Annuities Create a Legacy

Episode 86 May 04, 2023 00:13:18
Annuities Create a Legacy
Annuity Straight Talk
Annuities Create a Legacy

May 04 2023 | 00:13:18


Show Notes

An annuity is a financial product designed to provide a regular income stream to an individual for a specific period or for their lifetime in exchange for a lump sum or series of payments. While annuities are primarily designed to provide income during retirement, some types of annuities can be used to create a legacy.

However, it's important to note that annuities are complex financial products with varying terms and conditions. Before purchasing an annuity, it's essential to understand the terms and conditions of the annuity contract and to work with a financial advisor to determine whether an annuity is the right financial product to help you create a legacy. And today, we have Bryan to help you with that! 

What You’ll Learn from This Episode:

[2:12] One often overlooked benefit of annuities is that they can improve the overall performance of your investment portfolio.

[2:28] Annuities serve different purposes depending on the individual's financial circumstances and suitability.

[4:47] An annuity can provide portfolio growth that outperforms other alternatives when you have a guaranteed income.

[5:36] When assessing your overall investment portfolio, it's important to consider the advantages of adding an annuity's income stream.

[9:37] An annuity can provide a form of reverse dollar-cost averaging during times of market volatility.

[11:11]  In periods of high market volatility, annuities have the potential to deliver even better performance.

Key Quotes:

[2:47] "Legacy is not the top priority for everyone, it doesn't have to be the focal point of retirement planning."


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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 00:00:48 Hello and welcome everyone to the Annuity Straight Talk podcast episode number 86. Moving right along, approaching 100, gimme some ideas. If you guys think I gotta do something special for episode number 100, not quite sure what I would do, but I'll try to make it good. I try to keep it good, give you case studies. I'm gonna try to do a series of kind of case studies, just kinda keep people thinking about it the right way, give different perspectives and all that. Number 86, we're gonna do annuities, create a legacy. Lots of different ways of doing that, not specifically with the annuity, but let me tell you how I did with one couple recently and that's what I'm gonna do. I don't think I'm gonna share my screen. Uh, it's just writing. You can go read the newsletter, it's already written friendly reminder to like, or subscribe or comment on this. Speaker 2 00:01:28 Let me know what you do like about it, what you don't like about it. Helps the ratings, gets it out to more people. That's the biggest sales pitch I'm gonna give you. But I truly appreciate your help. If you give it a thumbs up or I don't know, thumbs down if you don't like it, I suppose you don't like it, why would you be here? But I spent a lot of time on the podcast talking about micro details, specifics about certain cases that leads to tunnel vision for a lot of people. So you have to step back, remember the bigger picture. And this is really a big picture issue. One of the most overlooked facts about using annuities is it enhances your entire portfolio, everything else you got and it goes above and beyond what the annuity does by itself. Now this even goes for the annuities that I don't particularly care for. Speaker 2 00:02:09 We talked about those a bunch, but all of the annuities have a purpose. And again, it goes to suitability and some are specific for certain situations and sold to the wrong people, all that stuff. But you uh, absolutely should know exactly how your annuity works. You should get one that does specifically what you need it to do, but you can't forget how it helps everything else. So legacy is not a top priority for everyone. Doesn't have to be a focal point of retirement planning. But what I cons, I consider it to be the best indicator of a solid retirement plan. If you get to the end with a whole bunch of money, then obviously you have been successful and you created a good plan. Those are the types of plans I like to create. You can leave it to the kids, you can spend more. Speaker 2 00:02:45 If it's not your goal, leave it to someone. I just, some people are, well, I don't need all that money so I'm gonna go with this strategy that gives me less money. Believe it or not, I have heard a lot of people say it, well, I don't really need all that money so I'm just gonna do whatever this other guy says. Even I know it's not better, but it's good enough for me. I don't like underachievers. I have my own issues with that from time to time. But uh, that's why I work so hard cuz we're always trying to overcome certain things like that. But yeah, if you're not looking for the best performance in the best possible deal, yeah, sorry you're in the wrong spot. There are annuities that are specifically built to produce a legacy, but I'm not gonna talk about those. Using an annuity is fine. Speaker 2 00:03:20 There's certain, you know, riders or additions. There's like, oh there's a death benefit. There's this, there's that. There's always some catch to it. I'm not talking about those things right now. I certainly could, but uh, I think it's kind of dry and boring. So if you're going to, if you want one asset to leave a legacy, life insurance is by far the best way to do it. You wanna do it one product that you're gonna leverage yourself. So a lot of people, and that's not something that I push to sell a whole lot. I am gonna do a life insurance podcast because there's some retirement income planning that's being done with those policies that I don't agree with and I think is a little overzealous on the salesman's point. But what you do get with an annuity is you'll have portfolio growth that exceeds the alternative if you have guaranteed income or just some protected in an annuity to reduce volatility. Speaker 2 00:04:07 We've talked about reducing volatility. Again, this is an, this is kind of a general topic that relates to everything that we do. I'm gonna talk mostly about income today, but it's still a separate episode and I've kind of done it before where hey, we're just gonna show you how stabilizing your portfolio actually leads to better growth. Cuz you're not taking the big dips and dives, right? Leaving all your money in the market might work, but it's gonna depend on the sequence of returns and the timing based on the day you die. You don't know either of those variables so you have to use an annuity to prove your chances. Thinking that annuities can't help us. Kind of rooted in the misconception that there's nothing left from an income annuity at the end of your life. Partially true in some cases. There's so many options for leaving a remainder with the annuity itself that it's shortsighted to consider it the other way. Speaker 2 00:04:53 But you also have to factor in the benefits the income stream give to your overall portfolio. And this came up in a recent case. I had to illustrate this point so the husband and wife could find a compromise that back when I was in Kansas last year, I did a podcast on husband's, wives and annuities and how it's important to get on the same page with your spouse. It's beneficial to have two different perspectives. One's gonna think of questions the other one won't and it coming to a consensus and working through it together is often the best way to get it done. So this couple is about three or four years from retirement. They're saving a lot of money in the highest earning years. Everybody knows that right before you retire the highest earning years, they already have one deferred income annuity that was purchased a few years ago and about a million bucks in other investments plus the incoming additional savings over the next uh, several years. Speaker 2 00:05:42 Three, four maybe. They do have a significant income retirement gap. So we have, we calculated their social security, what the current annuity's gonna pay and they still have a shortfall but they've got more than enough money to solve the problem. And this was really easy to do in my opinion. It's an open and shut case. We determined that they could take about just all the factors considered what was available, what could be moved and it was, well it was less than 40% of their current investments. Buy another deferred annuity to close that income gap that would leave 60% of their current assets for other investments. They wanna do some real estate, maybe keep some of the stock market. They do have, you know, some rental properties and things like that wanna do more of them. If you live in an area where the market will give you a good return on that investment, it's not a bad way to do it. Speaker 2 00:06:26 But again, it's all about diversification, right? They had plenty of room to spend comfortably and likely planned for inflation as well. After we did all this in every scenario we ran the portfolio performed better with the second annuity, adding that in so everybody knows this. I run the portfolio simulations with and without an annuity to see what makes the most money. There are very few historic markets where you would be better off in retirement without an annuity. Very short periods of time as well. The husband picked it up right away. He's mostly retired all the way already and his wife is still working so he's got a little bit more time on his hands. Uh, harder to pin her down and get her scheduled. So it's not that <laugh>, he was more capable of understanding it. But again, it's that perspective thing everybody sees in it a little bit different way. Speaker 2 00:07:09 So we had to do a second meeting, uh, to get her perspective. And I'm gonna go off on a, on a tangent. That's why it's so important that if both partners want to be involved in the decision, I highly recommend it because it's better that you hear it from me than from each other. Okay? Husbands, wives and annuities. The fishing boat example, pretty interesting story, but again, spouses are not often the best at communicating brand new subject to their significant other. So for me to actually hear what are, so he's taken the information from the meetings and he's going and talking to his wife and he's not explaining exactly the way I do and again, and he hasn't seen 5,000 examples of objections and what different people cuz everybody has a different take on it, right? So they know this and so we had a second meeting with to get her perspective and explain why this makes in a way that makes sense to her. Speaker 2 00:07:58 Her biggest concern was that she didn't understand how you put a large chunk of money into an annuity and still leave a legacy at the end. Well yeah, but why would we? She said I don't wanna spend, I want to keep all the money available, but it's that income thing that they need, right? So you gotta do income and legacy. If it was just, if there was no income need, then you could probably do whatever you want and just take the risk or not, right? They had a big income goal but also wanted to leave money to the kids at the end of it. It's all possible. In the simplest, pine is often the best. Okay? So the problem with the stock market is a sequence of returns and not knowing when your last day is going to be. Said that before if the market is volatile, you can get an effect called reverse dollar cost averaging and it's detriment to long-term performance and asset growth. Speaker 2 00:08:41 Think of it in very simple terms. If you have a hundred thousand dollars and wanna draw 5,000 per year, if it grows 10% before you take your first withdrawal, so you got 110, the 5,000 withdrawal equates to 4.5% of the total account value. Okay? So growing it's good if it loses 10% before the first withdrawal, $5,000 will be 5.5% of the total account value. If you rely on the stock market to draw retirement income, you will be selling stocks at a loss from time to time regardless of long-term market returns and averages. Volatility along the way will have a substantially negative effect on remaining portfolio value. That is a proven fact in this case, I think we settled on $370,000 in the annuity. Again, based on their accounts, what was available, what made sense. Mathematically the remaining funds could be invested for long-term growth, stock market, real estate savings, stuff like that. Speaker 2 00:09:34 In the worst 20 year period in market history using the annuity created an additional $800,000 in portfolio value in comparison to just using the stock market in the volatile but profitable past 20 years, the annuity strategy led to 500,000 more portfolio value. So there you go. Hey, buy this annuity, I'll give you 500,000 bucks, right? So it, the more volatile the period, obviously the worse, the more volatile the period, the better performance you're going to have. And that's exactly what everybody's trying to do. You wanna sleep at night, enjoy retirement and not have to worry about money, buy the annuity, that's it. Everybody should have one and they're not just for income. You can protect assets, all that stuff. But again, seems like I gotta make all these disclaimers cuz everybody's gonna come back. Well what about this? It's the consistency of the annuity that creates a legacy, not the stock market. Speaker 2 00:10:20 Yes, the wife is correct, there will be nothing left in the annuity after about 20 years, but it creates flexibility with the remaining assets and leads to a larger legacy. Now legacy is not important to some, but that's no reason to ignore this. Again, if you want to take a less lucrative strategy, go work somewhere else, I don't care. But if you don't wanna leave it to the next generation, spend more money and enjoy your life, find some new expensive hobbies to spend all that money, right? It's not a bad thing. I'd always choose the path <laugh> that makes more money, but that's just me. If you are interested in running some numbers, then I'll show you how it looks in your situation. Everyone is different, but I have no doubt it will work for you too. A hundred percent positive that annuity will improve your financial picture approaching and or in retirement. Speaker 2 00:11:01 So you can gimme a call, 804 3 8 5 1 2 1. Go to the website, top right corner of any page on annuity straight It says schedule a call, click the button, choose your time zone, write some notes, what you want to talk about. I'll give you a call. That's how it works. Thank you for joining me on this, uh, latest podcast, number 86 annuities. Create a legacy. Like I said, subscribe like thumbs up, thumbs down, comment, whatever you can do to help other people find it, that'd be great. I'm happy to do this. I've enjoyed doing it a lot. I think it's been really fun that most people you know, see, I dunno, three or four or five of these before they ever call me. And it's, it's a way for you guys to get to know me and I'm really grateful for the continued support and the people that continue to watch as well. So I'm back in Montana finally. I've been back for about a week and it's spring. It's beautiful weather. Not gonna stay this way full-time, but I'll be ready to go with you next week in episode 87 thing. I'm gonna have John Bomber back talk about the market cuz there's some funny things going on in there. But anyway, I look forward to it. And again, thank you so much for joining me. I'll talk to you again soon. Okay, bye. Speaker 1 00:12:22 You have been listening to Annuity Stray Talk. The proceeding information is for informational and educational purposes only and does not represent tax, legal or investment advice. The views expressed by guests on this program are their own and do not necessarily reflect the views of annuity, straight talk or its partners. No information presented today should be acted upon without meeting with the qualified and licensed professional. It's important that you read all insurance contract disclosures carefully before making a purchase. Decision guarantees are based on the financial strength and claims paying ability of the insurance company.

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