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 straight talk podcast, episode number 43. My name is Brian Anderson, founder and creator of annuity straight talk here to answer a bunch of questions for a good guy. I met a few years ago and I thought this one kind of fell into my lap. We've been talking a little bit in the past. Uh, well, since the beginning of the year, we've talked a few times kind of a cool story. I've known this guy for how was three or four years ago. He signed up on the website and I was living in Whitefish at the time. And I remember wife and kids. We were all getting ready to leave for the weekend in the summertime. I don't remember what we were doing, but I kind of had an open schedule. And so I was at the grocery store getting snacks and food and stocking the cooler and all that stuff.
Speaker 2 00:01:30 And my phone rang and thought out with that. Cause I answered when I'm walking around the store and uh, the guy said, Hey, I signed up for your website a while ago and I've been reading all your letters and uh, just wanna let you know that I'm in Kalispell right now. That's right down the road. We're visiting our son who lives here. And I was wondering if maybe you had time to get together this afternoon. <laugh> and I thought, and I mean, I don't get a chance to do that. I get a lot of people come visit me, you know, after we've done business, uh, people that I've known for a while, but I thought he was really cool that he asked me to do that. I said, well, yeah, I've got an open afternoon, so sure I can, I can do that. And so yeah, we went and went and met at a coffee shop and we sat down and we had a really nice conversation and he was a few years out from retiring.
Speaker 2 00:02:10 So you could tell, you know, as with a lot of people, like he, he was a really good saver, had done really well, really, really nice people. And yeah, I like him a lot. They're they're fly fishermen too. So we kinda have that to talk about. And anyway, so, but he'd done a really good job saving and all that, but never really gotten into all the investments. So when you do that, it kind of, that's kinda like drinking through a fire hose a little bit. So it's, you know, and I talk about, you know, the 10 reasons people don't buy annuities, all that stuff way back in the first podcast. And, and a big thing is like, you don't know what you don't know, and if you haven't paid attention to it for a while, it can be pretty daunting at task. Anyhow. So he's getting close to retirement within the next year.
Speaker 2 00:02:49 And he engaged in the conversations. Again, again, he's been reading stuff and from time to time, he's emailed and asked questions and that's how a lot of people do it. To be honest with you, one thing that's been good about the newsletter. Now, the podcast is people that work with me, get to see me actively working on things and doing stuff on a consistent basis. I think it's nice for them. And then also lots and lots of people start researching these things well before they're ready to make a move. And for this guy, he's, you know, in his seventies now, and you know, he's got a 401k with his employer. And so he doesn't have to take RMDs if it's a 401k, which is great for him. So he didn't really have a need to do it. And now he's at the point where, okay, it's time to make some decisions.
Speaker 2 00:03:28 So I'm gonna share my screen and I'm gonna show you, he wrote me this long email this morning, and he had 15 questions about what I showed him. And he met with a couple other people and it was one of those things where his other options were extremely dramatic. And I thought, I think the other two guys that he spoke with and got proposals from did a disservice to him, would love to hear their reasoning. But I doubt I will anyhow. So I said, Hey, let's go, let's keep it simple. This is what I would recommend doing. And it's kind of cool. He is coming out here again in a couple of months. And so I might get a chance to see him again. I know he is, you know, he is got family and all that. So I may not be the priority, but so I will be available and that's, he can attest how easy it is to get me into a coffee shop.
Speaker 2 00:04:08 <laugh> it's not that hard. Give me a call if you're in town and I'm free, I'll do it. So here we go. I'm what I did is I simply copied and pasted his questions. Okay. It came in an email and I looked at it and I thought, wow, that's a lot, a lot of questions. And now, you know, if you're nice to me and you respect my time, I don't require, I'll do a fair bit of work for you. And I'll answer your questions of, of fairly patient person. And I'm not immediately worried. I don't know if we'll do business and he's not required to just cuz I spent some time doing this. And obviously this is what I get out of it. I, I get the opportunity for some content and then it's a POS, uh, it's potentially for other people, you know, a lot of people call me that don't really know, oh, I don't know what to think.
Speaker 2 00:04:51 I don't know what to do. Or you know, I think a few months ago I had one guy who signed up at about oh five or six different places online to get information. And he got hammered. I feel bad for people to get it that way. I certainly understand that. I mean, just today I've had four or five brokers, wholesalers call me and Hey, I was wondering if you could use any help either. I'm like, listen, no, I could use help by you leaving me alone. So I understand what it's like to have people hound you. And that's why I really try not to do that. So the newsletter, the podcast they're out there. If you guys want information and it's kind of a low pressure way for me to kind of keep in touch with everybody, let you know how things develop over time.
Speaker 2 00:05:27 So anyway, but what was, what I recommended to this guy was just a deferred index annuity. And it wasn't necessarily what I think he should do, but it was a way to improve on some of the things he'd already seen. So it was write down his alley there and I'll explain it as I go through it. So in the index annuity. So his first question was in, in reference to the plan that you sent me on page five, there for allocation selections. So for the illustration that I did, I elected four things that had 25% each. And he said, I am assuming the four comprised everything that, that the plan has invested. Correct. And so I don't know exactly what he's asking by that, but I, so I can essentially the four allocations that I show represent the entire amount of investment. Yes. So the entire amount of money that he puts into there was divided in four different areas.
Speaker 2 00:06:14 The contract itself, however, has another 12 options. So this is not how it has to be allocated from the beginning. Rather represents a conservative allocation that produces reasonable results. I'm not shooting for the top. I could show more. Okay. There's much more potential in the contract. We'll evaluate options on an annual basis. But again, I was just showing him, this is, it was an idea to say, Hey, this is kind of how the contract works. This one's fairly simple in relation to, or relative to the other ones you've seen. And so the idea was just to get 'em to show 'em how it works. Now. People will obviously once they wrap their head around it, they might say, well, I think I'd rather do a little bit of this or a little bit of that. Okay. So question two, one of the allocations was the fixed rate account.
Speaker 2 00:06:58 And so every index annuity has a fixed rate option where you can put a piece or all of your money in there. So he said, uh, with the guaranteed interest earned on 25% of the portfolio or on the entire portfolio, that's a good question. Some people would think like, oh, the whole account is guaranteed 2.9%, but that's the fix rate. And 25% of the investment account is allocated to that. So the 25% will earn 2.9% for the first year. Now you can, it doesn't have to be 25%. That's just what I did for the illustration. I was trying to make it pretty reasonable, reasonable results. I wasn't shooting for the moon. We certainly could do that. Lots of guys do, but again, we wanna demonstrate a likelihood of achieving a reasonable result and the more conservative you are, the more likely you have it to happen.
Speaker 2 00:07:42 Now, obviously we're gonna go for the most that we can get. And I think I'll go into that later. So, and then every year you get a chance to change that. So like right in the past year or two, there have been a lot of people really concerned about the market and they said, ah, just put it all in the fixed rate for the year. And I'll worry about it next year, which with the S and P 500 being down in the past year, that was a good idea for someone to get, you know, two, 3% in some cases, depending on the contract. So then we go into an, uh, question that every a lot of people have. So he says, I don't understand the S and P low volatility daily risk control, and that is an index option in the contract. So it's a great question to ask, and this is a quick explanation for it.
Speaker 2 00:08:22 We can go into a little bit more detail, but the S and P low volatility daily risk control and is index that uses the S and P 500, but is managed for lower volatility than just the S and P 500 itself. So what they do is they use cash to balance with the S and P 500, when volatility is high in the stock market, that index is gonna put a majority into cash to reduce the volatility and limit loss is when the volatility is low, more money is moved into the S and P 500 to increase returns. It's similar to what you do if you're actively managing an index fund to mitigate losses. Okay. Essentially, if you know, if the market's real high and you wanna switch to cash, maybe you switch a P portion of your money to cash reduces the potential losses. If there's a correction, it's the same thing that managers do all the time.
Speaker 2 00:09:09 This is simply an index run by S and P. So then he asked number four is I also don't understand the S and B multi-asset risk control. So you can tell these are three of the four it's the fix rate in these ones. So the S and B multi-asset is similar to the above, except the volatility is controlled by a daily adjusted blend of S and P 500 gold and us treasuries. Again, it's kind of like an actively managed portfolio, but with a different blend of assets. And then he goes on to ask about the same with the fidelity multifactor yield. Please explain, I guess I didn't an anyway, I didn't answer the 0% margin, so he'll probably come back with that. So this is similar as well, but fidelity, instead of using the S and P 500, they use six different global equity and commodity index on the indexes on the investment side.
Speaker 2 00:09:56 So they've got six different sectors of investments that they use, and they control they balance or control the volatility with the cash position as well. So it goes up and down, depending on volatility in the market, the goal is to produce consistent returns insurance companies like these indexes, because they have more price control. So you see less variability in your renewal rates from year to year, and they're set to do well in the five to 6% range or something like that with rates where they are now. And that's good for a conservative, safe investment. So obviously there's enhanced options. And then there's two year options. There's all sorts of stuff where you can drive that a lot higher, lots of different ways to do that, but it goes into a little more technical details of the contract. So next question on page six, with no withdrawals and no growth, why does the minimum guaranteed surrender value reduced by 45,000 on year one through 10?
Speaker 2 00:10:48 So he was slightly mistaken on this. So the, in the first year, the $45,000 in year one represents the maximum surrender charges and market value adjustment. The market value adjustment is the amount, the surrender value is adjusted by changes in interest rates up to the data surrender. So if you surrender it and the interest rates have gone up, there's gonna be an additional negative adjustment to the account, to your surrender value. If that's the case, if they go down, there's a positive adjustment to your surrender value. So the minimum guaranteed surrender value is a state mandated portion of the contract. So they mandate that you tell different states require it, some do some don't, but it's a, the state is mandating that you put in the absolute worst case scenario for a full surrender. Now, what he missed, however, is that this declines over time, and by year 10, and I scroll down a little bit, it declines to $0 and that's guaranteed.
Speaker 2 00:11:45 So it's gonna reduce the surrender charges, go down overtime. The market value adjustment is taken off at surrender. So you have a guaranteed minimum of no loss in the contract. Now, if people look at that as a raw deal, and again, like you've got commissions and risk with the bond portfolio reductions and cost of placement, and all the expenses insurance company has. If the contract works for you, the surrender charge doesn't matter, and it allows you to own something without fees. So plus surrender charges and market value adjustments only apply to anything over 10% free withdrawals in these contracts. So you can take money out if you want, and then you're not gonna be penalized for it. And also death or terminal illness, nursing, home waivers of surrendered charges, things like that, where in extenuating circumstances, you know, if you die the first year, your, your family inherits the entire account value.
Speaker 2 00:12:32 There's no charges for that. Okay. So don't worry about it, but that's a great question, cuz a lot of people are gonna looking at like, what does that mean? Right. And I had, I had to try to be as technical as possible in case there's somebody who's gonna be picky watching this and tell me I didn't do it. Right. Okay. So seven at our age, we would be required to take the RMD the first year. This would obviously reduce that value further. Correct? So he is talking about the guaranteed minimum surrender value. And what I said is the required minimum distribution would only decrease the account value would not affect the guaranteed minimum surrender value. The percentage of the remainder would be the same, but you're not going to, it's not gonna be a negative effect on the contract at all. So my analogy just like taking out of Mon money outta your bank account, if you take a withdrawal outta the bank, there's gonna be less money in there.
Speaker 2 00:13:18 Right? So question eight with the chart showing zero withdrawal. Do you have something that could run that with show the values yearly with the RMDs being taken out? So yes, we can illustrate anything you want, including custom amounts. Each year you can have 5%, one year, 10%, the next 3% the next, and we can manually calculate what those withdrawals would be. There's also an option in all of the illustration software where you can just check a box and say RMDs for distributions. And it'll calculate cuz it's got the tables in the, in the software and it'll calculate the account value. Plus what your required distribution distribution would be for that year. So number nine with RMDs taking out yearly, I believe that you told me another 10% could be taken out yearly if needed without penalty, correct? Partially, correct. This is something to clear up for everyone.
Speaker 2 00:14:06 You can take a total of 10% and free withdrawals each year. If your RMD is 4%, then you can take an additional 6% without penalty. So it's a total of 10%. The RMD will, uh, take that down a little bit, which this is not according to their income plan, everything doing this is not a deal breaker for them. So in the rare case, when the RMD is greater than 10% of the account value, you are able to take the full RMD without penalty, highly unlikely. That would happen in this contract. Even if it did it, wouldn't be until they're in their nineties, which they'd be surrender free by then. Anyway. So it's, it's a mute point. To be honest with you in certain multi-year guarantees any shorter termin news, some, some of those only have interest available withdrawals that might not be enough cover RMDs.
Speaker 2 00:14:48 That's considered RMD friendly, almost every contract I can think of. Even if your RMD is over the penalty free amount, they will not penalize you for that. Number 10 relates to something. A lot of people see in the illustration and it's irrelevant to any way I sell the annuities, but it's something that you need to understand. A lot of people see it and like, oh wait, I thought, I don't know. So on page two under annuity payout options, am I correct that the monthly payment could be 34 0 4 with 380,000 still remaining at maturity. So three 80 was what he's gonna put into it. And you gotta understand that those are two different things. The annuity payout option is just a option. It's what happens if you decide to commute the cash value, uh, for guaranteed lifetime income payments. If you take that option, there is no cash remainder, just guaranteed payments for life.
Speaker 2 00:15:35 So it's not both and it's one or the other. And I said, this is only an option and not how I recommend using the contract now where that might come in to be beneficial is if they have this contract for 10, 15 years and it's ad, there may be a PO a point where it's advantageous, but all annuities have that. That's what makes them annuities is the ability to commute them for a guaranteed lifetime income stream. But it's not that you get the guaranteed income and your principal remains intact. I mean, ho if I had 3,400 a year with three 80 remaining at maturity, woo, like that's 115 years old. Geez. Yeah. I wouldn't have time to report a quarter podcast at be new paperwork. So I, I kind of hinted to the next question. So it looks like this annuity could be in place until the age of one 15. Is that correct? If so, and if we live that long, could we renew every 10 years until that age? And I tell a lot of people this, uh, the maturity date is mostly irrelevant at this point. What it means when the maturity is age one 15, it means that you have to do something with it. You either have to take the money out, or you've got to turn it into guaranteed lifetime income payments by the age of one 15, if you haven't done it already.
Speaker 2 00:16:42 What I tell people is if you're still alive and kicking at a hundred, nine years old, and this contract's humming along, we'll start talking about it. But maturity doesn't mean anything except for that's. When you gotta get exit the contract, you have to, okay. The 10 years only refers to the surrender schedule, nothing more. It only refers to the point in time. When you have zero surrender charges, you do not have to change anything. He does not have to renew the contract every 10 years. Now, what a lot of guys are gonna say is like, well, yeah, we'll just renew it every 10 years. They're gonna try to sell him a new 10 year contract every 10 years. And that would be slightly greedy. It'd be really greedy. So after the 10th year simply have a hundred percent liquidity and are not forced to do anything else with the contract.
Speaker 2 00:17:25 You can continue using it, working it, making all education changes every year, picking your withdrawal. You can take up to a hundred percent of the money. Okay. Pretty simple. So number 12, you get more into his specific situation or you recommending that my wife sign up for the 10 year planner. Do you think it would be better to look at one's offered from three to five years or to put some of it in 10 years and the remainder in something shorter? Of course we have mind to consider two either now or early next year. And that was the point is they were doing it in stages. One of the things I didn't like about the other proposal he received is both of those companies told him that he should move all of his money now. And you know, my recommendation was about 30% of their portfolio, maybe a little bit less.
Speaker 2 00:18:07 And I said, I think you should just, as you get to know this, you should step in slowly making incremental changes over time. Remember he's still working. He has a 401k. So if he moves it to an IRA, he's gonna have to take an RMD. That would be a bad move for him. He also has some really nice bonds that are like four or five years to maturity, where he is making 5% on 'em. They told him to sell those. No, don't sell those keep 'em. So, and the point was, I showed you, I showed him a 10 year contract because it holds the most growth potential. And I was comparing, I was up in a competitive situation. So I had to use the best numbers I could find. And again, I didn't go crazy and didn't show 'em the highest possible yield in the contract.
Speaker 2 00:18:45 I showed him something reasonable, but I had to have a contract that would stack up closely to the other ones that he had seen. So there certainly are other short term options available, some being as short as three years. So that's one thing we do, uh, where I start, when I give you an option, I'm most likely just explaining the strategy or the idea okay. And telling you how everything is going to work. In addition to that, we look at that contract and typically I give everybody options for different surrender terms, different products. And I, we usually look at probably five or six different ones, you know, within a range. I mean, I know which ones are worth looking at which ones aren't okay. But the idea is my first educational information, which is what I would consider. This is not a proposal and you're not locked into it.
Speaker 2 00:19:30 It's not the only thing I do. Okay. So then he goes 13. After we talked the other day, I got a voicemail, never talked to the guy that was offering an annuity for five years. First year is either 4.5 or 4.8 and years two through five. It reduced to 3.85 for an average of 4.05. I don't know if this was a great company or an eight plus am best company. So he's talking about a fixed rate annuity. And obviously he's had a couple other, well, he's talked to a couple other people and there's, there might be some other people with his information. He's gonna get a lot of phone calls cuz he's in the market for a nice annuity. But this is where, and I don't know that one off the top of my head, I could go look it up and find it, but I don't know if it's great or not, but it would, it would be considered in one of the shorter term options.
Speaker 2 00:20:09 Now fixed rates are looking pretty decent right now. And a lot of people will say, you know what? Yeah, I'll just take the fix rate. I'll take the guarantee. That's an option. But it certainly would be something we'd look at when we look at additional options to make sure that he's comfortable getting, uh, whatever he decides to use. Okay. One potential issue with a shorter term, fixed rate annuities and even some short term index annuities. They don't all have 10% the free withdrawal option. So your liquidity may be limited. Some do. And some don't there's more and more habit these days, but you can't just go at the highest rate without looking at the details, cuz you might be stuck with something they'd probably all be RMD friendly, but still it might not give you the liquidity you want for income scenarios. So, and these guys in their specific situation, their income needs what they need to start drawing outta their portfolio.
Speaker 2 00:20:53 And income is gonna it's more than their RMD. So they're not gonna have to really worry about RMDs at all, but they have to have a product with enough liquidity to give 'em the income they need. So then he goes back to RMDs with the RMD. Are they withdrawn first of the year or whenever we choose and you can take it anytime in the year. So the required minimum distributions are required by April 1st and the year following your 72nd birthday. So you get until April 1st of the next year, every year after that, you gotta ha take it out by December 31st. So you get a little extra time your first year, but then need, need to do it by year end after that. So if you wait until April 1st after you turn 72, you gotta take one before April 1st. Then you also have to take another one for that year by December 31st.
Speaker 2 00:21:35 But you can take the amount in systematic payment or in a lump sum at any time, as long as it's before the deadline, you're good to go. So these guys have a feeling if they do it, they'll probably be taking systematic distributions throughout the year and won't ever have to specifically worry about the require minimum distribution. Okay. And this is kind of a, a good question. A lot of people ask, so this is 15th and final question. I'll bet he has more, I should call this part one because every time I think these are good for people to see, it's gonna answer questions for some people that haven't just haven't thought it through. You know, we get there, there's no stupid questions. There's just SU there's little things that, you know, you've been taught. You've learned that things that, you know, that maybe seem to contrast with this or contradict it.
Speaker 2 00:22:16 And it's important to just know what your, uh, not be afraid to ask the question because, uh, there's probably, there's usually always a very simple answer. So he said, if we signed up would the entire amount that we want to transfer to the insurance company, be done on forms that you offer or do we have to do it ourselves? You know that she has fidelity in TD Ameritrade. So a lot of people look at this like, well, I don't even know how to get an annuity. So I wouldn't know how to start. The transfer forms are all part of the application process. And part of the paperwork you signed. So a separate from the annuity application is a transfer form for anybody that's using a third party custodian, right? You sign that as part part of the application, the insurance company sends it to fidelity or TD and the two companies will handle it with themselves.
Speaker 2 00:22:57 So the form goes out from the insurance company to the resigning custodian. Custodian's got a certain period of time. They're usually all pretty good about it usually takes about 10 days to do the whole thing. So that's a question everybody has in their situation. And I'll kind of add something here. He's got a 401k and he can maintain tax classification on that. But his annuity is gonna be a traditional IRA. So IRA to IRA, 401k to IRA, there's no taxes paying. There's no penalties on it. So that's just another addition to that. So anyway, those are part one of my, uh, annuity questions. And I think I'll probably do some more when I get more. I just thought it was a perfect opportunity. I was gonna spend some time answering the questions. I'm happy to do it, cuz he's a great guy and we will, uh, maybe do it again.
Speaker 2 00:23:42 Next time I get a really good question. So that about does it for episode 43, if you have annuity questions or anything that you'd like clarification on this, you can go ahead and reach out to me. Uh, the questions themselves will be on the newsletter page. When this comes out, I'll send it by email in a couple of weeks when the time is up for this one. And if you wanna chat with me, you can call me at eight hundred four three eight five one two. Wanna explain to you how this guy got me in a coffee shop quickly by calling me on a day when I was free, pretty easy to do so Western Montana's beautiful this time of year. I'd love to see some of you guys come out and if you wanna meet up, uh, let me know. So schedule a call by clicking on the top right corner of any page and annuity straight talk.com. If you need something from me or respond to the email that, uh, this goes out to, if you're on my list, this is gonna be on YouTube. If you wanna see the video it's on pod, any any of your favorite podcast platforms, go ahead and subscribe. If you wanna be notified as soon as they come out. Anyway, my name is Brian Anderson. I appreciate you stopping by. Thank you for hearing me out and have a great day. Okay, bye.
Speaker 1 00:24:55 You have been listening to annuity straight talk. The proceeding information is for information and educational purposes only. It does not represent tax legal or investment advice. The views expressed by guests on this program and do not necessarily reflect the views. No information presented should be acted without qualifi. Its important. All Insurances. I.
