actuarial scale, the company saying, we know this guy's pretty much gonna easily live that long on average, so we'll just give him that for free. [00:16:00] Every case is different. [00:16:03] So glwbs fixed index or variable have a cash value and that's the only legacy available. Since it comes as a rider to a contract, there is a fee for the benefit and growth is not guaranteed. In a scenario with low growth combined with fees and account reductions for income payments, in some scenarios, you won't even recoup all your money if you die at the wrong time. You're 14, year, 17, whatever the number is. [00:16:29] And it's different for everyone and different in every scenario. But you have to think about the contingency. It's possible now you get the guaranteed income and all that stuff. But in comparison to a SPIA that can be guaranteed for at least 20 years with a 6, 7% payout, that doesn't just guarantee the money comes back, it guarantees a profit as well. Now, on a fixed index or a variable annuity, if there's good performance in the underlying account, then you will do just fine. But it's not guaranteed. That's where I win the argument. What's guaranteed? Some variables do really well. When the market's good, they're exposed to the market. So you can go up and down. But with a strong market, in the past 10 years, they've looked really good. I know some people taking their guaranteed lifetime income payments and they've pulled the income and they've got even a little bit more money than they started with eight, 10 years ago when they started drawing out. [00:17:21] So these are just factors to consider. There's six of them. Okay? The amount of income you get, the income start date, the accumulation value, how it's going to affect your required minimum distributions, the strength of the insurance company, and the type of legacy you want to leave. I'd say about 90% of the time, people only consider maximizing the income payment. And because if we're doing it right with the portfolio management, it's a piece of the portfolio, we can prove enough growth. In the other side, that legacy is kind of taken care of. [00:17:50] And some of those things aren't as big a concern. [00:17:54] But in the few other cases where one, one or the other of these might be important to you, it might have you swap sides to do either one. When you make an appointment with me, I have no way of knowing which is the best option. [00:18:06] I can typically tell pretty Quickly. Yeah, guaranteed income would be a very good option for you. [00:18:11] But until I figure out exactly what you want and all of your goals and how these fit into what you're trying to do, can I actually recommend something and say, I think this is your best path, but you'll get to see both sides of it and make your own decision with me. [00:18:23] So you guys can use this as a list to see where your priorities are and realize that there are a lot of advisors that are not going to show you both sides. [00:18:31] I've actually got full disclosure and a calculator, a live calculator that works and is accurate to the market. Right on the website. You may be leaving money on the table or moving forward if doing so without a key benefit. That's important to you. This website keeps all of us honest. Including me. Especially me. So hold me to it. [00:18:51] Episode 181 SPIA vs. GLWB My name is Brian Anderson. Like, subscribe or comment on any of your favorite podcast platforms or on YouTube. [00:19:01] Schedule a call. Top right corner of any page on annuitystraighttalk.com if you want to talk about your situation, get it figured out. I'll give you a look at every single option you could possibly hope to see. I'm going to save you time. It's the same thing you're going to get if you went and had 12 to 15 individual meetings with people all over the place. Brokers, investment advisors, insurance guys, dinner seminars. I don't know. You want the free steak? Go get the free steak. You want to make it easy? We'll do it right the first time. I appreciate you guys joining me. [00:19:29] Looking forward to an episode next week. I think I'm going to talk about something I got called on a while back that was, hey, people that own income annuities live longer. So there's a little foreshadowing for you guys. [00:19:40] But thanks for stopping by and I'll see you next week. Okay, Have a great day, guys.