Trading Maximum Income for Legacy
I’m two weeks back from a nice trip to Arizona and I got the chance to meet in person with several people while I was there. One was a guy named Joe who I met three years ago during my first winter in the desert. He was a little younger then and new to evaluating annuities but we made some good headway. Now he’s had all this time to think about it and retirement is coming closer so we met for coffee and talked about what has become a more specific objective for him. He has more or less decided to peel off some assets, buy a guaranteed lifetime income contract, and let the rest of his assets grow. Sounds like a good idea.
He also works with Fidelity so they got the first crack at this. From an income standpoint I can almost always beat what they offer but it doesn’t really matter. I can sell the same things they have but they choose not to sell the other options I have. I show both sides so you can really find the best deal and that’s all I care about. The Fidelity options are different in other ways and that’s what I really want to highlight. Fortunately you can look at both right on my website without having to talk to anyone unless you want to buy something.
Fidelity only sells single premium immediate annuities (SPIAs) and deferred income annuities (DIAs). For all intents and purposes they are one in the same product and only differ with the timing of payments. For simplicity’s sake we can call all of them SPIAs. I sell those when it’s the right deal but there are times with a Guaranteed Lifetime Withdrawal Benefit (GLWB) is a much better option. For immediate payments it’s a toss-up and one or the other will pay more income, but if you defer income for more than a year the gap begins to widen in favor of GLWBs. But you can get additional guarantees on a SPIA that make it a better addition to legacy and some people might take less income because of that.
I wrote about this two years ago with one client taking substantially less monthly income with a SPIA because it was guaranteed to pay at least 20 years. It’s called a period certain and it covers your heirs if your life does not exceed that term. In other words, if you die early then the payments for the certain period will continue to your heirs. In that case the client wasn’t planning to start income until he was 73 years old and he had already survived cancer. He was using the money as a living inheritance so he can gift it to his kids and watch them build a life with it. That was the sole reason for buying the contract and if that’s the case it makes all the sense in the world to get a payment stream that keeps going if he doesn’t live to 93 years old.
GLWBs have a cash value component to the contract. It will grow some over time but drains quickly with excessively high income payments. If the contract value goes to zero the guarantee kicks in and you keep getting payments until your life is over. Whatever is left in the account pays out to your heirs when you pass but after about 14 years there isn’t anything there, no matter what anyone tells you. GLWBs are best for maximum income and if you want additional benefits then you have to give up the topline cash flow.
That’s exactly the way Joe looked at it. Maybe it was worth a little less income to blend in the guarantee that his kids would get a nice return on this pool of money. It’s not gonna make or break his plan either way but it’s a perfect example of delivering exactly what he wants. I’ll explain all the details in the video and give you the basics here. You need to watch it so you can see what type of planning you can do on your own at Annuity Straight Talk. We used $1M as the example but it may not be what he actually does. The math is just a bit easier. Right now he is 59 and his wife is 58. They want to defer income for a few years and he thinks four years is the best bet. That means that income starts when he is 63 and his wife is 62.
With a SPIA New York Life will pay him $82,000 per year with a 20 year period certain. That means if he and his wife both pass away before 20 years of payments have been received then the remaining payments will go to his kids. They would have to live past ages 83 and 82 to exhaust this benefit, quite a big difference from the other example of the client who had it until age 93. In Joe’s case, he is guaranteed to return $1,640,000 to himself or his family.
With a GLWB, North American will pay $88,000 per year with the cash value remainder going to his heirs. After age 75 or so, there won’t be anything left for his family if they both die early. A reasonable assumption in the worst case scenario is that he might return a total of about $1,200,000. But there’s another way to look at this as well because you have to factor in the higher payments stream. In order for it to match the total minimum guarantee from New York Life he would need to collect the higher payment for about 18.5 years. If he or his wife live past the age of 81 or 80 respectively, then he’s ahead of the game in both areas. That’s how long it takes for the North American annuity to pay out more than $1.6M.
There is one more thing to consider if you are truly going to compare the two. When do you want income payments to start? With a SPIA, you have to lock the payment start date when you buy the contract. If your plans change then tough luck because it’s going to start coming. With a GLWB you don’t elect to take income until you are ready, making it easy to start earlier or later than planned. Plans change and it’s nice to have that flexibility. Some SPIAs allow you to change the payment start date one time during the deferral period but most do not. If that’s important to you then make sure to ask the right questions.
In most cases we deal with people looking to maximize income or get the desired income stream for the lowest cost. Others want a blend of benefits and that’s perfectly fine so long as they understand the trade-off for doing it. Nothing comes for free and my only goal is for everyone to get exactly what they want. If you want to see both sides of it and get an honest comparison then get on my calendar. We’ll take good care of you and do it right the first time, because there is no second chance.
Have a great weekend!
Bryan
Watch Episode 224: Trading Maximum Income for Legacy
Download Episode 224: Trading Maximum Income for Legacy on Apple Podcast
Last Updated on April 24, 2026 by Bryan Anderson
