Episode Transcript
[00:00:00] Speaker A: Hello and welcome, everyone, to the Annuity Straight Talk podcast, episode number 148. My name is Brian Anderson, founder and creator of annuitystraighttalk.com dot. Not necessarily trying to pick on Allianz, but it's just the one that sells so much. I did a couple episodes about surrendering about some of the stuff that's going on, and this is the most high profile of these types of products over there, although there are a lot of them. So Allianz and inflation adjustments, they'll show you where you can find a little bit of this information.
And this is just one of those things that got to fill in the gaps just a little bit. Okay. Inflation, obviously, it's been a hot topic in the news in the past couple of years because rates have finally risen. That's delivering a lot of great deals to people. I guess on a note about inflation, it's be grateful for what you do have. You got a good stock market with good cash balances, you got good fixed rates. If you want to protect money, you can get a good yield by doing it. And everybody kind of forgets about that, and they freak out about inflation. I talked to a 47 year old guy yesterday who's just beside himself about long term care, tons of assets, life insurance, everything. Man, you don't need long term, great if you want to worry about it. But anyway, think about what you do have. Focus on that. Be grateful that you're in a good position to retire. And I appreciate the opportunity. I'm here to help make it really easy for you to solve. Boil it down to some simple things. Inflation is a big topic from the past, and a lot of people have called and asked, well, take an annuity, or I want guaranteed income. But yeah, I want that with inflation adjustment. And so I'm gonna explain what that means. And Allianz and other companies that have similar products will have offered a hypothetical solution to that. That looks really good on paper, and I talked about it, but I'm gonna get to that kind of at the very end. So if you're talking about true inflation adjustment on a product, I do not believe it exists. I wrote this newsletter that's on the screen. I wrote this probably six years ago. Should I look for a timestamp on this sucker? November 2018. So almost six years ago. I'll go through it. But so this is like, for single premium immediate annuities. There's three different types of annuities. For income that you can look at. You got the single premium immediate annuity, or what's a variation of that is a deferred income annuity.
And that's general because that would cover variable and index. But as far as like on the spea type of product, like single premium immediate annuity, hand your money over in exchange for set guaranteed payments for a certain period or for life. I looked at this way back in the day and I said, okay, well, and in this example, the rates were lower, a lot lower when I wrote this. But we looked at $100,000 example what the deal is, you buy it for $100,000 and you say in this example right here, it's like $548 a month at the time. And that's quite a bit higher now. But it's the same lesson. So the same $100,000 instead of 548 per month, it's going to drop the initial payment to $405 a month. So it's about a 30% reduction. And you could look at it and say, well, what if you want to start at 548 with 3% inflation adjustment? It would cost you 125 or 130. So it costs something to do that. And then the problem with this goes to, you start, let's say that you just started with a lower payment because you want inflation adjustment. That's what I did in the example. So at 3% per year, it doesn't actually, the four or five doesn't get up to 548, which was the level payment for eleven years. So it hasn't offered any inflation adjustment, true inflation adjustment. You're just a net negative on your total cash flow. The two payments streams return the same amount of cash at year 20. So if you buy this at 65, you're not getting any benefit, any true benefit out of it until you're 85. So this is what I used as the basis for, and I'm going to tie this all together, but I use this as the basis to tell people, buy the most efficient level payment stream, you can get it as cheap as possible. It's going to leave the most assets available.
In addition to that, that can grow in other assets, be it the stock market or even just conservative assets, real estate, whatever you want to do for growth in assets over time. And when you need the inflation adjustments, you can access that annuity. Plus stock market on the historic models is the most efficient retirement plan. But I'm not making a recommendation. It has to go here, but save the money invested elsewhere, take the level payment stream, and that's a lot easier for people because they, people are like, well, okay, I'll just, once it makes sense to you, maybe it's not what you want to hear, it's what you need to hear. And then realize like, oh yeah, I can spend a lot less on the annuity, so I got money left over to do something else. Now, you look at the guaranteed lifetime withdrawal benefits that are on index annuities, which adds an income guarantee to the account value with respect to inflation adjustments. A variable annuity with a guaranteed lifetime withdrawal benefit can hypothetically offer an inflation adjustment because those are tied to the market. You're going to get more growth out of those, but you've got more risk. It could drop as well. Now, when your fees are running 4% and your income withdrawals 5%, that's a hurdle you have to clear for a variable annuity to give you an inflation adjustment. But since those illustrations go back 30 years, like I've talked about before, then they're illustrating initial returns in the nineties when we had the.com run up. Okay, so we're not talking about variable annuity so much. I just covered it as quickly as I possibly could. So nobody says, well, what about a variable annuity? Yes, we can talk about projections all day long, but the point of annuities being safe in a variable annuity is not the best way to get the highest payout for a set amount of money you put into it. So with the indexed annuities, obviously the account value can go up a little bit. If the index performs, it can't go down. There's usually a fee for it, some products don't. But if there's a fee for it, the account value drops by. Fee drops by the income you take out of it and grows by whatever the index return is in the contract. And there are several of those still on the market. I learned this probably twelve years ago when somebody asked me to evaluate it. And, and I found in the fine print that once the cash value goes to zero, there are no more inflation adjustments. So if you have a 3% annual increase now, some of them are indexed to or indexed to the growth in the indexes available, and some of them are just a static. But any of those contracts that are built that way by contract, say, when the cash value goes to zero, no more inflation adjustments. Well, in this case of the spea, you didn't even get ahead for 20 years. And if you project an index annuity with the high payout rates, now we're seeing cash values of those contracts go to zero in year twelve to 15, maybe earlier. If those, there's no growth because the payouts are so high buying for the guaranteed income, that's the bottom line. Get the most efficient payment stream you can if that's your goal. So if that's the case, and those are the facts of how annuities have worked traditionally over time, no real payoff. It's, I guess it's a perceived payout. But the index annuities is why I've never sold them and a lot of people have decided not to buy them. I'm sure there's people out there that have them because the contract still exists. So why then in the Allianz benefit control they got one thing covered. Their payouts start really low. That's their near term income product with a big bonus that's credited only to the income factor, all that stuff. But they show, and like I did in this podcast, so I did a podcast last year, they show cash value increases and continuing to increase substantially after the cash value goes to zero. Speas don't really do that. GLW B's contractually don't do that. This is a GLWB with a hypothetical back end. So my question and the reason I bought brought this up, I'm trying to scroll doing something wrong. There is. I posted that video last year and some guy, Mitchell, if you can read the comment, if you're on it, says you are telling a lot of obvious lies here, sir. Probably the most obvious one is to imply that the insurance company is going to do something to the interest rates or participation rates or allocation rates based on a customer's accumulation value going down to zero. Yes, Mitchell, that is exactly what I'm saying. It's in the contract.
They have a range of growth rates. Mitchell says that's insanity. Changes to those rates affect everyone who owns one of these policies. You really think the company is going to change everyone's rates because one guy has used up his accumulation account? Yes, I do. And he's not going to be the only one because they all will. Now this is a year ago. I want to leave that up there and I hope it stays up there because I want to see how well that ages. And then in the last part of it says they'd never sell another policy ever. Well, a lot of people are bailing on right now because the first first two years don't look like the first two years of the illustration. So they figured a lot of people figured it out. He says he could go on and point out a dozen other misleading claims, but who's got the time for that? I have the time for that. You want to call me? Please do. I would love to have you on the podcast. We can debate the validity of those claims from the insurance company standpoint. I've been compiling information for ten years, hearing from people for ten years about these products that are supposed to offer these big inflation adjustments. And I would tell you a different story if I was hearing something else. So inflation adjustments, important. Get it elsewhere by the most efficient payment stream you can. That's what annuities are for.
Talked about speas, GlWB's, and then we talked about the hypotheticals. Now I like, again, I'm not trying to pick on Allianz. There are a lot of the companies do this. They're the most high profile one. And I've actually heard from another company. I like Midland National. I have a really good product that's like this. I don't sell it at all that way. It's like, oh, look, you're gonna get double digit every year and they're gonna keep, I've been internals at that company tell me, yeah, when the cash value goes to zero, those rates are gonna come all the way down, and probably before that, if it gets out of hand. So the way to sell that product is like, hey, you know what? You got no fee accumulation, pretty good rates, and there's a backstop for income. If you decide you want to pull a little bit out of it on a consistent basis, RMD's or something like that, it can work. Some people like it. But don't sell those overblown. The B's annuity illustrations, the ones that don't work out, the reason why everybody's jumping out, because they haven't worked out the way they were supposed to anyhow, so there are some contracts I like on that front, and I've heard from people, it's like, well, I bought the ABC, the Allianz deal, and it's doing fine. And I guess I don't really need the income. So it's fine, whatever. In a lot of cases, and before this past year, most of them said, hey, ride it out and see how it does, and you get out of it. So again, I'm not trying to pick on that. There are a lot of other things. Reason I could say, like, like even in a situation where you don't need the income, you're not relying on those giant increases. Why I don't sell that product. But I've gone it over another podcast, but I wanted to point it out. Somebody in that, on that YouTube video said, boy, I wish Brian would respond to it, so I hope this is good enough for a response. If I got to do it directly, then I don't know if it's that important. I just think it's funny and I hope it stays there because I'll come back to it. And if I'm wrong, I will be the first to state it publicly. So guys, thank you guys for stopping by. Share it with friends. Anybody who wants to see this, go right ahead. Appreciate you guys joining me for episode 148, schedule a call at the top right corner of any page on annuitystraighttalk.com and thumbs up on YouTube or your favorite podcast platforms. Comment email me, tell me what your questions are. I'll get to you when I can. Thanks so much for joining me. I'll see you next week. Okay, have a great day. Bye.
[00:11:28] Speaker B: You have been listening to annuity stray talk.
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