Deferred Annuity Income Is Powerful
When you make an appointment with me you get to write some notes telling me what you want to talk about. It can either be a few questions or some basic information about your situation. It gives me an idea of which direction to take the conversation. A couple recent appointments asked direct questions that gave me an idea for a podcast so here’s the first. Last week a lady got on my calendar and the meeting notes said that she was exploring the option of using her 401(k) to buy an income annuity before retirement. Whether you plan ahead or not, some people get the annuity ahead of time and some do it at the last minute.
If you do it early it’s going to cost less to hit your income goal because annual increases bump the income every year you wait. I didn’t get a chance to understand this lady’s situation so I can’t make a recommendation but it’s a good follow up to last week’s production that talked about the increases in immediate income in the past few years. Those who have bought deferred income in the past few years are getting some really good deals. Rather than talk about the payouts let’s look at it a different way.
The lady who made the appointment didn’t show up at the scheduled time so I’ll never know if I can help her. It’s my least favorite thing about this business and about as disrespectful as you can possibly be. It’s not just a slap in the face to me but it deprives an opening in my calendar to someone else. Everyone is busy and it’s ok if plans change at the last minute but if that happens to you then reach out and let me know.
The earlier you buy annuity income, the cheaper it is and in a lot of cases, much cheaper. Consider the payments for immediate income I talked about last week. $100K purchase had an income payout of 7.14% for a 65 year old couple. Generally speaking you’ll get a 10% increase for every year you wait to take income. So yes, it’s going to cost about 10% more if you wait a year to buy it. That means the money you plan on spending has to grow about that much for it to essentially cost the same. Since you can’t get that without risk then it’s not only more lucrative to buy the annuity early, it’s incredibly safe as well.
It takes only a few years to get a payout of 10% of the initial investment. There’s no way bonds can do that and it takes market risk to beat it otherwise. Think about it this way, if you wait three years the income benefit has increased by 30% so that’s the kind of yield you’d need on an alternative investment to create the same income. It has happened the past few years so people who waited didn’t miss out but the annuity will cost more now. Current numbers justify it as a strategy for a wide demographic. Some people have purchased ten or more years before retirement and the payouts are outstanding.
One contract I sold to a couple that was 50 and 47 years old. They are going to start taking income in ten years when the youngest is 57. The income payout is 13.5% of the initial investment. They will get all of their money back before she turns 65 so for 20 years or more they will get paid out of the insurance company’s pocket. If either person lives into their 90s it just keeps going. That’s a pretty damn good payout for a zero risk asset. Just imagine the type of freedom they will have with other investments…
Had the lady showed up I would have basically told her this. If you need or want guaranteed income in retirement the time to buy it is when you get the idea. It’s going to cost less or return far more. The sooner the better. Doesn’t everyone like to get a good deal? Get on my calendar if you want to talk about it.
Have a great weekend!
Bryan
Watch Podcast Episode 185: Deferred Annuity Income Is Powerful
Download Podcast Episode 186: Deferred Annuity Income Is Powerful on Apple Podcasts
Last Updated on July 30, 2025 by Bryan Anderson
