Episode Transcript
Speaker 1 00:00:05 This is annuity straight talk since 2008. Your host Brian Edison has helped clients nationwide navigate the complex market for a meeting with Brian's assistance. Hundreds of clients have achieved a profitable and secure retirement. I would know because Brian has answered many of my questions concerning annuities and retirement planning so that you can benefit as well. Let's get started. Here's Brian
Speaker 2 00:00:49 Hello and welcome everyone to the annuity straight talk podcast. My name is Brian Anderson, founder and creator of all things. Annuity straight talk, constant process to develop content, answer questions, make sure there's information for you guys to make good decisions in retirement. Here I am for episode number 35 and as a pure coincidence on episode 35, I'm going to talk about a 35% bonus annuity because lots and lots and lots of people have been calling me about it. I probably should have put this out right away, just because I think a lot of people have been misled by it, but it just kind of dawned on me. You know what? That's what this podcast and newsletter has been about. It's answering questions one time. So I don't have to keep writing or saying the same thing over and over again. Of course, if you have a question you don't know where to find it.
Speaker 2 00:01:35 I will I'll answer your questions and all that stuff, but this makes it a lot easier for people to find things unassuming, no pressure way. They just look up the podcast, say, oh, okay, I get it. And then they don't have to call me. So it saves me. Time saves you time and you don't have to, you can also, a lot of people are obviously nervous about making a phone call thinking that I'm just going to let latch onto them and sell them an annuity or a shove it down their throats. Nope. I don't do that. It's all information. And I'm here to help if you need something. So I am going to show you the newsletter as I'm recording, it's not quite done and that's okay, but it'll be ready to go when the podcast goes out sometime next week. So that 35% annuity bonus, and the reason I'm doing this here is because I've spent, take me about 30, 40 minutes to do the podcast.
Speaker 2 00:02:19 And it'll take me about an hour to write everything out and do that the right way. But in the past few weeks, I've probably spent 10 or 12 hours explaining this to people. Phone calls, emails, lots of people figure because this company, and I'm not going to talk about the company or product. If you know what, you know what again, and I'm not saying don't do it. I'm just saying, you've got to understand what it means. But a lot of people would call say, well, I'm giving this there's this bonus. That's 35%. And so I got to go back and remind everyone that insurance companies didn't come to be extremely strong, stable financial institutions by giving away money. When you get a bonus on a contract, it either comes with restrictions or something else has taken away from the contract. But what happens with this product in particular, or, you know, in a lot of others that are very similar is they're going to get a, uh, there's like a sales army behind it.
Speaker 2 00:03:18 And when they've got a reason to call, you may have looked at it in the past when the bonus was 15%, 20%, 25%, all that stuff. And now it's 35. They're going to call you the bonuses now 35 and you got to get it. Now, this is the best deal you're ever going to find like anything else it's probably for a limited time. And then in another few weeks or a month or so, they're going to take the bonus from 35 back to 30 or 25. And then they're all going to call you. You get, you got to hurry up and do it. You're gonna miss out. It's going away. It's going away. And so be that as it may, it's obviously a sales game and everybody says, why do I see that so much? Because there's a huge army behind this product. This company is distribution.
Speaker 2 00:03:56 And a lot of guys, I I've said it this way, I'm going to be blunt. There's a lot of guys that sell annuities that are too stupid or too lazy to go find something else. So they don't even know. They just think, oh, this is the best. My broker told me, this is the best. Well, the brokers want to sell it. They got to find an interest as well. I've had a lot of people with this product because I've written reports on it in the past when people call and say, well, I read what you wrote about that. And I've got to say, I disagree with you because I have had that for four years and it's working quite well. And so this is what I say to everyone is I'm not saying that there is not a use for this product. There most certainly is a use for the product, but the way it's constructed and the purpose of the contract, a lot of people sell it as like a one size fits.
Speaker 2 00:04:38 All kind of does a little bit of everything. Well, I'll tell you, the Jack of all trades is the master of none. And that speaking is a decathlete, which I did in college. And a little while after college, if you know what a decathlete is, it's 10 events in track and field people say, wow, you must've been really good. Well, yeah, it was pretty good that the Catalan, but I mean, relatively speaking, I was pretty good, but still we weren't as good as high jumpers as the high jumpers. We weren't as good as a 400 meter runners as 400 meter runners. Anyway, we are the Jack of all trades and master of none. And so I did that for a period of my life. I don't want to do it anymore. And when it comes to annuities, I think you got to look at the fine print.
Speaker 2 00:05:15 So let's see. So rates on everything have kind of come up in the past month or so, which is great. So there's, it's a really good thing because you can get a good deal no matter what you're looking for, but there's nothing out there. That's free money. There's fine. Print that goes along with bonuses. And you've got to focus on that to really wrap your mind around what the contract does. So I said this before, when a bonus is involved, that means that something has been subtracted from another part of the contract. So if you get a true bonus where you actually get a boost, you're a cash value in that that comes with lower cap and participation rates. So you don't get, you get the bonus up front, but you don't have as much growth in the back end. That's what I consider a true bonus.
Speaker 2 00:05:55 There's a few of them out there. They exist. People ask me about them all the time. And I explained to people that I prefer the contracts with no bonuses and higher potential. So if you like every contract discloses this, so all the companies put their information out there, but there's a gap between what the sales agent says and what the company actually states. So you get a 35% bonus, they'll slap down a brochure. It says 35% initial premium bonus. And then in tiny letters, credited to income account value only, right? So in this specific case, the bonus only comes into effect. If you take lifetime income and number of years down the road. So all it looks good on the surface, but it really just, it's there to get the quick sale and Tice your signature. Bam, you got it. I was like, wow, I got 35% free money.
Speaker 2 00:06:42 And people will call me and disagree with me. Well, that's not what the agent said. I'm sorry. Like I got no dog in the fight except to make sure you don't do something stupid with your money. And cause I know when someone calls and I determined this product is not suited for you. I never, I have a hundred percent loss ratio on that. So I can never say no, this product doesn't work for you, but oh, well look at this other annuity because if they realize they've been lied to, then they're not going to trust anyone. So my purpose is simply to make sure that they don't get into something that they don't understand. And so I'm going to explain this one to you right now. Okay. So if you bought a hundred thousand dollars into the annuity and they give you a 35 bonus, how much money do you have?
Speaker 2 00:07:27 You have a hundred thousand dollars. The bonus is paid to the income value, which makes the income value $135,000. It's not extra money. One of my biggest complaints about these types of bonuses in the first place is for the life of me. I can't understand why they put a dollar sign in front of it. They should just give you 135,000 income credits, not $135,000 because people see the dollar sign. That's very misleading. And if you understand what compliance issues go going around in the financial services industry and what we have to do to disclosures and avoid misleading information, I don't, I can't for the life of me figure, I've been saying this for 15 years. Why is there a dollar sign? It's not real money. It's just a bigger figure to calculate lifetime income. So in this case, company makes you wait a number of years.
Speaker 2 00:08:14 So there's a period of years where you don't even have access to that. And I've, I've met people in the past that say that, well, the agent told me that I can take the 135,000 or I can take the 35% bonus. And after the first year, there's only a 10% surrender penalty. And so I can walk away and pay the penalty and I'll make 25%. I think that's a great idea. And then next year I'll just buy another one and do the same thing. I'm going to tell you in the nicest way possible, that's a ridiculous idea. And you're going to be sorely mistaken. If you think you're going to get that money, it doesn't happen. So you got to wait another two years before you can exercise the bonus because it's only for income. So let's assume again, like assume nothing has changed. Now, the contract's going to grow and there's additional bonuses on top of that, but just to look at it simply, all right, well, we don't need to complicate the calculation.
Speaker 2 00:09:07 We'll see, wait that number of years. So the point in time, when you can take income, happens to be at the same time, the contract is surrender free. You can either take your money and walk away. Now if nothing could happen. And I know it's going to grow a little bit, so it's going to be a little more, but we're using the simple numbers. You can either take your money and walk away or activate guaranteed life income for life. If you take your money and leave how much it's a hundred thousand dollars, that's what you put in. You're guaranteed not to lose. There are no fees on the contract. That's what you get. If you walk away. So you want to buy a motor home and you take the money out. That's a hundred thousand dollars. If you activate lifetime income, the amount will be calculating using a payout factor.
Speaker 2 00:09:47 That depends on your age. The older you are, the higher the payout and the $135,000 income value. It's not free money. It's only a factor. If your payout rate is 5%. So if you bought it at 60, this is a 10 year. Wait if you bought it at 60, wait until 70 a single life. Payout is 5% for one person. I think the joint, if it's a husband and a wife is four and a half percent. So if your payout rate is 5%, you get 67, 50 annually for the rest of your life. This is considered to be the guaranteed minimum payout. This is what you need to focus on. A lot of times, people will leave that page or agents will leave that page out of the illustration. They'll show you the projection. So one thing I do now, I met someone earlier this week who had purchased this contract recently and they said, Hey, we're great.
Speaker 2 00:10:39 We're we don't need to, we can wait the 10 years. It's not a big deal. And we did all of our planning based on the guaranteed minimum. That way we know that if there's extra in the contract, it's just going to be a little bit better. I think that's the perfect way to do it. Okay. Now I'm not going to say, I think it's a great deal, but you have to understand not free money. So it may work for you, but it does not work for everyone. It does work for some people not anyway. It's a bonus that boosts your income and, but you have to wait to get it. So here's what I'll say. There are certain situations where it certainly does not fit. And this is where I run into a lot of problems. If you pull money out before the waiting period is over.
Speaker 2 00:11:18 If you take a free withdrawal, then you can take a free withdrawal. Then you're going to have a proportionate reduction in the, uh, income benefit. So if you take out in this case, you got 135,000 income value, and you've got a hundred thousand cash value. If you take out your 10%, which is 10 grand, it's a 10% reduction in the 1 35. So he comes down to 121,500. So you lose the bonus. So a lot of people say, well, I can just take the, take the withdrawals and it'll be fine. There's going to be something left. Well, the contract is not built to grow intentionally. It grow a whole lot, but taking free withdrawals, you can do it, but it defeats the purpose of the contract anyway. So you have to have, that's why I can't believe it's sold to so many people because it's a very specific use.
Speaker 2 00:12:04 You got to have 10 years where you don't want to touch the money in order to maximize the contract. There's a lot of people that call and they get, I think this contract is probably past the age issue past the age of 60 or maybe 65. If you're, I'm going to stick with about 60 to 62 or three, and I'll tell you, why is the oldest you should be working for before you buy a contract like this? Because a lot of people are using the contract with IRA money, so qualified funds. And if you've got to, if you're going to in the deferral period, if you're going to be forced to take required minimum distributions, which happens at age 72, then you're forced to work against the contract because you're going to take the RMD and you're going to lose the bonus for that money that you pulled out, very cut and dry.
Speaker 2 00:12:55 And that just a lot of people do that. A lot of people, 65 68 say, Hey, this is great. And because there's one thing that there's a couple of things that it also offers that bonus is available as a death benefit. If it's paid over five years, so you're 135. If you die, your beneficiaries can elect to take the a hundred thousand one lump sum or they can take the 1 35 equal payments over five years. So a lot of people say, well, that's a great, great death benefit. Well, yeah, it's really nice if you die in the first year or two or three, but the longer you hold it, then the less yield that actually translates to be, but it's still, it needs to be stated. So I do, you know, I met somebody recently like, Hey, listen, it was seven years old. They were looking at this product and they said, I want to buy this and we're gonna leave the money to the kids.
Speaker 2 00:13:41 And we liked the enhanced death benefit. So, you know, 10 years, 10, 12 years out, if they get 2% growth rate on the contract, yeah. It could turn into a nice 4% with the bonus on a death benefit, but your beneficiaries have to know to elect, to take five years. I'm not quite sure how sharp the customer service is going to be. And most of the, a lot of these guys sell in this product are 65 hell, they're going to be retired. Anyway, you got to make sure the beneficiaries know if that's your angle. But you know, these guys that were 70 to 80, I would say for a death benefit, it's not about option. If it was non-qualified money, if it was cash, then it'd be better. Cause it wouldn't have to touch it, but they were going to use their IRA money for it.
Speaker 2 00:14:18 And I thought, no, no, no. You're way better off because you're going to lose that bonus. Anyway, the contract itself is only going to grow at 2%, maybe three on average. So, and their illustration is a little show, much higher, but I think you've got to go really conservative on it. So, you know, w it wouldn't work for a death benefit for them. So that's kind of, one of the big issues I really see is like required minimum distributions. There's also on the contract. There's a long-term care enhancement. If you need long-term care, there's every contract defines a little bit differently, but I think this is fairly open-ended. If you need nursing home care, they'll double your income payment, but you gotta be in that 10 year window, or you gotta be past 10 years. And, and those things that I've talked about them a lot, there's a separate podcast on long-term care annuities.
Speaker 2 00:15:03 So you can go look that up specifically, but on these products where they enhance the income payout to tell the people this all the time, it's just, they're paying you back with your own money. It's only an accelerated return of your money. And every annuity, just about every annuity that I can think of has terminal illness and nursing home waivers of surrender charges. So you can probably do it anyway. That's why I settled back on just with all the optionality, get the highest growth rate. You can, the highest potential on your money. If you want to protect it, that's the way to do it. This is not a bad product, but it is sold to too many people who totally do not understand what the bonus is. I've probably, I bet I've killed 30 sales this year because it just, it does not make sense.
Speaker 2 00:15:46 And then I've ran into several people that, you know, and I know people in the past that have this and, and it hasn't performed well. I know a couple of people who've called and it has actually performed pretty well. And once you have it, you probably just keep it. But anyway, so again, there's reasons why you shouldn't use it specifically, but that's why a lot of guys will sell it. Cause it's like, well, look at this, you've got a 35% bonus. You get guaranteed lifetime income. You can take 10% free withdrawal. There's an enhanced death benefit for your family. And you got long-term care coverage. Well, it's not long-term care coverage. It's an accelerated payment of your return of your own money. So all those statements wrapped up in one is just kind of an overzealous hype, but you know, the sales army, here's your pitch.
Speaker 2 00:16:30 And you say, they do this at the dinner seminars. And you say, what? A 35% bonus long-term care, death benefit, guaranteed income, 10% free withdrawal. Typically you're going to get one of those, not all three. So, I mean, if you, you get, you might get the income and then you might use the long-term care for a few years. Once the count value zero, you don't get a benefit. Then you just revert right back to your normal income payment. But that's why there's, there's very few situations where it's actually an advantage for you to get the long-term care. It's lots of, lots of details. If you want to talk about it, you can, you can give me a call, but that's the 35% annuity bonus. I don't know. I see it all the time. And again, if I can answer the question for some people, without them having to call me, I think, I just think there's a lot of people out there who read what I write.
Speaker 2 00:17:20 They don't get ahold of me and they take somebody's word for it. Like I said, when you get guys will argue, well, that's not what the agent said. I don't care. And so you pull up the website, you'd pull up the insurance company's website. This is what the company says. So they're the ones writing the contract. And that's, that's a good reminder. You don't do business with me or another sales person. You're doing business with an insurance company. I facilitate the transaction. I help with placing the contract, servicing the contract, doing all those things, changing withdrawals and make your life easier. But your business happens with the insurance company. So you better pay attention to what the insurance company says and what they state. And a few weeks ago, I did, I talked about the messed up annuity, where, you know, we analyzed all the contracts for all the right reasons.
Speaker 2 00:18:03 And we found, you know, and then I got bad information when I call for a contract update at the company and sent me into a tailspin thinking, oh man, but we had to go right back to the contract and look at what the insurance company said was able to verify it was a false alarm. The contract was fine. But in this situation, if you don't understand what that bonus means, or if you believe that the contract's going to do all the things that the sales person says, you might find yourself in a position of trouble. And unfortunately, I've had, I've seen a lot of people put the majority of their retirement assets in this. I think it's probably appropriate for 20 to 25%. Maybe I've sold a similar there. And there's, there are other contracts that do exactly the same thing. It's not the only one.
Speaker 2 00:18:46 There's probably four or five of them that, you know, income rider is free. Performance-based I did an episode on performance-based income annuities. That's what this is. Anyway, you can, you look, look all those up if you want to. And it's just, I don't know. It's one of those things that's kind of frustrating. And the couple of times I've sold similar contracts. I've been, I think one guy, it was about, um, maybe like 10% of his assets, 10, 12 years from retirement. It worked perfectly, but that's, it's worth, worth a try, but don't over commit. If, if this product does work for you, it might don't over. I'm not going to sell it. Cause I don't like to think, but you can, uh, if, if it's perfect for you and you just don't believe what I say and you think it's great, then I'll give you my blessing and say, go for it with, uh, whoever that guy is.
Speaker 2 00:19:27 So anyway, if you want to chat about your situation, take this and talk about a few more details. You can give me a call 804 3 8 5 1 2 1. Schedule a call, any page of the website top right corner, schedule a call button. Pick your time zone, pick your time, write some notes. Tell, tell me what you want to talk about. And I will give you a call, simple and easy, no pressure. I'm here to help. So go ahead and subscribe to the YouTube channel. If you want to see the videos or favorite podcast platforms, these are going out as newsletters. I've been kind of on a roll with sending out podcast newsletter. So you can read it. You can watch it, or you can just listen to it, not a whole lot of visual aid today, but I showed you the newsletter and some of the bullet points that I think are important and I'll finish that newsletter. It's going to go out next week. So thank you for joining me for episode 35 on the 35% bonus annuity. My name is Brian Anderson. I'm signing off I'm outta here and, uh, have a great day. Thanks guys. Bye
Speaker 1 00:20:30 You've been listening to the proceeding. The views expressed by guests and do not necessarily reflect the pay the bills insurance company.
