Episode Transcript
Speaker 0 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 1 00:00:47 Hello and welcome everyone to the annuity straight talk podcast. My name is Brian Anderson, creator of annuity straight talk. And co-host all the way west in Western Washington. Introduce yourself, please, sir. Hello. I am a show grungy with top planning and Kirkland Washington. I usually am the one who you can't see, maybe sometimes with the lighting and whatnot, but today it looks like I am struggling to see you, Brian. You're in beautiful Montana. Yes. Okay. So this is, again, me bragging about my surroundings. All right. But that, wasn't the point. The point is that I am not a audio video camera expert, my sister, however, who was a photography major in college? Not that that's a worthwhile pursuit, but she's really good at it. She's coming next week. And she's going to talk to me about exposure. So next time, you're not gonna be able to see the background, but you will be able to see my face.
Speaker 1 00:01:36 There was a show back on, I think it was, was comedy central or something. You ever see that where they were watching a movie and in the front, you could see the people watching the show on the screen. You see there anyways, you sort of remind me of that, where I see the headphones and I see this beautiful shot of a lake, but I can't tell whether you're looking at the lake or you're looking at me. It's gorgeous. Well, I'm looking at my screen. So, and then we got a labradoodle in the background, the neighbor's dogs back there, which is okay. And Rambo's there. No, Rambo's in his kennel. He can't keep quiet. So yeah, but we're dog friendly and an annuity straight talking top planning. Are we not? We are very dog-friendly human friendly story. Friendly and market protection of assets friendly. Yes, absolutely.
Speaker 1 00:02:16 And oh, and kicking button retirement friendly. So we're going to talk about that today. Are we not? So give us a quick recap. The last two weeks, we kind of led up into this where we, the initial one, the show. Why don't you go give everybody a recap if you would. Yeah. We've been talking a little bit about features like something called a guaranteed lifetime withdrawal benefit. This is a writer that you'll find on a fixed index annuity. The advantage of it is that it gives people that ability to predict if I were to generate this much income from this asset, how much would it be? The flip side is that it can be a little bit restrictive. It can be like, if you select this and there's not a lot of optionality, you might find yourself going down a where there's not a lot of ability to pivot.
Speaker 1 00:03:02 One of the reasons for example, might be a rider charge that could be deducting money from your asset over time. Another one would be based on its design, that income that's selected at a certain year pays out so much. And instead you decide because of life, maybe you retire earlier or a little bit later, and maybe this idea wasn't the optimal. So guaranteed lifetime withdrawal benefits are good, but they require you to follow the plan. And you've got to know the rider. Yeah. So we looked at all that stuff in that last or two weeks ago, essentially. And then we came back with an alternative for people who might want a little bit more optionality. Right? Correct. And we talked about how, if you want it to actually accumulate money and you weren't focusing on using the annuity for income, that's a different design altogether.
Speaker 1 00:03:50 That is true. And so when I first started, I've been talking about this for years. I mean, the alternatives to guarantee lifetime income have kind of been my ballywick since I started this website. And well before, it's one of the reasons I did start the website, but I had to give it a name at some point, when I figured, hang on a second, you don't need the rider. You can just grow your money and take whatever you want. And usually there's a bunch of money left over at the end. And so on the website, obviously nobody's looking for, nobody sits down and thinks, Hmm, I'm going to see if there's something called a flex strategy out there. Right. So, but we had to give it a name. And I was talking to my founding partner about it. He said, what would you call it? And I said, oh, I don't know.
Speaker 1 00:04:28 It's what are you selling? I said, well, I'm talking about how flexible it is. And he said, uh, flexible call it the flexible annuity strategy. I said, how about just the ASD flex strategy? Okay. So that's kind of been a tagline. So we're, again, just what we named it to begin with. And I like it again, nobody's looking for it, but, and that's why I've had to explain it so many times. And while I don't mind coming back to it, and obviously we should have this topic on a podcast, but this is other, you know, additional, uh, content for the website. So that people who haven't been around for five years can still find it. Okay. I think it's more, and also there's a picture of a book on the website. There's no book to order. It's just the concept of this flex strategies, right?
Speaker 1 00:05:11 And the book really is the plan we put together and create from that. So it's not a lot of people say, I want the flux strategy book. Now just watch the video. It's easier. If you look at the word flex as defined by Miriam Webster, it says to bend, especially repeatedly. And I was just thinking about how we were talking earlier about certain strategies that put you maybe into a corridor, maybe like a straight jacket, flexible strategy, of course instead, and you get to bend, Hey, maybe two or years into it. I want to do it this way. Instead. There's so much more flexibility as opposed to there are so many things you can do with it. And I'm talking about portfolio rebalancing, income growth over time, just simply protecting I've had clients call it sleepy money. I like to know it's there. I'm happy with it.
Speaker 1 00:05:54 And it's, it's just, there's tons of things. You can do it. And there's no other plan that really does that. So I wrote a newsletter in April. It was April, 2019 a show. Yeah. It looks like it was, uh, April of 2019. Yep. And so it was the why I call it the flex strategy. A lot of people, why do you call it? Why do you call that? So I made a list of bullet points in that article. And we're going to talk about some of those right now. Can I ask you, by the way, Brian have been marketing the flex strategy. Why is it important that you have been marketing the flex strategy? Whereas someone else that's interested in annuities, they get a very different message, right? They might see something that's not right. Flexible. Right? True. Because there's a traditional way to do things.
Speaker 1 00:06:35 And again, a lot of people ask me if I'm a fiduciary and no, I can not technically claim that I'm a fiduciary, but I try to act like one and in doing so, you've got to give people other options. And so I'm not presenting the flex strategy saying everybody needs to do this, but if you're going to buy an annuity, you need to understand that this is available. And if nobody's showing you all these different options, then they're not really doing their job. And you're not really getting the full service that you deserve. So that's the case. We're going to talk about later where we're comparing this strategy to another annuity strategy. Okay. And so, but, but again, like in that newsletter, let's talk about just the basic benefits of doing it this way. And number one is there's no fees on the annuity, so you're not draining money out of your account.
Speaker 1 00:07:22 That means you have more leftover, you've got more growth than it also creates a lower average portfolio cost. If you've got 30 to 50% of your money into an annuity is let's just say 50% of the math is easy. Then no fees on 50%, let's say you're paying 1% and the other, but then over the whole portfolio, you're only half a percent in fees total. So it's a very efficient strategy as far as keeping as much money as much your money in your pocket, as you can. Is there a story you have of somebody who may have come to you before and said, I have an annuity, or I'm being proposed an annuity where there's a cost in there and you looked at it and said, you know what? There's a better alternative if without the cost. Sure. And that's where I looked at the case.
Speaker 1 00:08:04 We're going to talk about, I've actually made this person, the subject of several newsletters, just because it was such a nice case study. And we talked about the lost opportunity costs of fees over time. And it's been amazing. And I, you know, I'll share some of the details of the story, not anything personal where he'd be identified because anonymity is important to us. And we like to keep people's information private to between us and them. So, but yeah, we looked at it and we looked at a 1% fee over 20 years of owning an income rider and say, that's on a $500,000 deals, 5,000 bucks a year. Plus the lost opportunity of the growth that would have received. And you know, you go over 20 years, that's a hundred grand in pure cost, but the compounding of affected even four or 5% interest brings that cost up to probably 175,000, you know, a hundred fifty, two hundred seventy 5,000 was a big difference.
Speaker 1 00:08:54 That's a lot of money. Yes. And just talk a little bit about the cost and the fees I was sharing with you before we started recording. One of my clients had purchased an annuity before where it had this guaranteed lifetime withdrawal benefit. Now, mind you, my client has social security income. He has a pension, he has a business. He's what we consider overfunded relative to how much income his needs are and his assets positions are. And yet he had one of these annuities with the guaranteed lifetime withdrawal benefit already in there. And somebody else had sold it to him. That particular annuity has a rider charge of 0.9, 5% per annum. And the crediting that comes into that annuity doesn't happen every year or every two years in this particular case. It's every five years. So what's happened is, is that my client has gone without a credit for a while.
Speaker 1 00:09:54 And yet those charges were being deducted every year. So he's got to watch his account go down, down, down for five years and then cross his fingers that it's going to go positive after the credit comes in. Ooh, that's a tough one to manage. Correct. And in one case and the index that we were looking at, we're on the cusp of getting a credit, unless some hockey stick materializes over the next month, it's likely that that capital would have been reduced because there's just no correspondence credit. That'll be a punch in the gut. Huh? Yeah. So, okay. So let's keep moving on this one. Number two benefits, short term uncertainty. So in a time when, and I can't remember a time in my career when there wasn't uncertainty, there've been brief periods of euphoria. And I think typically underlying, especially for retirees, there's always uncertainty.
Speaker 1 00:10:40 So if you have a flexible plan where you can make changes along the way, you're not looking at age 65, looking at being bound to something for the next 20, 25 years. Okay. And I think it's important to look at it and say, you know what? I don't have to live with this forever because I've got all these different ways that I can make changes along the way. And then even the ability to kind of, you know, exit the strategy entirely and do something else because what's happening is again, this money is safe money. And so you know that the market risk is off the table, but what if the best laid plans change? And so five years from now, or 10 years from now, you may have this intention of going one way. And instead you go a different way. So uncertainty is always happening and the flexible strategy can maneuver.
Speaker 1 00:11:31 Right? Exactly. That's perfect. And that's what everybody's looking for. So the third one is a flexible starting date. So I heard a stat, a show. I'm not sure if you've heard of it, but it was from a marketing, uh, the marketing executive for one of the big third-party distributors. And they came up with a stat that said, everybody who buys a deferred annuity, I think it was something like the average person. So like most people, if they said, I'm going to defer for six years, most people ended up taking income well, before they had initially planned. And so the problem, and there's nothing wrong with that because it's your money take it when you want. But as we talked about with the GL WV and the podcast two weeks ago, realized that as the roll up goes, you get more income. So if you're planning on year six, but you take it in your, for two things, your payout rate might be lower and you're not going to get as much up.
Speaker 1 00:12:25 So you're going to actually settle for less guaranteed lifetime income. And so, so with it, with a flexible starting date, it doesn't matter because all you're doing is managing your own money and you're not actually taking a lower payment for doing it because it just bump up. And we're going to see that in the example where things change a little bit and you have time to maneuver and it doesn't make a dramatic difference in the amount of income you receive. I would say that in one case I worked in the client had said, this is what our consumption pattern is over the year. This is how much we need an income. This is how much our assets are. Things aren't likely to change. And we were able to get a guaranteed payout with an annuity, with a guaranteed lifetime withdrawal benefit. And so with precision, the plan had, there was very little assumptions about how much income would be at a certain year, but we did say, okay, what if it was a year earlier or a year afterwards?
Speaker 1 00:13:20 So that's where I could see a GMWB really coming in handy when someone absolutely needs that amount of income. And we can be a little bit or off upper minus. But for the most part, I would think to your point, a lot of people may not be as critical to have that income turn on at that time. And the flex strategy says you're in control without giving up. It doesn't matter. That's the biggest thing that people really like is you are in control of this. And so that's, I think that's very important because people like to know that they can get their money if they need it. So, and that kind of goes into the next, the next one kind of fits it's a changing income needs. So I like to say I spend more some money in the summer than I do in the winter from one year to the next I don't, you know, I don't buy a new car every year.
Speaker 1 00:14:07 I don't take a vacation every year. Sometimes I work really hard and I stay real frugal. Don't spend much. And then other years I let loose and I do nice things for my wife or for myself. So I think everybody's a little bit like that. Don't you choke? I do. And so changing income needs were again, and you talked about it does this income you need or income you want. And I know I've had a there's one client in California where we set as annuity up and he figured he needed $20,000 a year in extra money. And he waited two years before he retired. So we went through two resets on his contract and he got, got there and he said, all right, you want to pull some money out of it. Let's set up a withdrawal plan. And he said, nah, I actually, I actually changed my lifestyle.
Speaker 1 00:14:50 I ride my bike to the beach every day. I've lost 15 pounds. I'm having fun doing that. And I just, I'm not spending the kind of money I thought I would. And so he actually waited almost almost five years before he took a withdrawal. And the point being that if you want a thousand a month, this year, you can take it. If you want to bump it up to 2000 a month the next year, and it's going to depend on how much money you have in the annuity, but it could also be, I want a thousand a month and then, Hey, June's coming. And there's a great deal on a cruise. I need another $5,000. You can pull that out anytime you want. I see this by the way. I agree with you. And I see this where after the Corona virus, that crisis began a lot of people weren't doing a lot of travel.
Speaker 1 00:15:25 So discretionary spending really dropped. And so what might've been in the plan in 2019, all of a sudden wasn't in the plan in 2020 and beyond. And people feel like, no, I don't really need to get out in a plane and see things, right. So I could see that being one extreme example of where income changes. The other thing I would say is that if you have an annuity inside of an IRA and all of a sudden those plans change, if that annuity has a guaranteed lifetime withdrawal benefit, and you've already got a turned on, it's really hard to try to turn that down. And so you might decide otherwise like, Hey, I don't need as much income. So maybe I won't withdraw as much out of my IRA. Maybe I'll just shift down to the RMDs. But instead your guaranteed lifetime withdrawal benefit is cranking out a certain amount.
Speaker 1 00:16:16 And I know from experience, we've called a carrier once with a client of mine, we called the carrier and said, Hey, can we lower that? And they said, the minute you do that, you're going to change. We're going to have to recalculate. It's going to make a kind of complicated thing. Right. So we just left it alone. So that's where I could see not having a writer with an annuity inside of an IRA. If you're in compliance change, it could be beneficial maybe for your tax situation as well. Okay. Absolutely. No, that's very true. Yeah, because people you've got to manage taxes in retirement also. So some people say, ah, I don't wanna take the money out over pay taxes. Yep. Makes sense. So the last benefit, and this is what really, what people really like, and it's going to depend. Every situation is different.
Speaker 1 00:16:57 We've seen as much as a 25% reduction in the amount of annuity required to feasibly make a plan work. So a lower cost for the annuity and people might realize they could put less in. And some of them still put the same amount in knowing that it's just protected money. It's just an accountant, an insurance company. There's nothing special about it, except the way it grows. Okay. And if you can spend less on the annuity and still have a very high assurance that you're going to make your income plan work, that's going to lead to greater wealth accumulation. That's the last two. Okay. So you're growing and spending versus just spending the money. And that's what leads to accumulated wealth over time, where I can look at scenarios where sometimes the annuity doesn't really improve the portfolio. It just gives you a surety, but this doing it this way, we've seen improvements in portfolio value over time.
Speaker 1 00:17:46 It's just nicer all around. I mean, we come back to what is the objective here? And a lot of times people look at annuities for safe accumulation. And if they don't want to spend down the monies, you know, and if it's not needed for income, have the lowest cost and the greatest possible you get the best of everything. Yeah. And we talked about that last week in income versus accumulation where the case study I used, there was a guy who said, he just thought annuities were only for income. And he said, I don't need the money that this is going to, we already have more than enough anyway. And I thought, oh, okay, hold on. Let me show you how to get more out of it. Then you can choose. If you want to take $30,000 a year, you can, but you might say, I'll take 15.
Speaker 1 00:18:26 Or maybe, maybe this year I'm buying a new boat. I need 50 or whatever, whatever it would be. Right. I've got it. There's some also good health feelings that come from knowing that you're in control and that the money is not going to be one day. You wake up and find the account value is much lower because something happened in the world. So being in control of a money of a pool of money, that's protected from market risk so much. Absolutely. Well, there, there are a verifiable health benefits of owning annuities in general. So people with income annuities have been proven to live longer. I think just the determination to live long enough to stick it to the insurance company is enough for people, right? And, but this is the same thing. And I know a lot of people, especially last year were really happy where they didn't see that big dip.
Speaker 1 00:19:12 Now the market came back, but you can't tell me that anybody who wrote had to ride that out, wasn't feeling pretty sick to their stomach. When Anna March, when the, and was almost cut in half, I would be remiss if I didn't put in a plug here and say that if you want to live a longer and happier life, and you want to try it with fixed deferred annuities, as opposed to just income annuities, a good place to start is by going to annuity straight talk.com, go to the schedule, a call button, the green button, and get in our calendars. The number you can also call is 1-800-438-FIVE 1 2 1. That's 1-800-438-FIVE 1 2 1. And this is once again, the annuity straight talk podcast. All right. Thank you for doing that a show, and I guess we'll move along. So again, we've kind of talked about the benefits of doing it, and I'm going to give you a real hardcore example here, but so after explaining it to people, a bunch of times I've came up with new ideas.
Speaker 1 00:20:08 And the result of that is what I've found to be the most efficient strategy you're going to find, because again, we get to see just about everything everybody else does, especially me having national exposure for the last 13 years. I know what they're doing at dinner seminars. I know what they're doing with this company's product. I know what they're doing over here as well. And again, it's just trying to find a competitive advantage. And I found some things that people really like, and I thought, Hey, let's roll with it. So I'll show, this is the idea that pops in my head and tell me if this resonates with you. It doesn't always with everyone. Okay? So people buy annuities to secure lifetime income because the market is unpredictable. Okay? Income pay income and all years of retirement. But if you're buying an income annuity, just because of market volatility, then why not just have an annuity set aside for the years when the market loses value?
Speaker 1 00:20:57 To me, it makes sense. So if the average bear market takes three years to recover to the market's previous level, you only need to have enough money set aside to weather that storm. And then you can rebalance the portfolio and make it through, not have to worry about it. Okay? So in doing that, if you do it that way, it stands to reason that it's going to decrease the cost of the annuity, because you don't need to have as much in there. And we'll also provide for more asset accumulation and retirement. And we talked about that a lot last week, you know, sequence of returns, reverse dollar cost averaging. Do you have anything on that? A joke? No. It was just going to remind that that's really helpful for sequence of returns risk, because sometimes it's been characterized as the double whammy, right? Because you're taking withdrawals out of an account.
Speaker 1 00:21:41 That's getting pounded by poor market returns. So if you can at least stop the withdrawals coming out of that account and shifted over to an annuity where it's designed for some withdrawals and it's not going to have that market risk. Now you have two silos of money that hopefully, you know, when the market comes back, if that's been the historical pattern, you start to see some improvement in the values of that one. That's really tied to the market. And then the other one, that's sort of your buffer. That's moving down because you were taking the withdrawals and then there could be an opportunity for that to get a break when the market, if it resumed. Absolutely. And I'm not the only person that does this, there's different ways of doing things. But again, I like I came up with it on my own, but I don't claim it as I don't claim to be the only person doing it.
Speaker 1 00:22:29 I ran into a prospective client several years ago and he was working with a major management firm in Denver. It was in Colorado and he said, oh, they're kind of doing something similar. But what they had is they had him fully invested in the market except for 15% of his money, they left in cash. And the reason they left it in cash is so that he could draw from that cash account. If the market took a dive and he had to recover. So I thought that was pretty similar, except the only difference is they're using a money market account and we're using an annuity because of the enhanced growth potential, because you want both sides of it to grow. I think in this day and age, I think if you were to keep money in a low interest rate environment and something, that's, it's not going to credit very much because we are in that low rate environment.
Speaker 1 00:23:18 So why not maybe keep your emergency reserves in that reserve portfolio, but then have some other money. Cause you don't know when these events are going to hit. So if you need more than just the reserves, why not at least give it the potential to have some growth to it. And we have contracts that are now very short, structured. I mean, you can do a two year term annuity. Three-year five-year I mean, you can do a laddering. So there's different ways of absolutely. And I used to stick to like fives and sevens and those are still fairly good. I don't have a problem with the ten-year contracts cause 10 years, a lot shorter than lifetime. Right? So whatever works and you just need to determine you have the liquidity to make the plan happen. In any scenario, you got to think of any way you could fail.
Speaker 1 00:24:07 And it's so long as you've got a plan for success, then you can, you're fine doing that. So whatever products you choose. So if we're looking at like five keys to retirement, that can be a common theme. Cause we're always talking about it, right? Uh, lifetime income, limiting market volatility, having control of your money, planning for inflation and leaving a legacy. Okay. When we look at that, how this works, we're going to go to a case study. Okay. So I'm going to share the screen and you're going to look at my spreadsheet. You people who are listening to the podcast, you may also want to know we stream this to YouTube so you can see what I look like in the sunlight. You'll struggle on this episode with Brian, you can see my shadow at you literally see his spreadsheet. You'll see he is, he casts a fine shadow, but you'll also see his spreadsheet.
Speaker 1 00:24:59 Oh, don't I though. Oh man. I'm too good. Looking to be. That would just be a distraction. I did that on purpose. So I'm just kidding. Okay. So here we go. You ready for this to show? I'm ready now ask me any questions you want. Make sure I don't miss anything. Okay. I'm going to erase everything and then build it all out. Okay. So this gentleman in California, this, we did this plan two years ago. And so I'm gonna explain that he had $1.2 million in retirement accounts and investments and all that stuff. Okay. And I'm going to look at the worst 20 year period in history. Not that these numbers come from the S and P 500 in, during the great depression. So from 1927 to 1946 is the 20 year period with the worst average return in market history. Okay. And the reason I'm doing that is because if you look at this column D right here, he started two years ago.
Speaker 1 00:25:49 And in that period, he jumped up three, it would have jumped up three and a half and then 43. Now it didn't do that in 2019 and 2020. But if you average those two out that's about how much the market was up. And then these numbers represent what everybody's afraid of like big draw downs in the stock market. So again, it's not that that's going to happen or we're telling you it's going to happen, but all we're doing is building a plan that can handle that. Okay. So I think this is a pretty good representative period. Now, if I use the last 20 years, that's also a pretty reasonable place to start from right now, because in the last 20 years, the first three of those, which is 2001, two and three, the market, the S and P 500 went down three straight years in a row.
Speaker 1 00:26:30 So you build a plan that weathers that storm, then you should be pretty good. The only difference between that period and this one is, do we expect from 2004 to 2021, the market's been on it has been shooting up like a rocket except for 2008. So then it goes to expectations about what the market's going to do if we do have, or I think when we have volatility, I think it's going to be there. So, but let's yeah. Instead of speculating and we'll move along. All right. So worst 20 year period in market history, dividends are included. This can be, well, we can forget about that for now. So this is what they needed. They needed 30,000 a year income. Okay. It's a pretty easy example because that's less than 3% of his total assets. So it's a very manageable case. Now he came in and saying, I think it was 200,000 in a Roth and a million in a traditional IRA.
Speaker 1 00:27:22 And he said, we want to put half of our IRA into an annuity. All right. So if he didn't buy the annuity, this is what his portfolio would do over time. So we got 30,000 a year, 3% income increase for inflation. So it's going to go up 3% every year. And income starts in year four. So after the third year, that was the plan. All right. So it looked at these numbers and if he left his money in the market, and this would be represented by just a real low cost S and P 500 index fund. So it's just basic market stuff, but these are real numbers, real performance numbers. So you'd go through it. And you can see over here in column P that income is increasing 3% every year for inflation. All right. So he gets through 20 years. Uh, this gentleman when he started with 67 years old.
Speaker 1 00:28:06 Okay. So a 20 year time period for him is pretty reasonable because 20 years he's going to be 87. We want to see what kind of money he's got left. So if he left his money in the market through the great depression or similar numbers you see down here has remaining balance of 1 million, 291,000. Okay. So I don't know a shock. That's pretty reasonable to go through some serious volatility. And in this case, it's good in this situation because his withdrawal rate is so low, so he's still okay, but he looks at it and he says, you know what? I just, I still, I want to protect it because I don't want to have to worry about it. If, I mean, if you look at year six, he's down to 554,000, that'd be kind of scary. Right. And not many people in their mid seventies are going to want to swallow that kind of a poison pill.
Speaker 1 00:28:55 Like, Nope, I don't like that. All right. So what we do here, and again, if you buy an annuity, so this is what, you know, the dinner seminar pitch was, we'll put your half million into an annuity. So it is an asset, but it's not in the total asset column because it's a relinquishment. Now this was a GLW B index annuity. So there is an asset value there, but the way the spreadsheet works, we can't treat that. What happens is that contract was going to pay $30,000 per year, after three years. Okay. So when I put the 30,000 in, then the draw on the portfolio goes to zero. All right. The put the 30,000 and it's coming out of the annuity. Well, because look at the income goal call and when I populate this. Okay. Correct. Boom. So you give his portfolio break. Exactly. So it takes the pressure off the portfolio.
Speaker 1 00:29:44 The portfolio is only responsible for the inflation adjustments, which is a pretty reasonable deal. So again, one thing I missed when I look at the market side of it is that when the market's up in value, you're drawing that money from the gains. When it's down in value, you're selling principle, that's your reverse dollar cost averaging. But the annuity helps in that sense because there's not as heavy a burden on the portfolio. Okay. Now, after 20 years, he comes out with 1 million, 267,000. I think he has 1 million, 2 91 and the other one fair. So, uh, it's six to one, half a dozen to the other. Now the only what the annuity gives him is that in year six, when he's down to 360 4, he doesn't have to worry about his account value because he knows he's got the income. He can still go golfing, right?
Speaker 1 00:30:33 He doesn't have to fall asleep, chewing his nails and freaking out about it is it's important to realize it's income that people really want later on in retirement, it's income that funds the expenses. They want to make sure that those assets are there to generate the income. But as long as the income is coming in reliably and predictably, they can weather the storm. If asset prices are down, now, they can always bounce back next year. So here's the flux strategy. You're ready for this to show it puts the annuity back in the asset column. Because again, it's a deferred annuity. You have control. I should put that up here. Like assets you control, okay. With the income annuity, the asset was the income. Okay. We can use that to show investments as well. So sometimes I change the title. So what happens here is you maintain control of the asset.
Speaker 1 00:31:22 Again. Now this guy saw a big run-up in the market and he did put half a million dollars into the index annuity, this annuity column. And I want to point this out is I said, it, this stuff right here doesn't really matter about the index or whatever. All I did is I recreated it so that it ran about a 4% yield. So this is something you're going to see with a lot of guys saying, oh, we've got this contract. That average is 10% per year. We don't want to plan on 10%. We've got, do we have a contract to show that we'll pay 10%? It's possible in some, I mean, if it's got on, we have, I have one, but we're not going to plan on 10%. Right? Correct. Because inherent in the design that has unlimited upside. But the problem with planning on 10% is those are market-like returns, which usually include dividends.
Speaker 1 00:32:09 And so when we're one of the problems I have, when I see high numbers like that, with the fixed index annuity, we're tracking an index, but we're not including the dividends. So I like where you're going, where you keep really low rates and we can execute it at that. And then if we get upside so much, exactly. So it's a good surprise down the road, rather than a tough conversation in four years, Hey, I just did zero. You said it was 10% every year. Uh, uh, sorry. I'm going to Florida. I can't call you. I can't talk right now or whatever it is. Okay. So here's the benefit of flux strategy. Again, you control the money. Okay? You have discretion over it. This is some we work with. So every year we do this and we talk about what you're doing. We reallocate assets. We try to get the most growth out of what we can.
Speaker 1 00:32:54 We manage the withdrawal. So you don't have to do any of this. This is just what we conceptualize. Okay. So what happens now is when income starts year four, all right, the market has lost 25% in this simulation. Okay. You pull the money out of the annuity in year five, it drops 43%. Ouch. You pull the money out of the annuity. Income is still increasing. All right. And your six, it drops again. Oops. Pull the money out of the nudity. What you allowed yourself to do. Remember when we had the income annuity, this, this value is down to 364,000, right? That's all the money you had. What's the, what's the total of 360 7 versus 43. So your worst point in time is about 850,000. Is your low point in total assets rather than 360 4. And you're going to sleep better at night. If you've, if your lowest point is 8 68 50 instead of 360, is that correct?
Speaker 1 00:33:49 Okay. So the result of doing this is you allow those market assets to recover in doing that. You allow more growth in the portfolio. You simply take from the annuity. And this spreadsheet is imperfect because what I would say here is right, this asset value, the market was up 50%. We have kind of a lot, like last year, the market was up big. And so don't say it can't happen. I mean, I think it's up the S and P is up 90% from the low point last March. Okay. So those could be real, but what I would suggest doing in this case, honestly, and the spreadsheet doesn't do this, but I'd take the money out of here as well, and continue letting this grow because you want to recover, right? So there are other things you can do to make the numbers look even better.
Speaker 1 00:34:33 And it's a case by case deal and a year by year analysis. So you want to know what this result of doing it this way, our show, what are the results? Well, it's 1 million, 7 41. It's about a half million dollars. So this is where I say, I will give you a half million dollars. If you do business with me, the shock. Am I going to give him a half million dollars? No. No, but we're talking about trying to show ways to reasonably plan for increasing income and wealth accumulation. So I'm going to ask you a show of the five keys. All right. Does he have guaranteed lifetime income? Yes. Yes. Busy limiting market volatility to a greater extent. Okay. Yeah. That's the low point? It's eight 50 versus 360 4, I think is what the other one was. Does that make sense? Okay. Does he have control over his assets to a greater extent?
Speaker 1 00:35:24 Yes. Okay. What's the next question? What's the next question? Let's see. Inflation. Is he protected from inflation? If the equity portfolio he's taking systematic withdrawals, that can hopefully account, but if I'm just saying, if we go into very high degrees of inflation, what can anyone do? Well, if we go in very high degrees of inflation, okay. So somebody says, okay, well, we've planned to increase his income for 3% a year. So his, this income plan does account for inflation or spending increases. Right. And he's got a half a million dollars more. Is that inflation protection? I think so. Yeah. It's definitely helped if we get inflationary pressure hyperinflationary pressure in the next 20 years, do you want 1.2 million or 1.7 million to deal with it? Go ahead. Take 1.7. And I think that's, I would put it as we're helping to maintain the purchasing power with a greater amount of assets by increasing the growth potential of the overall portfolio.
Speaker 1 00:36:25 Okay. And legacy that's the last one. Can I ask by the way where we were talking, number one about the income, because he sufficiently funded this annuity, he's taking penalty free withdrawals, right? There's no guaranteed lifetime withdrawal benefit rider on there with the flex strategy, right? So this works is if you are allowed to take usually 10% penalty free withdrawals, let's just use that as a number, as long as you can take a dime off of every dollar, you don't need that writer. So if you fund it well, you know what a minimum that's where that guaranteed income comes from. So let's look at this number right here. So he's got 545,000 right there. So he's got $54,576 and 40 cents in free withdrawal available. So could he not take the full 10% and then transfer about $25,000 back into the market to buy shares at a low price?
Speaker 1 00:37:20 Could he do that? So you can rebalance along the way control he's in control. And then after I think this is on year seven or eight, the spreadsheet has a 10% limit on this. So in income scenarios where there's more income necessary or a lower purchase price in the annuity, then this will cap out up to year seven and after year seven, theoretically, then that's the number I used. If it's a seven year surrender term, then you've got full liquidity. So you'll be able to ramp it up after that. But that's the same thing. If you're in a seven-year contract or a ten-year contract, you can get to this point right here. So then say, well, this is working pretty well and, or we're not spending the money or, or we need more money, whatever the case may be. And I've had people do this, get through a Cerner term and say, I have a few people that had a couple of years ago and done really well.
Speaker 1 00:38:07 Well, let's take, I want to keep the annuity. I want to keep X amount, but let's take a hundred thousand dollars and put it back into the market, just fill out, transfer form and send it over to their IRA easy. And they've done really, really well. That was a good call to do that. So there's just so many things you can do with it. Flexible. That's the name of it? What are, I mean, we've been looking at this spreadsheet, there's a lot of numbers here. What are some key takeaways our audience can have from this presentation? The key takeaways are really in this situation with this case study, this is a specific individual. I told the show before we started after year two, this column says he's got 5 75. His annuities actually worked 5 73, I think after the second year. So it was very, very close and I will bet that his other assets are probably real close to a million plus.
Speaker 1 00:38:55 And, uh, but the key takeaways are control of your money and wealth accumulation in retirement. So it continued. And then whatever a shock I'm doing this because we're doing this podcast. So because you add a perspective and an expertise in certain areas. So what do you see out of it? I was going to compliment, first of all, nicely done, and also compliment your takeaways here because when people use income annuities and they are annuitizing, they give up control of the asset. And then when they use deferred annuities, if they're using something with the GL WB writer and they're having to pay every year for that writer, they're giving up some level of control and that doesn't need to be a bad thing. It can be part of the plan. What you're showing my key takeaway is the flex strategy says here's a way to accomplish those five keys in retirement without using an income annuity and without using a fixed deferred annuity with the GL WB rider, there is another way.
Speaker 1 00:40:00 That's my key takeaway. Yeah. Yeah. Right. And you're not locked in. So again, just flexibility to change and, and work with it over time. So, and I'll tell you one other thing. What I like about what you've done is with your spreadsheet, you're looking at a case study from the bottoms up. This is a particular person, anybody who calls 804, 3 8 5 1 2 1 or goes to the website and hits the green schedule, a call button. They could see something like this for their situation. The recommendations might be very different. And so annuity straight talk, we're always bottoms up as opposed to, oh, we've been told we need to move this product as you're plus there's a complete independence of thought of maybe we need to use a two year product or a three-year product or a five-year product because it's fitting, what's showing up on that spreadsheet, as opposed to, I don't know about you, Brian, but I will be in competitive situations.
Speaker 1 00:41:00 And every single product that's shown is a ten-year product, which is fine. It can work in a plan, but let's have a little diversity. Let's have a diversity for products that are actually fitting into the flex strategy. So good. I mean, I think we're good with the spreadsheet, right? So I think it's all important and it's, uh, beneficial to keep your options open. So that's where, again, it's not, if we were all doing the same things, obviously nobody from Florida is going to call me in Montana and say, well, I know I could get this from the guy I go to church with, but I like you better. We've got to have cutting edge ideas and we've got to have a good network and we've got to have a competitive reason. Otherwise you should do business locally, but if we can do something, nobody else will then maybe that appeals to you.
Speaker 1 00:41:41 So, and we're dog friendly, dog friendly. So, yeah, and my dog is probably, he's probably about to pee on his bed, so I better go get them. Well, this has been annuity straight talk. The number again we've been talking about is 804 3 8 5 1 2 1-800-438-FIVE 1 2 1, go to annuity straight talk.com, click on the green, schedule a call button. If you like, what you're hearing, be sure to subscribe to this podcast so you can be alerted as to future episodes. That sounds great. I appreciate a tagline, a joke, and enjoyed this episode. I hope we both learned something and as well as the audience, so want to thank everybody for joining us again, and we're going to come up with something good for the next one. And we hope you'll subscribe to the podcast and be ready for it when it comes out. Thank you guys, and have a wonderful,
Speaker 0 00:42:32 You've been listening to annuity straight time. The preceding 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. No information presented today should be acted upon without meeting with a licensed physician. It is important that you read all insurance contract disclosures carefully before making the purchase decision guarantees are based on the financial strength and claims paying ability. Each
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