Episode Transcript
Speaker 1 00:00:05 This is annuity Straight Talk. Since 2008, your host Brian Anderson, has helped clients nationwide navigate the complex market for annuities 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 StraightTalk podcast, episode number 64. My name is Brian Anderson, founder and creator of All Things Annuity StraightTalk. I'm here again, apologize the repeat for anyone who's been watching this consistently. I got a lot of new people coming in every day, so there's your introduction. This week I wanna talk about something that's been prevalent this year and a lot of people have heard me gripe about it a fair bit. So I wrote this little newsletter and this week it's a very short newsletter, just kind of gets right to the point. It's only about 500 words or so. So it's not anything too in depth. But this subject can absolutely go into a lot more critical detail. So if you want to talk about any of this stuff, you can gimme a call, 804 3 8 5 1 2 1. Schedule an appointment on the website, top right corner, schedule call button, any page on annuity straight talk.com.
Speaker 2 00:01:43 So I'm not gonna share my screen, I'm just gonna talk to you guys a little bit. You can watch the newsletter when this go or you can read the newsletter when this goes out. I had one of my clients, a really good friend of mine now, who said I like to read the newsletter first and then I go watch the podcast. That's actually a really good idea. I'm not just trying to get more traction on the website, but writing is separate from talking and talking, it's a little easier to kind of go off script and go into more detail about various subjects or in any of the subject matter And in the writing it's like I kind of make sure it writes out and I'm, I'm getting worse at writing the more I do the podcast. So I don't know, I hopefully I can keep both of 'em going but takes a little bit of effort.
Speaker 2 00:02:22 So the title this week, obviously annuities and greed don't mix. I don't mean to call anybody greedy, but the way people have been chasing rates this year seems like we're kind of chasing the stock market. Uh, a lot of you guys have heard me say that this year it's been slightly frustrating because of how quickly rates have been changing. I've had people get into, we do an application, we get into a contract and as things are processing, oh some other companies, quarter of a percent higher. Uh, no, no, no, let's change and go do that. So it's created a lot of work for me and it's been frustrating at times, but I don't want anybody to misunderstand me. It has been very satisfying to have better products to work with and I'm super excited for a lot of people. But I have been chasing my tail a little bit this year.
Speaker 2 00:03:06 So I don't fault anyone for wanting to get the very best deal possible. And I do know, and the reason I say this, there's a lot of people that are still waiting as the rates will creep up a little bit. Oh yeah, well it might be a little higher next week or in a month. So that's kind of what I wanted to address and why it's not always best to wait I guess. So if rates are gonna go higher, yeah, go ahead, wait as long as you want. I don't care. It is possible they go a bit higher, realize that it's been published and that the Federal Reserve intends to crash the economy if they have to in order to tamp down inflation. When that happens, you're gonna see rates are gonna go the other way in a pretty big hurry and you'll be back down to low rates.
Speaker 2 00:03:49 So if you wait too long then you're not gonna get what you want. I honestly, I do hope for maybe rates to normalize and kind of stay stable for a little bit, but I have no idea how it's gonna shake out. And if you would ask me earlier this year, oh man, we're gonna have a 4.2% 10 year treasury cuz I read all the analytics that I read earlier in the year. They were talking about a lot of the analysts said they expected the 10 year treasury to be trading around 2% by the end of the year. Now we're at 4% and well it's November 4th, I'm recording this. You guys are gonna see this November 12th, I think. So anyway, it's like keep things in perspective, keep things in mind that just because you want it to be so may not be so and you have to have a fair bit of economic analysis behind why you think rates are gonna go higher rather than just say, Oh they're gonna go higher so I'm gonna buy something.
Speaker 2 00:04:46 Right? I don't think anybody that's waiting is greedy. So I don't mean to disparage people of course, but it's nice catchy title and it does kind of feel like that. But like people are chasing the rates like they've been chasing, returning the stock market and there is a similarity there. I mean there's a lot of people that get into or get into the market or out of it at the wrong time. You either sell too early or buy too late. And I think everybody's probably got their own personal stories that will show you a point in time where they made the wrong decision. So when you get the rate you want, we're talking about fixed guarantees. Holy cow, really good stuff right now. So maybe you don't wait if you locked in 4% earlier this year, some people might say, Well should I waited to get 5%?
Speaker 2 00:05:29 Or right now you can get 5% but should I wait until I can get six? And I could tell you without a shadow of a doubt, if I knew where rates were gonna top out hell, they might go to 12%. I have no idea if you're gonna wait for that, that's as risky as doing anything else. There's a cost to waiting and that's what everybody needs to understand. Now, early in the year, February march is when we got the first 4% rates on fixed annuities and a lot of people locked into that and I think that's a good deal. If they would have waited until now to get 5%, they would've given up 2%, like half of their yield, maybe a little bit more depending on when they bought it, they would've already made some money. So there's a cost to wait and if they gave up 2% for the six months of interest just to get 1% more, it's gonna take 'em a couple years to catch up.
Speaker 2 00:06:19 And in a five year term, seven year term, of course you'll catch up and go beyond that. But I'm not even talking about the fact that if you get an early, you wait a year. If you did it earlier, then you're also one year closer to the end of the surrender term where you can reposition assets. And if you really think rates are gonna go, go, go, go, then maybe you wanna be liquid sooner so you can get an even better rate down the road. So if you find the deal you want to wait and that's, it's hard to say but there are a lot of people out there waiting now those people that are waiting are likely not getting 0%. So it's not a perfect comparison, it's not, you know, you can certainly calculate that. Say if you're getting 2% while you wait, then from four to five you're getting 2% in the meantime then it makes the break even a little sooner.
Speaker 2 00:07:08 So, and the reason why I'm doing this now is because we kind of topped out somewhere higher than a lot of people thought we would. And I can't say we're topped out yet, but as rates get higher than an increase will be less likely to offset the cost of waiting. So the difference between a half a percent difference at 4% is a much greater difference than a half a percent at 5%. So you just divide half percent by four and half percent by five at four you've got eight compounding periods to match. You know, and that's just basic arithmetic. That's arithmetic, it's not geometric. So obviously compounding is gonna change that a little bit, but eight compounding periods versus 10 to equal out. And so as rates get higher and, and I think like if you want to go to the extreme, you say oh what's the difference between getting 90% return and 91% return If you had to wait a year, if you could take 90% now and wait a year to get 91%, it would take you 90 years arithmetically and geometrically with compounding it would be less than 90 but still it would take you that long to catch up.
Speaker 2 00:08:22 So at some point you're gonna have to wait. Now convexity is a term used in bond markets to explain the relationship between bond prices and changes in interest rates. So to calculate convexity, you need a yield and a duration. And as the duration gets longer in, the yield gets higher, then you have more volatility in the price of a bond. Within that analysis of convex Elis an indicator that tells you why it's not always best to wait for rates to go higher. And that's the half a percent at four versus half, half a percent at five. As rates run higher, there's less marginal benefit for waiting to get more. So this is kind of meant to tell everybody not to simply just chase rates, but like focus on your plans and your ideas, your desires, your financial plan and what rate works, what rate locks it and what rate guarantees it and what rate gets you there.
Speaker 2 00:09:21 And if you get that rate that's gonna solve all your problems, why in the world would you risk just to get a little bit more cuz it's gonna take you time and that time has a cost. And so that's kind of like it goes along with the last couple of podcasts I've done. So this is why I say like annuities and greed, don't mix the stock markets for greed, like real estate's for greed. And you can be calculated in either one of those, but you don't wanna sit there and chase yield on safe stuff. Safe stuff is stuff you put away. And when it comes to the world of annuities, like we're talking about solving retirement problems, right? We can do any of it with 5% right now. We can do most of it with 4%. I don't think that anybody who locked in a 4% deal, 4.1, 3.9 early in the year, I think they got it at a really good time and they'll probably be happy in the long run.
Speaker 2 00:10:18 I expect rates to probably come back down a little bit. But annuities are not for greed. You do greed elsewhere, you stuff your money into a safe deal. Now I could go to a b plus company and get 5.7 or 8%. I'm not gonna do a b plus company. I'm not greedy enough to do that because it's not worthwhile. Annuities are for safe, annuities are for protection, annuities are for peace of mind. So my job is getting easier because we do have good rates to work with. But I want you guys to keep your eye on the ball and realize that if you find the rate that's gonna make it work, then take it and be done with it. Right? And I'm not faulting anybody who wants to wait if rates go higher, just remember that it's gonna cost you something to get there and you might end up settling for less at some point.
Speaker 2 00:11:03 Like rates don't always just go up or down like they change. And the reason why I was ragging on bonds for the last seven, eight years is cause I saw where rates were, they're gonna go up at some point and we didn't know when. A few years ago I thought rates were gonna stay really low for a long time. Now we're somewhere around like the long term average is where we're at. So you take the long term average, which every financial model is built on a long term average, you can get it done, lock it away and be finished if you wanna wait a month or two. And again, another reminder that the fed changing rates is not what sets your annuity yield, that is not what happens. We've got a supply chain issue that's led to a lot of inflation. We have the strengthening US dollar cause we're a safe haven.
Speaker 2 00:11:49 I mean the British pound basically collapsed. Everything else, every other currency. Currency is down. That's another reason why we get inflation. You know, a 5% yield on annuity is preferable to losing money in the stock market. I know we've been on a nice rally lately. I don't think that's gonna continue and I'd love to be wrong because I don't wanna see anybody lose money. But the Fed changes in rate policy are not going to affect your annuity in the long run. You might get a blip, you might be able to lock in, but if you don't want to take five and a quarter percent and you're instead waiting for five and a half and the people who have told me that they know who I'm talking to them right now, maybe you get it and maybe you don't, but you, if you don't want five and a quarter, what are you gonna do when it drops?
Speaker 2 00:12:29 I, I like this story from like the late eighties when the treasury went from 10% to nine and a half and then you know, in the early nineties went to nine and everybody was saying, Well we'll wait till it gets back to 10%. That's what I want. And they waited and waited and the treasury dropped and dropped and dropped and rates came down, down, down, down, down. That's where we're at right now. It's finally started to turn around. Do you think it's going back to 10%? I mean, I suppose if you waited a year to get 10% then you'd be okay. But do you really think it's going there? So my advice is when you find a good deal, take it, get into the surrender term. You like annuities, I can show you how they work. I've done it a thousand times. Show you why they're effective and why it's gonna solve your problems in retirement.
Speaker 2 00:13:12 Give you a nice good yield, safe money piece of cake. But again, there's a cost to wait and you might end up taking less to get it. So anyway, there's another rant for me. Gonna have a few of these over the next time because this is kind of a like, it is kind of frustrating to get people to realize, yes, this is what everybody's been asking for. <laugh>, because it's like, oh man, since I started the website, oh if I could just get 5% now you can get 5%. Nobody wants to do it. So anyway, episode 64, annuities and greed don't mix. Annuities are not for greed, annuities for set money aside, protecting it and growing it well we got good rates in fixed annuities and index annuities. If you want a little bit more out of it, schedule a call with me if you wanna talk about it. Upper right corner, any page on annuity straight talk.com or call me (800) 438-5121. We're in the stocking cap today because we got winter started. I got a bald head now and like to keep myself warm. So changing up the wardrobe a little bit. Anyhow, thank you guys so much for joining me for episode 64 and you guys have a great day and get ahold of me if you'd like to chat about it in more detail. Okay, thanks. Bye.
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