Episode Transcript
[00:00:00] Hello and welcome everybody to the Annuity Straight Talk podcast. Episode number 186.
[00:00:06] My name is Brian Anderson, founder and creator of AnnuityStraightTalk.com 22 and almost three years of research and answering questions, frequently asked questions, getting a lot of my content from you guys. I have created probably the best, I'm going to say without a doubt the best source for annuity and retirement information online.
[00:00:27] 100% my creation. Happy to share it with everyone who needs help regardless of what it means for me. Please like subscribe or comment on any of your favorite podcast platforms are on YouTube. We're educating advisors and consumers alike to be honest with you.
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[00:00:54] I'm going to pull up my newsletter here and I got a visual aid so I can go through hit all the points that I wanted to hit when I wrote it out. But this is kind of one of those things where you know, Social Security is a big one, different products are big that one of the biggest ones be Allianz.
[00:01:10] And what I've done in past is I don't hate the product, but it's just been aggressively sold in a lot of places. A lot of people know this. And so a lot of people on my list of subscribers or even just the meeting list people I've talked to came in because this is something they saw and wanted to kind of know what was going on. So start by saying that fixed indexed annuities are good investments if you approach them with the right perspective. Every single one available has its place in certain retirement portfolios, but there's nothing one that has its place in every retirement portfolio.
[00:01:53] So you can organize them into classes of products and then just choose the product you like and it's an easier way to do that. And that's why I always said goals first approach.
[00:02:03] Set your goals. Give me a solid target and I'll show you the different ways that you can hit that target.
[00:02:09] So if you take you look at it, say hey, say a fixed index annuity is what you're looking for where there's three types and only one of those types is really going to be there's a jack of all trades type but only one of those is going to be appropriate. So you're going to get rid of the other 2/3 of products and it's a lot easier to do it. So then it comes down to what I'VE said before it's like eh, for the most part they're one in the same.
[00:02:30] Pick a company you like an advisor you trust and go with that one and it's easier. Then you're only looking at one or two maybe three products and you're not just looking at the one saying what is an annuity? What is a fixed index annuity? What is a guaranteed lifetime withdrawal benefit? And that may be totally irrelevant to you.
[00:02:49] So I'll get into those three types in a little while later.
[00:02:52] Now I hammered on the Allianz 222 and the Allianz benefit control the ABC in the past because the most prominent sales pitch surrounding those products was a complete misrepresentation. Now I don't necessarily blame the company. A lot of times I've looked at the company website. They're very forthcoming about how the product works but maybe to the extent of a little oversight they could do a little bit better.
[00:03:18] It goes into sales and marketing organizations. Those guys are the ones that really push it based on their compensation level unrelated party they don't have any liability, they don't back it like the insurance company does.
[00:03:31] So it's greedy advisors wholesalers want to make a quick buck.
[00:03:36] They deserve most of the blame because they didn't ask the right questions. They didn't educate themselves.
[00:03:41] My work in the past on this topic Regards in regards to this is nothing more than telling the truth about how the products work.
[00:03:49] Can't get mad at me when I bring a little reality to the situation.
[00:03:53] So it does not mean that the products don't have a place or that I hate them.
[00:03:57] Rather they fit a specific situation and are sold to far too many people and that should not be the case. So I have clients who own the 222 and are just fine with how it's working.
[00:04:10] That's because they bought it for the right reasons. It did so using reasonable projections. If you are as well educated as they are about the reality of the contract then I'm not going to try to convince you otherwise.
[00:04:21] My criticism started more than 10 years ago when people started calling about the enormous bonus. Wow, all this free money.
[00:04:30] Now some people argued with me. Hey, that's not what this advisor said. He told me yes, this is what could happen.
[00:04:35] Go and argue with me if you want. I'm correct about this.
[00:04:39] My opinion is that it is not my choice but the rest of it is simply just sharing information about how the products work.
[00:04:48] So others realized the bait and switch and were able to avoid it. About one in ten, I'd say, just. But there was a small fraction of people understood the components and went ahead and made the purchase.
[00:05:01] Hey, get out of here. Get. Jeez. All I'm really trying to do is educate people so that they can make good decisions. And so if it turns out that you like this product, it works for what you do, you have reasonable expectations, then that's fine. I'm not gonna stand in the way of that.
[00:05:18] So the couple that I worked with bought the 222 a few months before we had our first meeting. I initially asked if they understood all the components. They essentially said that they knew the bonus is not real money. It only factors into income calculations.
[00:05:31] They knew the growth was not projected to be high, but that was fine.
[00:05:36] And they based their future planning off of the guaranteed minimum scenario. They were age appropriate, which was there in their mid-50s about when they bought it, and had no money, no plan to touch the money for 10 years, which is a requirement of it to maximize the income and those bonuses.
[00:05:54] So it was about 12 to 15% of their portfolio at the time. All they wanted was safe money was some options. Hey, it's protected. We're not paying fees. It's going to grow a little bit. We could take the income. If we don't, we can transfer it, move it somewhere else. Right?
[00:06:07] That's about the right reason for it.
[00:06:10] Anyone who bought it in the past with the same expectations and an objective mind should be able to say the same thing. Hey, this is just fine. It's doing what it was expected to do. And that's one thing I'll say is all fixed indexed annuities do about what they're expected to do.
[00:06:24] So unfortunately, I hear from a lot of people who didn't understand or don't understand it the same way. Again, some people argue with me. Some people face the cold reality after.
[00:06:35] Some people face the cold reality a few years down the road, don't realize it.
[00:06:39] And a lot of those people are in quite the bind because they put a much larger percentage to their assets and in some cases, and like a big like 50, 75%, some advisors would tell them to put all their money into it because it's so amazing and they're banking on some outlandish performance that's not panning out and that's the cornerstone of their retirement. Then their retirement could suffer for that and probably will.
[00:07:02] So sometimes we can take those contracts, improve the situation, and other times it's best just to wait it out and hope for the Best.
[00:07:09] So I heard from a guy last week, I think in last week's podcast I talked about, hey, a couple of people, their questions in, in the meeting notes for their appointment request gave me an idea for a podcast and I had to touch this one. Again, I do not dislike the product. It's just sold the wrong way and there are a handful of people that understand how to evaluate it and where to put it. And it's unfortunately I know smart consumers that knew how to handle it regardless of what the advisors are trying to push to everybody. But so the guy that I talked to last week who gave me the idea to touch this again because it's been about a year, he said you can expect returns around 8% and then there's bonus enhancements and you'll be able to walk away with principal interest bonuses after 10 years.
[00:07:57] Now this guy was early 50s so it's not, and it's not a big part of his portfolio. No big deal. But he didn't need the income. He said, I just wanted to, I just wanted to put a little bit of money in a safe spot for a while and so it's going to work to that purpose. It's just not as great as he thought it was.
[00:08:13] So after a few years he's got no growth to date or very little.
[00:08:18] I think he was paying an option with an allocation fee. So there is a fee. I think he actually said his contract value had gone backwards which is not what you want to do with annuities.
[00:08:29] So you realize his walk away money another seven years is going to be a whole lot less than he expected it to be.
[00:08:35] So yeah, the positive note, it's not a whole lot of money, no real damage to his portfolio. Just ho I'm an asset that he's kind of like whatever, he's pretty young. Like I said, I think he was 52 or 3, bought it maybe when he's 50. That's fine. It's age appropriate for him because it is a long term product, but he'll be able to get out of that. He's young and he's got plenty of time. He has options for swapping to another annuity, but if he's only using it to protect some money, I don't think it's worth the cost to surrender without a clear goal in mind. If he said oh, I want deferred income in seven or eight years, then we can evaluate the payouts of other products and see if there is value in taking that head up front. But for him it's just not worth it. Another seven years he can move the money somewhere else, rebalance his portfolio at the end of the surrender period when his retirement plans are more in focus. And this is one thing I'll say about him is like he's going to get to a point in time where an annuity truly would benefit him, but he's going to have that poor experience that might prevent him from doing something that could truly benefit him in retirement. And that's not good. The two two two and the benefit control fit in a class of fixed index annuities that are basically, I call them performance based income. There's an income rider that comes with no fee because the total income when it's available is based on the growth of the account value.
[00:09:52] So if it grows by 5%, just simply stating grows at 5% then your future income is going to increase by 5%. If it doesn't, it's going to stay there and the company will pay out a substantial amount of income if you have substantial growth to support that. So Allianz is a very healthy financial institutions. I've always said that they got that way because they don't pay much out for the money a contract owner invests.
[00:10:18] They do have other contracts often very competitive in for their respective purpose. These are the ones that I see most often. Most people, they're the easiest to sell because hey, it's a bonus. Look at the free money. Don't have to worry about market risk. Oh yeah, you're never gonna get the bonus and doesn't grow a whole lot. It's not built that way.
[00:10:37] So the second type of fixed index annuity contract has a guaranteed lifetime withdrawal benefit that comes with a fee for the guaranteed income. That way you get a guaranteed step up every year.
[00:10:48] Nobody likes a fee, but this is the best way to maximize annuity income at a future date.
[00:10:55] I haven't seen a 222 or ABC come even close to what other fee based income products can provide.
[00:11:01] I even did a podcast all Aons 222 versus fully guaranteed income. A younger couple had an opportunity to buy and all I did is we compared it.
[00:11:11] Here's a comparison. You make the choice. Which one do you want? Last year I helped a couple replace a 2 to 2 with a guaranteed income benefit product that cost them a fee.
[00:11:22] Not only were we were able to project far more income on a guaranteed basis, but they could actually take it a few years earlier. So it was a way better deal.
[00:11:29] It was a nationwide contract and after the first year because we got real high rates now and they bought that one, three, four or five years ago, whatever it was, when rates were quite a bit lower.
[00:11:40] Nationwide contract made more interest in the first year than the Allianz contract had made in four years or real close to it. And then the third type of fixed index annuity contract is meant specifically for growth Income products put all the actuarial weight behind the income. So growth in addition is not mathematically realistic. It doesn't happen that way in the real world. And there is no free money. So these illustrations, I call them crazy annuity illustrations. There's another episode for everybody if you want to go check it out.
[00:12:08] Products built specifically for growth have all the weight placed on performance competitive accumulation. Contracts will have growth potential two or three times greater than what you'll get with the ABC or the 222. It's just how it works. It doesn't make the alliance products bad. You just have to understand what they're meant to do. If you want the best opportunity for maximum growth and protected money, you look elsewhere. You just want to protect money, grow it. You're going to have a better opportunity. Like I said, they're all going to do about what they're supposed to do just depends on if the guy who's making the money selling it is juicing the illustration to make it more likely that you'll buy it.
[00:12:42] That's going to lead to a letdown.
[00:12:45] So it's like a sugar crash.
[00:12:48] So performance based income products are just fine. And I do sell them, although I prefer another company. I always compare it to Allianz products and point out where I feel the other one is better. Again, you get the opportunity to make a choice. Some people go through that process and say, I like the guy that's selling it. I get what you're saying about the Allianz, but I'm going to go with it. Okay, fine.
[00:13:08] I don't get in the way of that. We're supposed to approach the fiduciary standard, right? We're supposed to give you options and educate you so that you can do what's in your best interests.
[00:13:18] Even though I do sell them, I only sell it to a very specific person who requests the blend of benefits. You blend the benefits, you get a little bit less of everything, you'll get little lower growth. Your guaranteed income is lower unless it grows a ton of okay, they're all safe.
[00:13:36] So I ran into this with a lady that bought a contract a couple years ago. We did that comparison between alliance and the Product I like, it doesn't even matter what it is because it's, it just doesn't fit a ton of people.
[00:13:49] So she came in, she says, I don't want to pay fees, I don't want to risk losing money ever.
[00:13:57] And I'm okay sacrificing no loss for partial market upside. That's fine with me.
[00:14:04] She said she didn't need income, but a little bit of income might help. It would be a nice backstop if they want to increase cash flow in a few years later in retirement.
[00:14:16] So again, we're not trying to maximize the income, we're trying to create cash flow.
[00:14:20] One way they're really good is you can project a larger remainder value because most time you're not pulling as much out. If you don't take as much money out of the bank, you have more money left in the bank.
[00:14:31] So it's really simple concept.
[00:14:33] Some people have a real hard time wondering why pulling money from the annuity decreases the cash value. But I like, okay, I don't get it.
[00:14:41] This type of product worked well for her because it's not the backbone of a retirement plan. And it does everything she wants. No fees, no risk of loss, and a backstop of income if she decides to turn it on. So the product she went with had higher growth potential because that's really the focus of it is growing. It's increases the income benefit, increases your options if you want to pull it and move it when it's surrender free.
[00:15:04] And it was clear. We looked at the two she took, the one with higher growth potential.
[00:15:08] If you choose one of the Allianz products for the same reasons, then I don't have a problem with it. Just don't believe the top line pitch of a low IQ salesman who promises incredible performance without being able to explain how the product works.
[00:15:21] If he or she gets defensive when you ask good questions, then that's the sign you need. He or she doesn't know anything and I'm not afraid to say it run into a lot. He got really mad at me when he started asking him the questions you told me to ask him. Okay, that should be all you need to know.
[00:15:37] Just trust me, it'll be fine. I talked to a guy I don't know a few months ago, maybe five, six months ago. It's like free money, all this stuff. The guy selling it to me has a beautiful office like overlooking the beach in Newport, California and he rents that place and it's not cheap, so he must be doing really well. And I'm sorry, but that's not going to impress me with his intelligence. It just means he's an aggressive salesman. He probably needs to make that sale if he's trying to crack the nut and look all cool on.
[00:16:06] I think I got a pretty good backdrop and my rent's pretty reasonable too. So anyway, so too many novices tarnish the reputation of ethical professionals because the Flash is easy to sell and and I don't care how much money a guy makes, it doesn't mean he's professional just because he get a real slick salesman. So spend some time around here doing your research, and you'll be able to sift through the BS better than anyone else. My name is Brian Anderson. Again, alliance for Overrated Performance. It's not overrated. It's working out the way it should. Just maybe not what you've been sold been episode 186. Appreciate you guys stopping by. Like subscribe or comment on any of your favorite podcast platforms or on YouTube. Share it with your friends. Somebody's looking at it. You want to make sure. I'm not saying talk them out of it, but you want to make sure they have all the information before they make that commitment. Go ahead and send them this. So, want to talk to me? Top right corner of any page on annuitystraighttalk. Com. Appreciate you stopping by. I'll be back next week for episode 187. All right, guys, have a great day. Okay, bye.
