The Annuity PILL: Should You Take it?

There are no mulligans in retirement.

If you’re a non-golfer, a “mulligan” is a do-over. For example, you hit your tee shot into the water… you turn to your buddies and say, “I’m going to take a mulligan on that one.” In other words, you put another ball on the tee and take another swing…hoping this time to not hit it into the water again.

Choosing investments and portfolio strategies is not as forgiving as the game of golf.

Unfortunately, the sales sharks are circling to sell you their ideas and sometimes high commission and complex products. Making retirement decisions with your money can be intimidating and confusing.

There are no do-overs. There are no mulligans.

So, what do you do? Where do you start? Who can you trust?

Let’s get something straight from the start. Not everyone needs an annuity, even though you already own the best inflation annuity for lifetime income on the planet: Social Security. Annuities are contracts. They are transfer-of-risk strategies. You either want to transfer risk, or not. If you don’t want to transfer risk, then annuities of any type are not for you.

A guaranteed income floor will make you a better investor, wherever you live.
© Victoria Harmer/International Living

When trying to decide where to put your money for retirement, the first question you need to answer is: “What do you want your money to do?” If the answer is market-type growth, then you do not need any type of annuity. You need to keep your money in market-type investments and manage and oversee the heck out of them.

You already own the best inflation annuity.

When it comes to annuities, there are actually two questions you need to answer.

1. What do you want the money to contractually do?

2. When do you want those contractual guarantees to start?

From those two answers, you can determine what annuity type will provide the highest contractual guarantee for your specific situation.

I also use an easy-to-remember acronym to determine if you even need an annuity. That 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 do not need to contractually solve one or more items described in the P.I.L.L., you do NOT need an annuity of any type. Notice that there is no “G” for market type growth. Annuities are contracts, not investments.

For example, if you answered that you need a lifetime income stream and you need that income to start immediately, then a Single Premium Immediate Annuity (SPIA) is the best solution. If you answered that you just wanted to protect the principal and get an interest rate, then a Multi-Year Guarantee Annuity (MYGA) is the best solution. There is not just one type of annuity. There are many types, and each one has its own unique benefit proposition.

Single Premium Immediate Annuities (SPIAs) can be traced back to the Roman times, when they were used as a lifetime income pension gift to the dutiful Roman soldiers and their families. To this day, annuities are the only product category that can provide an income stream as long as you live.

Get your annuities right the first time, and you can save your mulligans for the golf course. ©Sean Keenan/International Living

It’s a pure transfer-of-risk strategy for lifetime income. You are transferring the risk to the annuity company to pay as long as you are breathing. There’s no return on investment until you die, and the income stream is primarily priced on your life expectancy (or life expectancies, if joint) at the time the payments start. Interest rates play a minor pricing role.

SPIAs are not the only annuity type for lifetime income. Deferred Income Annuities (DIAs), Qualified Longevity Annuity Contracts (QLACs), and Income Riders also provide lifetime income guarantees. Those three types are for what I call “Income Later,” or when you need a lifetime income stream to start at a future date.

Most people use annuities for “Income Now” or “Income Later” contractual guarantees, but some people just want to protect the principal and get an interest rate. The annuity industry has two types of annuities that provide CD-like returns. Multi-Year Guarantee Annuities (MYGAs) and Fixed Index Annuities (FIAs) both fully protect the principal.

Shop for an annuity as you would a plane ticket.

FIAs are too often pitched as market return products, which they are not. Remember with any annuity sales pitch, if it sounds too good to be true…it is. Every single time. No exceptions.

Annuities are commodity products and should be shopped for like a plane ticket. You need to quote all carriers for the highest contractual guarantee for your specific situation. No annuity product is better than the other, regardless of what anyone tells you, and the quotes change and expire every seven to 10 days, just like a gallon of milk.

When you are buying annuities (regardless of type) for what they will do, not what they might do, then you don’t need a mulligan. You are buying a contractual guarantee.

For most people, creating a guaranteed income floor will make you a better investor and provide the lifestyle you need and deserve. It’s the income cruise control that covers those monthly living expenses. Your guaranteed income floor is the money that hits your bank account every month, regardless of what happens in the world. It can be comprised of Social Security, pensions (if you’re so fortunate), dividend income, rental income, etc.

Annuity lifetime income guarantees can fill in any needed income gap to your guaranteed income floor.

It’s popular for people to say, ridiculously, that they “hate all annuities.” The hypocrisy of that statement is the fact that most of the people who boldly proclaim it are happily accepting those annuity-like Social Security payments. Saying you hate all annuities is like saying you hate all restaurants, or you hate all shoes.

As I mentioned earlier, if you have a Social Security number, you already own the best inflation annuity for lifetime income. If you like CDs, then you will like MYGAs. If you like guaranteed lifetime pension payments, then you will like SPIAs, DIAs, QLACs, and Income Riders. Those are just annuity facts.

When it comes to most people with their retirement money, it can simply be broken down into three categories:

1. Market Growth
2. Principal Protection
3. Lifetime Income Annuities can contractually guarantee #2 and #3, and should never be purchased for stock market-type growth.

Never buy an annuity for potential, hypothetical, hopeful, or back-tested returns.

You can also look at it from a risk standpoint. You either want to shoulder the risk or transfer the risk. Shouldering the risk is putting your money in market-type (non-annuity) investments, which you need to have in your portfolio. Transferring the risk is why you would consider adding a specific annuity type to your current holdings.

It’s really that simple. No retirement mulligans needed.

Stan The Annuity Man is recognized as the top independent annuity agent in the U.S. and is known as America’s Annuity Agent. His website is the go-to educational resource for all things annuity (free books, podcasts, blogs) and his proprietary annuity calculators allow you to shop for the best annuity guarantees available. He is licensed in all 50 states and represents practically all carriers.

For more great educational information about annuities go to: or listen to Stan’s Fun With Annuities podcast or YouTube channel.

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