by Stan The Annuity Man
Immediate Annuities, Single Premium Immediate Annuities, SPIAs, Income Annuities, Pension Annuities, and Lifetime Annuities are all the exact same product. For centuries, the simplistic strategy has dominated the annuity world as the most pro-customer annuity type on the planet. Even though too many agents are unfortunately motivated to sell other high commission types, SPIAs are still the best annuity choice for “Income Now” goals.
SPIAs originate from the Roman Times, and is where the word “annuity” originates. The Latin word “annua” mean payment. There’s your history lesson for the day.
Roman soldiers and their families were rewarded for their dutiful service to the empire with a lifetime income stream. The was one of the first known pension annuity guarantees, and the SPIA structure then is pretty much still the same today.
A child understands how it works
I always tell people that if you can’t explain the annuity strategy you are considering to a 9-year-old, then you shouldn’t buy it. That pretty much eliminates most indexed and variable high commission products, because most agents don’t even understand what they are selling! That’s a fact, albeit disturbing.
Immediate annuities are simplistic transfer of risk strategies. You are transferring the risk to the issuing annuity company to pay you regardless of how long you live. No moving parts. No market attachments. No annual fees. It’s an actuarial bet between you and the annuity company. If you live longer than they project, you still get your monthly income payment.
Highest Contractual Payout……Guaranteed!
One of the most fraudulent agent practices I currently see is indexed annuity agents convincing uninformed and trusting people to buy their high commission products for “Income Now” instead of a SPIA. Spare me the sales pitch. That agent should lose their license immediately in my opinion, and they better hope I’m not the expert witness at the complaint hearing. Not pretty.
If your goal is the highest contractually guaranteed income starting within 13 months, then a Single Premium Immediate Annuity will ALWAYS (no exception) provide the highest payout.
Just because the annuity company is on the hook to pay you regardless of how long you live does NOT mean they will ever keep a penny of your money when you die. That’s a common misconception, and describes only 1 of over 15 different ways to contractually structure the policy.
Structuring your SPIA “Life with Installment Refund” or “Life with Cash Refund” guarantees that any money left in your annuity account when you die will go in full to the listed beneficiaries of the policy.
Income “Hard Money” Floors
Forget hardwood floors, how about “hard money flooring”! SPIAs are the perfect product for a strategy I call “income flooring.” Social Security, pensions (if you are so lucky), dividends, and then income annuities can provide the needed income floor to cover your basic expenses on a monthly basis.
Immediate annuities are not investments, they are transfer of risk income contracts between you and the issuing carrier. There’s no way to calculate return on investment until you die. To put it in Southern boy speak, “there’s NO ROI till you die!”
Pork Bellies & Lifetime Payouts
What do pork bellies and SPIAs have in common? The answer is that they are both commodities. Yes, commodities. The reason that this is important to know is that you have to shop ALL carriers for the highest SPIA payment available for your specific situation. I co-founded a site called www.Annuities.direct to provide this across the board commoditized quote system so that consumer will always see the highest contractual guarantee in a real time quote.
Do not let an agent show you one or two companies. Demand to see the top ten highest contractual guarantees, or you can just go to www.SPIA.direct to see for yourself.
S.A.S. – Starving Agent Syndrome
Every time I turn on the TV these days, I see those commercials about starving animals or kids in third world countries eating dirt. Even I can’t watch that depravity. However, when it comes to annuity agents starving, that’s must see TV in my book.
The reason that most agents never mention SPIAs to you, and always seem to be trying to jam an indexed or variable annuity down your throat is because they want the high commission. They have to make their car payment. Most are starving, and live from one inappropriate high commission sale to the next. Pathetic but true.
SPIAs are the lowest commission products in the annuity world, but are the most pro-customer in my opinion. Yes, there is a correlation.
30 or 13……your choice
The income stream from a Single Premium Immediate Annuity can start as early as 30 days from the contract issue date, or can be deferred as far out as 13 months from the policy date. It’s your call. If you need to defer longer than 13 months, then you don’t need a SPIA.
Most immediate annuity contracts I see have income starting in 30 days, but it’s important for you to know the rules from a planning standpoint.
Annuity product imitation is validation flattery
Because the SPIA is the mother of all annuities, and the original design, many other types of annuities share the same simplistic structure.
Deferred Income Annuities (DIAs) are also known as “longevity annuities” and are the direct cousin to SPIAs. Deferred Income Annuities share the same no moving parts/no market attachment design and allow you to defer past 13 months and as far out as 45 years before starting the income stream.
Qualified Longevity Annuity Contracts (QLACs) are actually a DIA that can be used inside of a Traditional IRA, and was introduced and approved in 2014 by the Treasury Department and IRS for future income planning.
Exclude yourself from taxes….legally!
SPIAs are “annuitized” strategies. What “annuitization” means is to create payments, and SPIA income is a combination of return of principal and interest. If used with non-IRA (i.e. non-qualified) funds, the principal part of your income stream is not taxable. Only the interest part is taxable. That’s a pretty big deal when you are factoring in the real value of the money you are receiving on a monthly basis.
In the industry, the non-taxable part is called the “exclusion ratio.” This does not apply if the SPIA is inside of a Traditional IRA.
Create your own pension
At the end of the day, an immediate annuity is a pension. It’s your own personal pension plan that you can customize to match your specific income needs and goals. It’s really that simple, and there’s really no need for in depth analysis other than deciding if the contractually guarantee is sufficient. So happy shopping at www.SPIA.direct for the best pricing available showing all carriers.