Episode Transcript
[00:00:00] Speaker A: Hello and welcome, everyone, to the Annuity Straight Talk podcast, episode number 136. I'm your host, Brian Anderson of western Montana.
Love it here. Only place I'd rather live is in Wyoming. But I'm the founder and creator of Annuitystraighttalk.com, a brainchild of mine five years into my career. Started working on this probably in 2006 or seven. I come up with some things that I think I was the first to think of. I seen a couple other people try to lay claim to it. I'm not quite sure if they're right about that. But I want to talk today about my favorite strategy, which is the best way to analyze annuities and find alternative ways of producing retirement income. So if you want to make an appointment with me, if you like what you see today, hit the top right corner of any, any page on annuitystraighttalk.com, comma, schedule a call with me. Write your name, some notes about what you want to talk about, and your phone number. I will give you a call. So when the flex strategy works, I'm going to share my screen. This is the newsletter. I'm doing a case study today. I think over time, this is what it's going to come into so that people can identify with the same situations.
But I want to say that I named this the Flex strategy a long time ago. I think we're trying to come up with, because I had alternative ways of doing things, I don't know, 2013, 1415, maybe we got to call it something. And nobody knows. Like, when you're starting to look for annuities, you don't say, I need the flex strategy, but the marketing must have worked, because the idea behind this was my initial motivation to start this. Like, a lot of the gimmicky products, and I'm not saying they're bad, but gimmicky products came out 2005, six income riders, all that thing. And I started scratching my head, looking at the numbers being like, you know what? Wait a second. Numbers don't line up here. So it's a way of working interest rates and just figuring out where your best advantages is in that. So when I called it the flex strategy, flex for flexible, be flexible with your money. That's your inflation hedge. That's your market growth, that's your protection. It's all the things. So no one knew what that term meant. It's just what I called it. And marketing must have worked because, I mean, I did get published on, I think, page 222 or four of annuities for dummies. Cary Pector friend of mine.
He was on episode 101 announcing his new book. For everybody that wants to totally line out the details, I recommend you buy it if you really want to do some research on it. So when rates were really low as a valuable strategy, thinking about alternatives for creating retirement income, safety in retirement, and all that. So in an update I did last year, which was the flex strategy 2023, I used to not recommend income riders. Now I do in certain situations, it's very valuable for a lot of different people.
But what started out as an alternative really turned into how to analyze the best way to use an annuity in retirement. And sometimes you go flex strategy route and sometimes you go guaranteed income. But it's made people think and made advisors adjust, and some advisors haven't adjusted. That's where I still have an advantage. A lot of people have thought about promoting different strategies. It's not always about being the most profitable and efficient so much as it is about finding what you like best. Everyone's different. So I had a case last week that kind of brought it into question.
A young couple looking to retire in a year or two said, hey, we want to see if the flex strategy would work.
A lot of what happens in that situation is they maybe now we've only had one meeting at this point, but they really want to retire, and they're maybe a little insecure about whether they can. And they're thinking we need the most powerful strategy possible. And they're right. That's what it takes. But you need someone that's going to float and change with the rate environment and show you what the best advantage is. And now that we're doing it with higher interest rates, we will identify the best solution for them. It's no problem. They've got enough to retire, but it's not so much that they're going to have because I've shared some of these where, oh, they got every option in the book that, you know, they just want safety or whatever it is.
So there's not a ton of options here, but they do have plenty to make it work. The best annuity deals I've sold in the past couple of years by a long shot went to younger people in their fifties who could afford to or had planned to set some money aside and deferred for a handful of years. So defer five or six years, another couple that, I mean, I guess I could tell you a lot of stories about the deals I sold, and it's really fun for me. You guys realize I love to sell value to people and I've really enjoyed connecting with, explaining to, and executing on deals that are going to make an enormously beneficial difference to people for the next 2030 years. It's awesome. So the solution for these guys is likely going to include elements of guaranteed income, plus the flexible approach to retirement, because they're going to have both parts of a guaranteed income need, plus discretionary spending that's going to fluctuate from year to year. And that's where flexible flex comes into account. So this is going to shed some light. It's a unique case on the most efficient way to do things, and I'm going to explain it a different way than I've ever done it before.
Some people might remember a couple of times where I made reference to this. So I'm going to take it out 30 years and calculate the cumulative total spending plan that they have.
So they have told me that their baseline income needs are $70,000 per year, but they want to plan for 110. That's going to cover all the extras in life, right? Yeah. Let's eat good food, let's go enjoy ourselves, go out to dinner, maybe travel a little bit, going to need a new car, maybe every now and then, all those things where you don't spend the same amount of money from year to year. So we got, one of them is 55 years old, one of them is 51, and they want, they hope to retire in two years.
With that, we've got the variables needed to see how much it's gonna cost. So the first question is always, can we do it? And I think they're going to, no matter what.
But I want to let them know if it's good news or bad news. So I've had plenty of those in the past where bat, oh, bad news, I don't think you can take it. And then I don't do business with those guys and they go take the risk in the stock market and maybe they win, maybe they lose, I don't know. So Social Security is going to come into play, but it's several years away for both of them. 55 year old expects 26 26,000 per year at age 62, and at 62, the 51 year old will get 20,000 per year. So here's how I look at the cumulative accumulative income gap.
Initial retirement at age 57 and 53, two years from now, one ten k per year for five years, which is a total of $550,000. Then the older person is going to take Social Security at 62, four more years till the younger one can collect so it brings that income gap down to 84,000 for another four years. That's a total of 336,000 in today's dollar. What it costs, hold on. With inflation and market risk and control and all that stuff, I'm going to get to it.
And this might take a second episode. After that, the younger person can claim they'll reach the point of a long term income gap, which is the long term projected deficit of 64,000 per year. After 19 years of that takes them out a total of 30 years from when we started, the total of that income gap is $1,216,000. So over a 30 year period, when that couple will be 85 and 81 years old, total income gap of 2,102,000. We can use that project, what type of income we need, what yield we've got, what assets we have to work with.
We're obviously going to plan for life beyond that. But we're just now starting to analyze this, and the best way to work through the process is take it one step at a time. If you're going to make a long term commitment, it's best to spend as little as possible on the bulk of the problem.
Since the lifetime income gap is 64,000 per year, we're going to start by solving that. How much is it going to cost and when should they start taking income? Right. If they buy an annuity now and take income in two years at retirement, it will cost around $1 million to do that. I do not believe that's an acceptable solution. I promise you, seven to nine out of ten other advisors are going to say do that or something similar. Maybe they don't tag 64,000, whatever it is. That's what a lot of guys are going to do, and I'm sure they're not going to buy that because I wouldn't recommend it and maybe somebody else would, but I'm going to tell them not to do it. It would make retirement easy, but it's probably not worth the expense. And then it would press the plan in other areas. So since there are pre issues with pre 59.5 withdrawals, the next logical step would be to defer income until the younger person is age 60. So we'd have 64 and 60 buying today. And deferring for nine years would cost right around 540,000. To get $64,000 a year cuts the cost by almost half while only giving up seven years of income. That would total 448,000 accumulative income. So I hope everybody understands that.
And that's where you try to find value.
So seven years of income is $448,000 that they'd lose, but they would have had to spend 500. It wasn't worth it. It was a dead asset. It cost them more than they would have gained by doing it. So you're working backwards. What you're trying to find is leverage in these assets so that you can totally capitalize and you can make your money into more and work more over time. That's our solution.
Then we look at deferring for eleven years, because then the younger person would be 62. Taking Social Security, get them to their final income gap, where they're just setting for getting done. That's the only thing left to consider at that point, is the long term income gap. If you bought now and deferred for eleven years, this couple, and these are rough numbers, I did a bigger basic. I'm 97% sure this is probably the best thing. We can probably save them a little bit of money depending on what they decide to do, but we haven't done that. And I'm just using general numbers. So defer for eleven years costs about 480,000. So they save 60 grand on the purchase price. They defer two more years, but they give up 128,000 of cumulative income. Payment. Bingo. Do you guys realize why it takes a professional, takes someone who's open to new ideas, open to different things, deferring for nine years is the better deal by a long shot. Now, we, and we could also, we could test different scenarios. I think that is actually probably by luck, the sweet spot about where it happens, because we got pre 59 and a half rules and all that stuff. I want to deal with it. So here's why I look at this as a valuable first step.
Remember in the beginning that the cumulative income gap over 30 years was $2.1 million. This is going to shave more than 1.3 million off of that because it was 21 years of a year. Don't forget, they still get it if they live longer than that. So we cover the back end as well. So if they take 1.3 million off the 2.1, which is what was their 30 year need, it makes the entire plan more reasonable. Now, we're not talking about stock market and growth and all this stuff, but how are you shoring up your concerns, guaranteeing what you want? And that's why it's so powerful. So the majority of what remains is covered over the short term. So now we're talking about covering it until the 51 year old is 60, 62. You're just chopping a huge part of that need off for a relatively small portion of the portfolio. And that's probably what I'm going to recommend. You could cover the near term with short, you know, short term, like a ladder of CDs, bonds, maybe mygas, all that stuff, and do it and you can take your risk with the stock market. But I say bonds are CDs because some people would like that.
I'm not all annuity, the all annuity guy, but I mean, they buy the nine year deferral, that's a third of what they got, and they're still going to work two years. They're saving a good chunk of money. So we get, if we, if these guys are serious about it, then we're definitely going to go into all of it. It's going to take a follow up episode and I'll explain all of it because it's an interesting case. So if we do the bonds, the CDs, the mygas, whatever, to guarantee you want guaranteed income, then obviously we can discount that back. And I haven't done it yet. Again, that's where I did this much work to this point. I'll do the rest of it. It's going to be easy to figure out, how do we provide that money? Make sure it's there, guarantee it. It's going to cost, I don't know, 60% of their portfolio to do the whole thing. That's just an educated guess because I do this all the time. And then they want to use non qualified assets, the 59 and a half for, you know, distribution rules for either non qualified annuities or all that stuff.
I covered that early retirement plan distributions in October last year. Link is in the newsletter. It's right there on the screen. So you've got it. So inflation is another part of the equation. I didn't. Forget about it. Again, I'm not going into the details of the risk tolerance and the other plans that these guys have. It's whatever. I'm just figuring out the income deal. That's what they asked me for. We can talk about the context of everything else later. A full retirement plan can probably be achieved for about, for less than two thirds of their assets. On top of that, they'll save a little bit more so that it's going to end up being like 55, 60% if they work two more years and it's a case. And I don't, you know, I'm not telling, I don't dictate lifestyle and I don't dictate, I can't say no you need to work three or four more years. I know advisors that do that. It's never popular. Nobody likes that. So you, you got a plan, you do it. I'm going to tell you how best to make it work. Okay. I'm not going to tell you to change your plan, but I will say it's better if you do it longer. So the flex strategy can play a big part in discretionary spending, and there will be plenty of growth between that additional assets in the market. Being flexible offers the opportunity to make most of all assets as market change over time. So make the most of it. Be flexible so you can position things in places where you get the growth you need and you have access to them as conditions change. Now, if we're looking at a 30 year time period, $110,000 a year could well be 200,000 a year, and you need additional assets to make that happen. Stay flexible with what you have or with what's remaining, but lock in what you need over the short term and give yourself a good long term guarantee. You'd have a well diversified portfolio in this situation and the growth you need to make it happen over time. Continued planning is required in every situation. All of these things need to be adjusted annually, once a year, twice every other year, every third year, every single year, so that you have enough assets available to meet the challenge when the time comes. So guaranteed income is a really good idea for this couple because it offers such a good deal.
It knocks off 60% of their retirement income needs for the next 30 years for less than a third of their portfolio. That's a really good deal. Now, addition to that, the flex strategy can be used because it almost never makes sense to go all or one with just one strategy. So we'll see how they like this part of it and they decide to move forward. There's plenty of room to follow up and put the remaining pieces together in another episode. I'd love to do it because this is a real world example of some good people who saved some, a lot of money, worked their butts off for a lot of years. They deserve to retire, be happy, and they, they should absolutely have a guarantee to do it. Okay, do you want me to do it for you? Then make an appointment. Top right corner of any page on annuitystraighttalk.com dot. Schedule a call.
Love to chat with you. I got a limited amount of time available, but if you get a spot on the calendar, I will call you. You got my attention. For 30 minutes. We'll see if we have reason to do it again, please like subscribe or comment on any of your favorite podcast platforms or on YouTube. Send it to your friends. Let other people know we're getting a big following and my time is limited, but I want to do the best for everyone and the best thing you can possibly do. Share this people get ideas. Makes our time more efficient when you get there. So thank you for joining me this week for this episode. I'll be back next week with something else and I'm sure it's gonna be really good. Okay, thanks guys. Have a great day. Bye.
[00:19:02] Speaker B: You have been listening to annuity straight talk.
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