Episode Transcript
[00:00:00] Speaker A: Hello and welcome, everyone, to the Annuity Straight Talk podcast, episode number 151. My name is Brian Anderson, founder and creator of annuitystraighttalk.com, writer and producer of all these episodes.
21 years of research, thinking, meeting with people, answering questions, getting my questions answered, so that I can better benefit you and help you make solid decisions in retirement. Please, like subscribe or comment on any of your favorite podcast platforms or on YouTube. Share it with your friends. A lot of people could use this, need the help, and I'm here to give it. So I'm going to join the hordes of people today selling annuities, and I'm going to give you a sales idea of my own, something that I think is a fantastic opportunity right now. We're going to talk about interest rates, because everybody's curious about those. And we start out with, oh, my goodness. Yesterday, I'm recording this on Thursday the 19th. So on the 18th, that's when the Fed finally said, yep, we're cutting a half a percentage point. Oh, wow. Everybody's been waiting for it. It's been priced into the market for a long time. They'll be guaranteed it. A few weeks ago when I talked with John Ballmer about the direction of the market, so, oh my goodness, now rates are down. What are we gonna have? Well, the treasuries and bonds had already dropped in the past six weeks. Treasuries bumped up slightly. Now, that doesn't really mean anything long term, but it does underscore the point that you should pay attention more to market rates than what the Fed does for retirement decisions. It has little to no effect on doing that, at least not immediately. It's something that's maybe dragged out for a while, but we've had, everybody's been saying it over the past couple months. Well, the Fed's going to lower rates. I better do something. If that's the reason you're making financial moves and you do not have everything in line, I'm going to do something next week, more, a little bit of advice, help people get organized for retirement. Right now we're talking sales and something that some of you should do. So I've watched the top rates since the beginning of summer, watched top rates come off on a lot of products well before the Fed made any move, it was expected. It's priced into the stock market, all that stuff. And it has affected some products more than others. I'm gonna explain how that works. By far, the biggest hit has come with mygas, the fixed annuities, guaranteed rates. There are fewer variables involved in producing the rate in a myga. It's very simple contract and it's basically a spread between what the annuity pays and what the insurance company earns on a bond. They got to have enough room to cover administrative expenses and profit. You want them to profit a little bit to be in business. Strong companies produce a profit. You can't gripe about it. Maybe I should dig into the details. How much a bank makes when you buy a CD, for crying out loud. You should all be opposed to that.
But I digress. So decreases in market rates affect the mygas directly. When the bonds drop, when the treasuries drop, that produces a smaller yield for the insurance company. They got to drop the rates to be competitive. But we've seen a downward shift in the past couple of months of about 20% in total yield.
Two months ago, people were like, hey, I'm not going to do it unless it's 6% or better. And top rates were five and a half. Five and three quarters from good solid companies. Everybody always wants more. Oh, I want a more. I'm not doing it unless I get more. Whatever, do what you want. So 6% was maybe top end for like private equity, a minus companies I don't necessarily trust. Five and a half or so was better. Now it's a stretch to get better than 5%. You do have to go with those little no name companies run by private equity. And I'll tell you this, there are a lot of companies that will sell the mygas for no profit. They increase their balance sheet, maybe open up different lines of credit because of the enhanced balance sheet. Those types of things in some ways could be seen as taking a little bit more risk. Produce those high rates. It's typically why I stay away from the top rates, but hard to get 5%. It's, it's there, but you've got to take a credit rating drop to get it. If you want a highly rated insurance company, a plus or better, you're going to have to keep waiting. Not going to happen soon. So I'm seeing those go four and a half now. Ooh, that's not exciting. If you didn't like six, you're not going to like four and a half.
The income contracts have been least affected, whether immediate or deferred. And it's simple. Everybody has been really excited about short term contract. Oh, I want, I don't want to lock in for too long. Think you're making a prudent move? Okay, fine. Mostly cds and mygas.
I've said this a lot over the past couple of years. The myga allows you to lock that good rate in for a longer period of time. A lot of people were fired up about a 5%, five and a quarter, five and a half percent cd for one year, 14 months, 18 months, whatever it is. Oh, I got this great cd if five and a quarter for 16 months, whatever it is. And although that's good rate, in one year, you don't have any compound. You don't get to make interest on your interest. So I always said, what are you going to do at the end of a year? Well, I'll just renew it for another one. Okay, what's available now? I talked to one person, I'm not looking at cd rates, but one guy who's renewing a cd and he's looking at a myga instead, because you can't find cd rates over three and a half, three and three quarters right now. But a lot of people realize, and they can't renew those cds at anywhere close to 5%. So in the short term, they made a great decision. They don't get compounding on their money and oops, here it is. So would have been better off following my recommendation. If you didn't want an annuity, buy a five year cds. Those are paying 5% too. Could have locked the rate for a longer period of time. Doesn't always have to be an annuity. So the income contracts are built on long term interest rates, which have been less sensitive. Now, John and I talked about this a few weeks ago when the yield curve has been inverted, which means short term rates were higher than long term rates. And as that normalizes, you'll get, the short term rates are going to lower and the long term rates are going to rise a little bit. Those haven't been as sensitive to changes in the market. And you also get a risk pooling effect with the income. It's not all just based on the interest rates you got. Mortality credits weigh heavily on the income payouts that are based on average life expectancy. Half the people exceed that, half the people don't. So you get an income boost by shifting that risk to the insurance company. They're going to level it out. All you got to do is just take the higher payment so those are still intact. We've done a lot of income deals this year. For the most part, we're going to have about what we've had for the next period of time. We'll see if there are any major changes going forward, and that's fine. So fixed index annuities haven't shifted as much as my because there's still as much potential as there was a year ago or so. Now, you got to remember that index annuities let you leverage the fixed rate for more growth potential. So the top line is going to come down a little bit more slowly as rates decrease. Now, when benchmark bond rates and I Treasuries and stuff were below 1% a few years ago, index annuities still had plenty of potential. So there's a different spread there as well. So that's why we see, like, the index annuities right now are just as good as they were six months ago, a year ago, or very close to it. A lot closer than the mygas were. The contracts I've written the past two years with the higher rates have posted yields in the mid double digits on certain indexes. Maybe not the whole contract. We like to blend it up, but we've had really good returns in those contracts. I've seen them as high as 14 15%. Very nice deal. And as of today, they are just as likely to do so when the market is good. With the migrates lower, everyone now has a better chance of an index annuity outperforming over most terms.
So let me share an idea that drives this point home. You like short term, you want good yields. So mygas have been a major part of my business for the past few years. A lot of people like the simplicity and the good rates. Don't have to worry about it. If a free withdrawal works within, you know, maybe income parameters, discretionary spending, that's been a super easy thing to do. Got a lot of good mygas on the books and people are happy because you don't have to worry about it. With the rates a little bit lower, enthusiasm has cooled a little bit. Few people I talked to in the last couple weeks just, I don't know, it's not as exciting. Everybody wanted the shortest term possible, so I sold plenty of three to five year contracts and that might have one to three years left on them. We'll see what's available come renewal time in the next few years. The longer term bets have proven to be a wise choice, but it's early. We've seen year end rate dips in the past couple of years. Rates have dropped and then risen back up. We'll see what happens with inflation when they drop rates and real estate goes up and the stock market runs forward. What's going to happen? We might see continued healthy rates and it's fine. I like that. I like it for you guys. I like it for me. Who knows what's going to happen? But I've always said in ten years, we will know exactly what we should have done. So here's my short term idea. Blends the guarantees of a myga and upside potential of the index annuity. It's five year index annuity from Midland National Life. You guys know I like the company. I talk about it enough. But I would say like accumulation oriented index annuities. I looked at the numbers. That's right, about 5% of my total business this year. We've been selling income deals in mygas, and that's what we've been doing. So right now, as rates change, it presents the advantage hits in different areas past few years, really good deals on short term mygas and income contracts. As it switches around, you might find a benefit in different areas. Okay, so right now on this index annuity, the best part about it, the fixed rates and the index cap and participation rates are guaranteed for the five year term. It's only a five year deal, 10% free withdrawal. So there's liquidity if you need it. Currently, the fixed rate is 4%. The highest I'm seeing from a Midland has a five year myga at 455, 4.55. There's another one reliant standard that I really liked that was at 475. They're going down to 4.50. So that real high quality, top tier paper is only a half percent better. So you got a fixed rate of four. That will always be four, slightly lower than a good a rate with a mygae. Not all mygas have the 10% free withdrawal, and this one does. Some of them do. Not all of them do. So with all things considered, this really is one of the best places you can park safe money right now. So, key highlights indexes available from the Nasdaq and the S and P. You can keep it simple or go with one of two available blended indexes that can make big moves when interest rates and the stock market are volatile. Now, a lot of the other contracts I talked about on a podcast earlier this year with guaranteed index rates make you stay in one index in order for that to be guaranteed. With this one, you can move in and out. If you don't think the market's in a good spot, say, I'm going to take 4%. Maybe there's a correction right around your anniversary, and you say, hey, now I'm going to take a shot with the Nasdaq. You slap a double digit in the middle of a bunch of 4%, then you're going to get a much higher yield. And you don't have to worry about the company reducing growth potential in the latter years of the contract because they're guaranteed. It only takes a decent market in a couple years and you're going to easily beat the myga. I got an illustration below. We're going to talk about it past five years. Blended yield of 5.6. This is a link on the newsletter at the very bottom. And I'm going to go right up here. So all I did is do s and p. 500 annual point to point cap. Seven and a half percent guaranteed to be there for five years. Nasdaq 100 volatility controlled. You can look at other indexes. It's a very aggressive volatility control, but it's on the biggest stocks in the Nasdaq 100, that index is up 25%. You're getting 70% annual participation rate on that. That's a third. And the fixed account 4%. You got a third of that, just to show you what's available. And then you can go one or the other. There's a couple other indexes, but these are the easiest to understand. You got pure equity and a fixed account. All right, now what I'm going to talk about this minimum guaranteed surrender value. These, this assumes that the interest rates in the indexes go nowhere. So your minimum surrender value, if you want to look at here at five year, the end of five years, you put in 100 and it's 107,150, your minimum guarantee. So for the five year term, your minimum is 1.39. Now, if you put it in the fixed rate, going to blow that out of the water. This would come into play. If you say, I want to take a shot with the indexes and the market goes down for five straight years, you're still going to get 107. So if rates keep dropping, that's going to be just as good as a money market. But you've got that upside potential. Really. The beauty of index annuities, I like them. Okay, so we go because it's a five year contract, they give you two rates for the first term. Over the past five years, it averaged 5.6. My guys are getting 4.54 and three quarters. You can do five if you want to go, kind of a smaller company, see how that terms. And then over the past ten years, it was 6.84. You can keep the contract longer if you look at the surrender value versus the accumulation value. Go to the website if you want to look at it. You can take a closer look at these numbers. After the fifth year, the accumulation value and the death benefit are equal to the surrender value. No more surrender charges. You continue to go forward. Rates are guaranteed for the first five years. Take your money, do something else if you want, or hang on to it. Let it roll. So, something I show you, like I, I just picked the numbers parts of the illustration. I'm not trying to hide anything from anyone. If you want to see something that's a little bit more detailed, you can make an appointment top right corner of any page on annuitystraighttalk.com and we'll look at these numbers. But this is an awesome opportunity, really park some money, do some income planning, portfolio management, all that stuff. These give you the ten year average. The low averages over the past 20 years. The lowest is 5.35. The highest was 7.52. And if you really want to dig into the numbers, you can go to the next page available. It's going to show you the returns that were produced by the Nasdaq 100. So if you say 5.6 or 6.8, it's not that great. Remember that a third of this is just only getting 4% forever. So those indexes have quite a bit more potential and you'll see what the creditor rate. So, for instance, in year one, you've got Nasdaq 100 was up 17%. You got 11.96 of that. So in each of the scenarios, it shows you what your yield would be. And remember, a third of us just getting 4% in all scenarios. So if we just did pure index, we could illustrate higher. Again, we're trying to be conservative, trying to beat the myga, give you 10%, keep you with a solid company, good safe money. Simple as that. Any questions? That's what I'm here for. If you want to and you're getting the email, you can reply to the email and ask any questions you want. Again, top right corner of any page on annuitystraighttalk.com. please like subscribe or comment on any of your favorite podcast platforms or on YouTube. My name is Brian Anderson. This has been episode 151, Midland National. Accelerate five is the product and a great place to put a little bit of money right now. If you want to keep it safe but have growth potential. I'll be around next week. Right now, again, everybody knows this is hunting season, so I'm kind of gone in pieces and parts here and there, but we'll get someone to give you a call if I'm not. Typically, I don't know, last couple weeks. This is going to go through September 1 week, October. I've only been gone one day a week, so haven't found any good opportunities, but enjoyed a lot of time with friends out in the beautiful mountains of Montana. So I'm here. Appreciate you joining me. I'll be back next week for episode 152. You guys have a great day.
[00:15:13] Speaker B: You have been listening to annuity stray talk.
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