Do you speak, “Annuity”? I know I certainly did not at one point in my life. As with any profession, there is a foreign language that is spoken that the layperson may be confused by, or not understand at all.
This is no different than when I was studying to be a paramedic. I had to learn to speak a whole new language. When I would drop a patient off in an emergency room, I would relay to the attending physician that “the patient appears to be having an M.I. in his L.A.D. according to the 12-lead EKG that we ran.”
To the doctor, that makes total sense. The patient is having a Myocardial Infarction in the Left Anterior Descending Artery (aka, The Widow Maker).
However, if I were talking to the patient’s spouse, I would say, “He is having a heart attack and we need to transport him immediately.” Can you see how pointless that would have been to relay the first statement to someone with no medical training?
I see it happen all the time in the Annuity Industry as well. Normally, it’s between an advisor who “kinda” speaks the language and a person wanting to protect their money. But because of the language barrier, the person wanting to protect their money has been given the wrong picture, completely.
So, what is the point of bringing up this example? It’s to make all the great readers of this newsletter aware of a term that all too often gets lost in translation.
That term is, “Annuitize.”
There is a difference between, “Annuity” and, “Annuitize.”
“Annuity” is a financial product sold by insurance companies. “Annuitize”, is the process of surrendering your funds to the insurance company in exchange for a guaranteed income. That scares most people. No one likes the term “surrender.” It’s un-American!
At one point, many moons ago, the terms “annuity” and “annuitize” were somewhat synonymous because there was only one type of “annuity” offered, and you were required to “annuitize” the money. However, there was still a benefit to this process due to the guaranteed income, but you were rolling the dice hoping Mother Nature would allow you to live long enough to see all of your money returned, and then some.
Since that time, due to competition in the annuity world, that is no longer the only option. Thank goodness!
Today, when it comes to getting a guaranteed income, you no longer must “annuitize” your annuity, thanks to Income Riders. Income Riders are an add-on that allows you to receive the guaranteed income, and still have a death benefit if you pass away before all your premium has been returned, minus applicable fees, if any. These are riders that you will see offered with Fixed Indexed Annuities and Variable Annuities.
Eventually, these types of annuities will also “annuitize” when the Account Value/Death Benefit reaches $0 in value, and now you are living off of the insurance company’s dime. That’s what we are all hoping for. That you live long enough to deplete your funds, but you’re still living the good life because of that pension-type income that you have guaranteed through the insurance company. But, if you do not, then your beneficiaries get the rest of the money. Not the Annuity Company.
If you end up going with a Single-Premium Immediate Annuity (SPIA), you also will have options to have certain terms added, such as a Term-Certain between 5-30 years, or a Return of Premium. Meaning, if you pass away, any money that has not been paid to you in the form of an income will be inherited by your beneficiaries as a lump sum, or as a continued income paid to them based on the term length you chose at the time of funding.
And one more example where you will have to “annuitize”, is when you reach a certain age. No matter the type of annuity that you have (i.e., MYGA, FIA, VA, etc.). Most Annuity Companies will require you to “annuitize” your Cash Value at the age of 95. However, there are several that will wait until the age of 105. You will be required to either accept a guaranteed income with either a life-only payout, one of several term-certain options, or pull all of the funds from the annuity to place into your bank account or another investment. The choice is totally yours.
I hope this clears up any confusion with the terms, “Annuity” and “Annuitize”. If you are wanting a deeper dive into what these products can really do and the most effective way to use them, then I highly recommend that you watch my video series, “20% More Income in Retirement”. You can view that by clicking the video at the bottom of this page. And then click the “Schedule a Call” button that can be found in the top right corner of any page of the website, so we can have a short conversation to get you the very best annuity available in the marketplace! As always, please feel free to contact me at 636.926.6500 with any questions.
All the best,
Marty