Which Annuity Type Is BEST For Your Retirement Income?

Episode 137 May 11, 2024 00:19:24
Which Annuity Type Is BEST For Your Retirement Income?
Annuity Straight Talk
Which Annuity Type Is BEST For Your Retirement Income?

May 11 2024 | 00:19:24

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Show Notes

In episode 137 of the Annuity Straight Talk podcast, Bryan Anderson, founder of AnnuityStraightTalk.com, discusses various types of annuities and strategies for securing guaranteed lifetime income. He explains key products such as Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs), and Guaranteed Lifetime Withdrawal Benefits (GLWBs). Bryan emphasizes the importance of understanding each product's specific advantages to optimize retirement income based on individual scenarios. He highlights his unbiased approach, ensuring that clients receive the best possible deals without favoring any particular product. Bryan also touches on taxation and inheritance considerations associated with these annuities, aiming to demystify the complexities and help listeners make informed decisions. 

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Episode Transcript

[00:00:01] Speaker A: Hello and welcome to the Annuity Straight Talk podcast, episode number 137. My name is Brian Anderson, founder and creator of AnnuitystraightTalk.com, helping you with all your retirement questions, making sure you get the best deal possible. Here for a little bit of education this week, going through the details of and the technicalities of some of the products and the acronyms involved. Speas, diaz, or glwb's. For guaranteed lifetime income, please, like subscribe or comment on any of your favorite podcast platforms or on YouTube. Give it the thumbs up. Share it with people. A lot of people are looking for this information, and the feedback I've received lets me think it's helping more people than it's not. So if you are looking for guaranteed income, run a lot of scenarios in the past, done a lot of analysis, talk about the flex strategy, and do all those things. You guys have to understand. My mind works like a database after 21 years in this business, and I figure out all these things come into consideration when I do this. It touches on several of the past podcasts. I'm going to link one of them, but here it is. You got a lot of options for annuity income. There are obviously a lot of products from various insurance companies, a lot of different companies. All have kind of the same thing that you got to value every single one of them. I always say, I don't have a dog in the fight. I go look for the highest payment if you're looking for income. But there's also several different types that have an advantage depending on what you're trying to do or what your preferences are. Unfortunately, most advisors, maybe once in a while, maybe once they hit, oh, here's the highest payout. So that must be the highest payout for every scenario. A lot of you guys would know when I talk to you and you say, well, I'm going to defer for four years, maybe six or seven. Deferring for four or deferring for seven. Could be two completely different products. I've made grids for people to show them. Okay, well, if it's three years, it's this product, if it's four years, it's that product. And then, you know, those guys who don't really know what they're going to do have to decide where their best advantages is, what's most likely. Now, it's not usually a big, it's not a huge difference, but it is a difference. I have always explained every option to those people that are interested. I'm putting this on the record. If you want to learn a little bit more or understand a bit about how I work. I cannot afford to pick just a favorite product. I do have companies I like. If you have things I like, I can't afford to do it. I'm involved in competitive situations all the time. That goes with anybody else who's advertising on the Internet, who's running ads, if their stuff's good, if they give you the best deal, I'll confirm it. A lot of done. A lot of times I've done that. So every single type of contract has its advantages, and it's going to seem kind of confusing, but you guys have to focus on the bottom line and your preferences and get somebody who is a truly a professional, who's going to show you all these things and give you the best deal for you. So I'm pretty well versed in all the varieties of it. I am at this point, coming down and putting these things into Layman's terms. It's not complicated stuff. There's just a lot of little contingencies. So at times it seems like there's more acronyms than in what the US military, federal agencies unwind all the abbreviations, making it into something that's more useful to you. So, first of all, Spea. People say, what's a spea? When I talk about it, because I just talk about it. Single premium immediate annuity. This is a traditional form of an annuity, period. An annuity income annuity is, by latin definition, it's income. You give the insurance company money and in return receive monthly payments for the rest of your life, single or joint. Depends on how you want to set it up. If you are taking income within one year of the purchase date, this is most likely the highest payment you'll receive. And fortunately, a lot of the best payments are from some of the strongest insurance companies. If you need income deferred for more than one year, then this option is not available. That takes me to the next one. Dia deferred income annuity. That can be seen as a very general term. If you defer income, it's a deferred income annuity. By its true sense, this is nothing more than a spea that can be deferred for more than a year. Every year you defer, the income grows, and it is enhanced each year by some interest rate factor. For all intents and purposes, it has the same structure as a single premium immediate annuity, SBA. These became really popular as what is like, kind of a subset of this is a qualified longevity annuity contract. A Q lack it allowed people to take a piece of their iras and defer RMD's on that portion of assets and in return receive a late life income stream. So qualified longevity annuity contract, it allowed you to ensure the late life payments so you could take a section of it used to be 125,000. Now it's more. I think it's up to 200,000 you can do now you can set it aside and it's going to churn out a guaranteed income stream when you're 80, 85, 90, even some of the old ones did. And a lot of, some of those, if it's a QLac, if it's qualified, you know, a lot of those say you can't take income before age 85. So it is for a little piece to set back and know that you will always have income late in life. The last one is a GLWB, a guaranteed lifetime withdrawal benefit. Now, there's lots of different types of this income benefit on variable annuities, all that stuff. Essentially, this is an additional benefit that can be added to a deferred annuity, and it offers guaranteed lifetime income. So you've got an account value, you put a rider on it, and it gives you a guaranteed lifetime withdrawal benefit. In addition to that, these are mostly available on fixed index and variable annuities, although some fixed annuities, just regular fixed interest annuities, have these as well. These are most likely to pay the highest amounts of income. If payments are deferred for more than one year, they have growth factors. This is where people get confused with the bonuses that pay to the income benefit. The GLWB gets a bonus and they get a roll up every year. It's like Social Security. All of these, they're deferred. They're just like Social Security. Everybody understands it when it comes to Social Security. Oh, if I take it at 62, it's this, but if I wait till 70, it's even higher. So it's the same thing here, except they define the factor that it grows at. That's a guaranteed lifetime withdrawal benefit. An additional rider put on a deferred annuity contract. These became popular because a lot of the speas, even dias, people looked at them and said, oh, I don't like giving up the money. Now, it's interesting with the spea or the DIA, you give the insurance company money and in turn you get a contract that states you're going to get these payment on these dates and that's it. So a lot of people think, oh, the money's gone. They don't realize that they've got an insurance contract that's going to pay them well. The guaranteed lifetime withdrawal benefit, put that on an index or a variable annuity and you still get to log in and look at your account value. Now it's going to go up and down if it's a variable annuity. If it's indexed, you know it's going to go up, maybe not down, because of the stable asset value in the fixed index annuity. That's where you're going to find the highest benefit for. For the guaranteed lifetime withdrawal in the variable annuities. They can't offer as rich of a guarantee because they've got a fluctuating account value. So it makes sense to chase the contract that offers the most income for your situation, no matter what it is. I can say with confidence that I'm goddamn near 100% success rate in selling. Only the best solution for any income need that I've ever had the opportunity and the blessing to sell. I've used every single one of these options and it really depends on the situation. It's different for everyone, and each of them needs to be considered if maximizing income is the goal. So it doesn't matter if you're 55 and you take income in three years, maybe the DIA provides the most benefit. Most of the time. It's a fixed index annuity with a guaranteed lifetime withdrawal benefit. And if you're 64 and you want income in three months when you retire, it's probably a spea. Even though they're guys that like to sell, like, I like, the index annuities, they pay me, pay me a good commission, more than a spea does. But I'll always sell the spea because I have to stay up against the most competitive quotes. Otherwise you're going to take your business elsewhere. Why would you do business with a guy in Montana if he doesn't give you the best thing? So I've used them all because in each situation, you look at every single one of them and you figure it out. I go where the most money is. Personal preference is certainly a big factor, but there are several objective reasons to each of these, and I'm going to try to explain those in short order. Now, maximum income. Maximum income income with one year, it's a spea. Deferred for a year, more income will be the highest from a fixed index annuity and a guaranteed lifetime withdrawal benefit. Variable annuities got as well. I explained that don't have as high a guarantee deferred income annuities are a close comparison for deferred income. They're also the first choice of many investment institutions. I did a podcast on it in January. I recently ran a quote for a GLwB that paid about 15% more income than a Dia. It was from Schwab, right? About 15% more. You want to check out that podcast? It's not too long ago. It's just a few months ago, from January 26, Fidelity's annuity recommendation. So this time I came from Schwab. They said, here's your product, here's the deal. You want 15% more income. This was a current client. And so he just did his due diligence with his managed account, and he looked at, hey, schwab, what do you have? They do this. And he comes, me, Brian, can you beat this? How much you want to beat it by? You want a. You want a plus? A plus company was a 15% improve on the Schwab recommendation. So, beneficiaries, this is a big one. Leaving money behind offsets the need for maximum income payments. Favoring one side will take value from the other. You want to leave a bunch behind, you accept less and payment. If you want the most payment, you're not going to leave as much behind. Speas immediate annuities in the purest form. Leave no remainder to heirs. And Diaz, deferred income annuities are essentially the same. So you have to add the remainders, and this reduces the income payment. So in SP is and D as it comes in the form of a, what it's called a period certain. So life with period certain, meaning it's life or that certain period. So if you have a ten year period, certain, it's going to pay you for the rest of your life, or ten years, whichever is longer. Well, guaranteeing it for ten years. So if you only live five, it'll pay your heirs for another five through the ten year period. A lot of people don't understand this. I do not mean to patronize anyone, but a lot of people don't get it. If you got a period, certain life, with period certain of 20 years, it's gonna. It's gonna pay for 20 years or life, whichever is longer. So the longer guarantee period you want to put on there, the lower your payment gets. If you want the most payment, then you take the life only option, which means you could cash one check, get hit by a car, the money's gone. Now, fortunately for a lot of people, you can add a ten or 15 year period, certain to it. So if you do get hit by a car, it's going to at least pay your heirs for ten or 15 years, depending on your age. You can usually do that without affecting the initial payment too much. But the more guarantee you want to add to it, the lower the payment gets. With a GLwB, you have the account value. It's going to grow a little bit. And when the income payments come out, then the account value starts to decline by those income payments and any fees that are associated with it. If you die, that residual account value is passed to your heirs. So a spea or DIA with 15 year period certain is about equal to the GLWB. That's where they draw even about. So if leaving an inheritance is important, then this is, this can have a significant impact on your decision as to which contract is best. Right now, income payments are really high. GLWB's drain the account value really fast. So a spea with a 15 year period certain might be a little bit better. You might like that better. Again, you just have to look at all of them. Okay? Taxes is a big one. Everybody's going to think about it. If you buy an annuity with qualified retirement funds from an IRA, 401K, whatever, every penny of the distribution is fully taxable as ordinary income taxation. Between those of the above, the three different types, it's only going to make a difference if you buy it with non qualified or after tax money. Not talking about Roth, that's qualified as well for now. So you're going to find a big difference. All non qualified annuities are taxed on a last in first out basis, meaning that interest earnings are pulled first and taxes or ordinary income. If you have $100,000 in a contract and it grows by 5%, and then you take 6000 in income, the $5,000 interest earnings is paid first. So you're going to have 5000 taxable, 1000 tax free return of premium. Any distribution from the initial purchase has already been taxed. You get it back tax free. Any growth in the contract SP is and dias are nice and clean and easy. They've got an exclusion ratio where it's internally calculated, saying 70% of your payment is tax free, 30% is taxable, or they're going to give you a dollar figure. A lot of people like to know what to expect, really appreciate this because they don't want any surprises. GLWB's on the other hand, they've got interest earnings in the contract that need to be distributed first. So you see, you get to have the residual cash value, you get to have an account you can manage. But then you've got that issue where taxes are going to be different every year. Interest earnings of the contract have to be distributed first. So if you have a GLWB that's paying you $6,000 a year and you have $3,000 of earnings, those earnings come first. You're going to have 3000 a taxable and 3000 a tax free on $6,000. If there's no growth in the account or if it's down in value and your $6,000 just comes out of principle, it's going to be tax free. So every year it will be different. If you defer this for a while, the payments might be taxable, the payments might be mostly taxable until you start dipping into the principle, which is going to be tax free. So what you're gonna get with a GLWB is you're gonna get some taxable at the front and it's gonna go down over time until that account value is exhausted, and then everything's gonna be fully taxable. Could do a whole podcast on that, but I don't think I need to. Hopefully you guys get it. Understand that it's variable. These are all the things that we work through. I'm not here to sit here and solve one problem for people. It's to get you thinking about it. So you know what questions to ask when everybody says, hey, what should I be asking? Okay, maximum income beneficiaries, taxes. Here we go. Retirement required. Minimum distributions. Not a lot of people fully understand this point, but it makes a huge difference with your annuity choice. It is material enough to steer you toward one product or the other as deferred income annuities can remove some money from the RMD calculation, but only up to a certain limit. SP create their own RMD calculation. So you usually have to make additional distributions elsewhere. If you take half your money and buy a spea, the other half that becomes the RMD for the money you put in the spea. That higher payment can't offset RMD's for what the other account? The other half that's left over. So you still have to take an RMD from that side. It's actually kind of a big deal for people. So there it is. Put half your IRA into a spea. Then you still have to take an army from the other half of the IRA when the time comes. If you put half of it into a GLWB, then the payments from the GLWB contract because there's a cash value in it, can, for a time at least offset what's required to be taken from the remaining qualified IRA assets. That in itself could be an entire podcast. People seem to not get it because if a spea is close to a GLWB, I always say, well, you got to think about this. I stopped one person from making a huge purchase earlier this year. She didn't know. She thought the spea payments were going to take care of all of her RMD's and she wouldn't have to touch her other account. No, that's not the case. So there you have it. Maximum income beneficiary considerations. Taxes required minimum distributions because most people are buying them with their iras. That's how you tell the difference between spas Dias and GLWB's. For guaranteed lifetime income, nine out of ten people are simply looking for maximum income. If that's the case, it only depends on your specific parameters to find the best deal. Well, I want maximum income, but I want to leave some behind. Or I want maximum income, but I want to know. I had that last year. I really want to know what to expect for taxes. Took a spea even though it paid a little less than a GLWB. It's okay. Those are the things you have to figure out when contingencies come into play. Something other than maximum income could be the best options. If you want to make sure you get the best for your situation. I don't know. I know you can call me because I'll figure it out. If you got somebody else, go for it. But make an appointment at the top right corner of any page of annuitiesraytalk.com dot. I'll figure it out for you. Make sure you get the best. Schedule a call button, top right corner. My name is Brian Anderson. This is episode 137. I appreciate you guys joining me. Sorry for the dry topic, but man, this is gold. If you need it. A lot of people out there not explaining it, please like subscribe or comment on any of your favorite podcast platforms are or on YouTube. Throw out your ideas for additional episodes. Got a lot of them teed up. You guys have a great day and I'll see you next week with episode 138. [00:18:27] Speaker B: You have been listening to annuity straight talk. The preceding information is for information and educational purposes only and does not represent tax, legal, or investment advice. The views expressed by guests on this program are their own and do not necessarily reflect the views of annuity straight talk or its partners no information presented today should be acted upon without meeting with a qualified and licensed professional. It is important that you read all insurance contract disclosures carefully before making a purchase decision. Guarantees are based on the financial strength and claims paying ability of the insurance company.

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