As people are living longer, the elderly are frequently victims of fraud, particularly in the annuities area. However, life income annuities, which provide income without anyone getting to that money, can be a hedge against that type of fraud. Stan the Annuity Man says that for those needing income, this is a pure transfer risk, as these are the original design, single premium annuities that have been sold for over 200 years in the U.S. They are simplistic, transfer risk, and works just like social security in that it pays you for as long as you live, he adds.
Stan the Annuity Man says that if you need additional income, not knowing how long you're going to live, you want to transfer the risk to the insurance company for as long as you live. You can attach cost of living annual increases to the contract so that it increases every year as well. He believes these commodity products are really the best ones for the consumer and although they're very similar to social security, they don't lower the payments. Believing that social security is the "best inflation annuity on the planet," Stan the Annuity Man says that with cost of living riders on annuities, the insurance companies do lower the initial payment to make up for that cost of living adjustment but if you have longevity in your family history, it might make sense.
Taxation on an annuity not in an IRA is a combination of returnal principle and interest, so you won't pay taxes on the principle, just the interest, making it a good reason to do it outside of an IRA, explains Stan the Annuity Man. Inside of an IRA, it works as well because it covers for the Required Minimum Distributions.
It really comes down to what you want the money to do and with that question answered, you will find out if you need an annuity or need to consider an annuity.
Stan Haithcock, "Stan the Annuity Man," is a nationally recognized expert on annuities and he spoke with Retirement News Today during this interview. Retirement News Today provides online retirement news video content and is a featured network of Sequence Media Group.