The annuity industry has done a poor job educating the public on the history of the product dating back to the Roman Times, and the unique benefit proposition that only annuities can provide. That financial monopoly is...
Like most industries, there’s an internal language used that doesn’t easily translate to consumer speak. Agents and advisors mistakenly refer to industry terms and definitions instead of translating that “annuity industry language” so it’s easy to understand for the person shopping for their best Retirement Annuity.
What’s in a name?
If you said “Retirement Annuity” to a group of annuity industry bigwigs, they would gaze at you with a puzzled look not understanding what you are referring to. That’s unfortunate because the most frequently asked question I receive on a monthly basis is, “What is the best Retirement Annuity?”
Instead of trying to explain that a pure “retirement annuity definition” doesn’t really exist, it’s important to start out with the basics in order to lay a needed annuity educational foundation. What people are really asking is “What is an annuity?”...and nicely demanding that agents and advisors use “Annuity English” to explain the strategies.
Annuities were first introduced in the Roman Times so that the dutiful Roman Soldiers and their families would receive payments for life. Just like your Social Security benefits, specific annuity types will provide contractually guaranteed income so that you will receive a payment regardless of how long you live.
Annuities are issued and backed by life insurance companies and are becoming increasingly popular in most retirement planning modules because Social Security was never intended to be the sole source of retirement income.
When people ridiculously say “I hate annuities”...my question is always, which type of annuity? Variable Annuities (VAs)? Fixed Index Annuities (FIAs)? Single Premium Immediate Annuities (SPIAs)? Deferred Income Annuities (DIAs)? Qualified Longevity Annuity Contracts (QLACs)? Multi-Year Guarantee Annuities (MYGAs)? Charitable Gift Annuities (CGAs)? Regardless of type, an annuity is an insurance product. Most annuity types are issued by a life insurance companies, and Long Term Care annuities are issued by health insurance companies.
So which one do you hate again? All of these specific types have unique benefit propositions and limitations...so do you hate all restaurants as well? It makes as much sense if you think about it.
Most people that ask “What is the best Retirement Annuity” are thinking about a lifetime income stream annuity. Most income types are categorized as a fixed annuity, are regulated at the state level, and backed to a certain dollar limit by a State Guaranty Fund.
For most retirees and baby boomers, it’s not about fixed or variable or the best deferred annuities shown at the bad chicken dinner seminar. The goal is another lifetime income stream that will work right beside their Social Security annuity payments. People want to build that “guaranteed income floor” where money will hit the bank account regardless of what happens politically or in the markets.
Take 2 Questions and a PILL
In search of the best Retirement Annuity, you need to ask yourself 2 questions to determine if you even need an annuity….and if so, what specific type.
- What do you want the money to CONTRACTUALLY do?
- When do you want those CONTRACTUAL guarantees to start?
From those 2 answers, it will be crystal clear what annuity type will provide the highest contractual guarantee for your specific situation. Yes, it’s really that simple.
I also recommend using an acronym I came up with that is an easy way to remember what annuities can contractually solve for. The acronym is P.I.L.L.
P stands for principal protection
I stands for income for life
L stands for legacy
L stands for long term care/confinement care
If you don’t need to contractually solve for one or more of those 4 items in retirement, you do not need a Retirement Annuity.
The Real Definition of “Best”
Never let an agent or advisor only show one annuity, and say that it is the best annuity for you. Translation, it’s the best annuity for them. There is no best type of annuity for retirement. There is not one best carrier of all retirement annuity companies. There is not one insurance company that has the best retirement annuity rates.
Annuities are commodity products that need to be shopped for the best contractual guarantees for your situation. That’s the best Retirement Annuity for you. It’s the highest contractual number with a company that you feel comfortable with and can back up those claims.
It’s important to find an agent or advisor who represents all carriers and has access to a completely objective retirement annuity calculator to find the best rates for you and your family.
With over 10,000 baby boomers reaching retirement age every single day, most are planning on turning some or all of their retirement savings (that have been growing tax deferred) into a guaranteed lifetime retirement income stream. That’s what a “Retirement Annuity” means to most Americans.
So is a Retirement Annuity a good idea for you...and how does a Retirement Annuity work? Before those questions can be answered, you need to ask yourself the 2 "contractual" questions I listed in a previous paragraph and think about the P.I.L.L. acronym to determine if you need a transfer of risk strategy.
Before you transfer that lump sum payment to that desired Retirement Annuity, make sure you fully understand how that specific annuity works. Annuities are contracts, so there should never be an urgency to buy. Ask for a copy of the specimen policy and application before signing anything, and don’t ever be pressured into making a decision.
It’s your money. It’s your Retirement Annuity. Make your decision on your terms and on your time frame.