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 50, my name is Brian Anderson coming to you from the annuity straight talk world headquarters on the shores of Flathead lake, near the beautiful town of Polson Montana. It's gorgeous. Saturday afternoon, we had a beautiful sunny day. Then we got a nice rain shower. Keep everything green and dry. Hopefully no forest fires this year we're are blessed to be this part of the country. I think a lot of people are dealing with drought and dry weather and hot weather. Uh, we've been very moderate, cool spring, and it is quite nice out and I'm enjoying it. So tomorrow I'm gonna go get the animals on the trail, get 'em some exercise, gotta start really using them this month. Anyway, so welcome again to the episode, halfway to the century, mark with episode number 50, I'm going solo today.
Speaker 2 00:01:40 Took me a while to get this one going, cuz I had some family visiting this weekend and playing with an east and nephew, great kids. And I actually let my nephew play with the equipment once, cuz he really liked the idea of a podcast. And so he played with it and I thought, man, I should just run with that. But it was a real light on content. So here we go. Can't believe I didn't do this before. And it's like 50 episodes in and I'm just now getting to the subject of annuity bonuses. And I'm not gonna share the screen I guess, cause I'll just talk about things a little bit and I could do graphs and charts and whatnot, but I think it'll just be easier if I do it this way. And because bonuses are such a flashy part of annuities, sales pitches, all that stuff.
Speaker 2 00:02:23 I think anybody that's been around for a while kind of knows how I feel about 'em, but I'm gonna try to add some rationale to my opinions and talk about whether they'd be useful and why most of the time you should probably just stay away from 'em and ignore that because a lot of sales pitches focus only on that. So, but obviously everybody knows that rates have gone up a little bit. They're not close to matching inflations cuz inflation and interest rates are not necessarily correlated. Very rarely are, but there's a lot of good deals for safe money. Now bonds got clobbered when the rates rose, but you know, you can get good deals on bonds. Now, if you're buying them fresh again, if you're gonna buy bonds, buy the bond, not a bond fund bond fund fluctuate. If you expect rates to drop, then bond funds will increase in value and that can be a good deal, but CDs are up even money market.
Speaker 2 00:03:08 I mean somebody's like, oh my money, market's paying 1.4% now. Woo really good money. But, and including annuities better deals than have been available for almost 10 years, honestly. So you got a wide variety of options to choose from. And every one of those is different or works for a different purpose. And this could sound like me stating opinion as fact, but when it comes to retirement, most uses for safe money and retirement annuities are by far better. And if you want me to go into all the reasoning and the individual explanations of those I have in the past, don't know that they're all on podcast, but I'd be happy to do it. You wanna engage in a debate, bring it on. I'd love to do it. So, and it could turn into a series. I guess if, uh, people find that interesting, go ahead and reach out and say, yeah, I wanna know what the difference is between CDs and annuities.
Speaker 2 00:03:52 I mean, I think it's out there, but yeah, we'll stay on track. So I'm gonna talk more about obviously about annuities what's changed in the market and more specifically in relation to bonuses that you see on a lot of contracts. So everybody, this is what I say about bonuses. Everybody knows that nothing in the financial world comes for free. Aside from the cheap gifts, like the toaster or the camp chair that you get for opening a checking account or savings kinda local bank bonuses exist to catch your attention and are used by Novi sales people and advisors as the most prominent part of the pitch. A lot of people call me and they say, I well, I'm wondering if you can tell me what you think about this annuity for me. Well, what, what do you know about it? Well, they told me and it has a, a 30% bonus and I can get four to 5% a year.
Speaker 2 00:04:43 So if that's all they took from the sales pitch, it tells me that they probably didn't get a whole lot more information than that. It was simply just like, Hey look, you're gonna get a bonus for all this money, right? For, for buying the annuity. And this goes way back to my very first year, my early days in this business. So we're talking more than 19 years ago. There was another guy who was a few years older than me that had just gotten a start. And he was actually, he was doing marketing for Medicare supplements. And what he'd do is he'd, he'd help people get Medicare supplemental insurance. You don't make a whole lot of money doing that, but it's a service you provide. And you're trying to uncover what type of assets the people have. And that gives you the open door and the opportunity to like gain a little bit of trust.
Speaker 2 00:05:27 And that the annuity pitch comes right after that. And so he was all proud of himself cuz he was getting a huge commission on a fixed annuity, a 10 year fixed annuity. And he said, this thing has a 10% bonus. And I said, what's the rate? He said, well that's I was like two or 3%. Right. I told him, I said, oh, why don't you sell this other one? It's got a 7% guaranteed rate for 10 years. And he's said, well, yeah, but what does that pay? I said, I think it pays like two and a half percent commission, which I thought was pretty good. I was just outta college. So I wasn't making any money. You're right. Have $50,000 annuity at two and a half percent at $1,250. Like in one pop, like that's a big check for me back then. Anyway, he said, oh, these guys are paying me 6%.
Speaker 2 00:06:10 <laugh> like, yeah, but it's not that great a deal. So a 10% bonus in 3%, over 10 years, like you're gonna average cuz you get the pop up front and you get the compound. And you're gonna average a little bit over four, but he's focusing on that 10% upfront and get people really excited about oh free money. And then it's really safe. And back then 20 years ago, CDs would beat that. So I would like, I looked at that and I thought, okay, well yeah, he's making a bunch of money, but isn't, wouldn't it be the right thing to do to sell him the better deal. I'll let you guys decide which one you think is better. And hopefully the people that call me and the people that wanna do business with me are of the thinking type and realize that maybe the bonus isn't all that's cracked up to be.
Speaker 2 00:06:50 So he was more successful. He's not still in the business. I think he only last lasted a couple of years. Don't know what path he was on. He's a nice guy. I liked him, but he's not in the business anymore at all. So he did sell more than annuities than me, but he had kind of had flashier bait. I could say stinkier bait. You know, when you're fishing, the stinkies bait does the best anyway. So before I go any further into that, like everybody needs to know there's two different types of bonus. There's a true bonus, which actually goes to the accumulation value of your contract. And there's what I call a Phantom bonus. Now it's not really called a Phantom bonus, but a lot of people understand what that means, where it simply affects an additional part of the contract, an additional writer on the contract, like guaranteed income.
Speaker 2 00:07:31 So you got a cash value and you got a bonus that maybe only enhances the guaranteed income value. When you have one of the Phantom bonuses, then it's going to pull something well, any Bo bonus will pull something away from the contract. We'll get into that a little bit later, but you're gonna have a lower growth rate, a lower income payout rate if it happens or higher fees, one, one of those three or all three depends. So, but I'm gonna show you and this is all written kind of in a, in a quick little story on the newsletter. Again, some people like to read it, you can read it in about oh five to seven minutes max, or you can listen to me, talk about and add a little bit more detail. So here's a line and I've shared this probably before, in years past when I did product specific stuff, but I'm not doing that right now.
Speaker 2 00:08:19 So on the company website, it says, because this is a bonus annuity. It may include higher surrender charges, longer surrender charge periods, lower caps, higher spreads, or other restrictions that are not included in similar annuities that don't offer a bonus that is directly from the insurance company. And every contract with a bonus will state something similar if they're honest. And that's one of those things where the company's honest. So you've got no recourse that the agent lied to you unless you wanna go to his Eno insurance, but he's probably in the Caribbean by now and you can't find him. So there are no exceptions to this, a true bonus that only increases a cash value will come with lower growth potential. Just like the story above you could get 7% guaranteed or you could get a 10% bonus with a 3% guaranteed rate. It's pretty simple.
Speaker 2 00:09:12 Now I don't know if those are the exact numbers. I remember the 10% bonus. I remember I was selling something at six and a five, 7%. I don't remember the baseline rate. It might have been two. It could have been worse than that. You know, and it doesn't matter if it's fixed annuities or fixed index annuities. It's the same you can look at, uh, their companies will offer a contract with, or without a bonus without a bonus. Your growth potential is higher. It's as objective as it can be. You can just look at the opportunity and you decide which you like better. So in some cases, a true bonus is available for free withdrawal. So it's added to your cash value can actually say, you know, you a hundred thousand dollars in a 10% bonus, you've got 110. It means you're free. Withdrawal would be $11,000.
Speaker 2 00:09:54 They'll only back that out if you surrender the contract early. Okay. But other ones have, let me see where I'm at. Uh, lots of other ones have a vesting schedule, meaning that you can't. So when the vesting schedule, so a true bonus or like a pure bonus is vested from day one, right? If you got a vesting schedule, then it means a portion of that truly becomes yours over time. So I have a client of mine, a good friend who bought a 10 year index annuity from me 12 years, almost 12 years ago. This is before we did any business. And he still has that annuity because the bonus that he got had a 16 year vesting schedule. So he's not fully vested in his bonus, although he does not have surrender charges, they are still recapturing at this point after 12 years, about 25% of that bonus.
Speaker 2 00:10:49 I don't remember what it was at the time, but he still loses about 4% of his account value. So he's kind of stuck. It added six years to his surrender term. So that's goes back to what that insurance company said about longer surrender charge periods. And it's not a surrender charge, but we, he wanted to replace it with a fixed annuity. And we've talked about that. But no, like the insurance companies that I recommended would not take the money because we, we had to demonstrate, be honest about it. Like he was going to take a quote unquote loss for moving the money, right? So buyer beware, there's always something more to an annuity that includes a bonus. But rising interest rate is where this really gets interesting because of rising rates, fixed annuities have better guarantees. We have really nice deals out there and a lot of people are choosing to go with the multiyear, guaranteed, fixed annuities, nothing wrong with that.
Speaker 2 00:11:38 It's all about your preference and kind of your hunch and gut feeling, what you're comfortable with. Okay. And the index annuities. I talked about it a few weeks ago because of that. You've got fixed rates that are equivalent to the fixed annuities and that's gonna buy you so much more potential. So I think the index annuities have a tremendous amount of opportunity right now. But again, I'm not gonna try to sell you something that you don't want. If you wanna fix annuity, just go for it. And a lot of people, what do they do is they say, well, take some of the guaranteed fixed and I'll put some of the index annuity. So that's always an option as well. You split the contract. So I say like, when these rates go up, you're gonna see a lot of Tom Foolery in this, in this business.
Speaker 2 00:12:17 It gives companies the money to add those extra enhancements to a contract. And one of those ways you're gonna see it is with bigger bonuses, you know, income or otherwise Phantom or true bonuses. So, and a lot of people will debate it with me. But to be honest with you, cuz some people say, Hey, I really like that annuity that you showed me or that one that you had that you talked about on your podcast. I really like the sound of that. Could you show it to me? And then once you get around to, if it's appropriate, you show 'em the contract and they say, okay, well is there anything like this with a bonus? <laugh> it's like, okay, now then all of a sudden it becomes the contract I wasn't talking about. Okay. Going back to that, what the company said is longer surrender charge, periods, lower caps, higher spreads, or the restrictions.
Speaker 2 00:13:04 Those are all the reasons why people don't like annuities. Those are all the reason, the things that we try to solve, the problems we try to eliminate. And they're saying that you get the bonus and it's gonna come with all these things that nobody likes. So gotta think about it. So it's kind of like, I guess, I don't know. I, I hesitate to say, take my word for it. I'm trying to explain it as well as I can. But I learned this all a long time ago. This is why I say I was very skeptical about annuities in the first place, because I knew I had a guy who was kind of a buddy of mine initially. And he was selling something for the commission that wasn't as good for the client. And I was selling something that was really good for the client. So I was always very skeptical of bonuses.
Speaker 2 00:13:43 I was always skeptical of annuities in general because when I got a database and I looked at all of them, I realized most of them are not that. I mean, some insurance companies are not trying that hard to offer a great deal. So you have to know how to shop the market. But, and you know, this is, uh, what I say. It's like, it's kind of like telling me that Santa Claus is real, right. I know he is not. But when we talk about buying the wrong annuity or getting into something you don't understand, I mean it can really damage your retirement plans. What believing in a mythical gift giver is relatively harmless and it's kind of fun for kids. But anyway, so it's maybe not the same thing, but here's an example of one of those conversations. So, and I've been told something similar in the past month or two and you know, somebody will call and say, you know, you said the best five year fix rate is around 4%.
Speaker 2 00:14:28 So, but I had some guy came over to my house. I went to dinner and he came over to my house and he showed me a contract with a 10% bonus and guaranteed a 7% guaranteed every year. Now that's a big ball of garbage. They think they're getting 7%. And I'm telling you, I have talked to hundreds of people who finally figured it out three or four years after buying the contract. So you wanna listen and pay attention. Now, if you don't wanna make that same mistake, doesn't mean you have to buy an annuity for me. Maybe put some pressure on the guy and say, Hey, be creative. Think of something else. That's not gonna work. Make him actually work for the money. I'm not afraid to do it. Those are Phantom rates. He's talking about a bonus. He's talking about an income rider, roll up.
Speaker 2 00:15:09 Then again, the income, the 7% it's kinda like social security. Everybody understands the longer you wait to collect, the more you get that is the same thing. But they're being a little more transparent with the guaranteed income projection and saying, well, every year you wait, we'll increase it by 7%. Now, if an agent calls that a 10% bonus in a 7% rate, right? I don't know how many people have come to me and said, well, I, I read your newsletter or I saw your podcast. And I didn't realize this. And I went and asked the agent and the agent said, yeah, but now you have guaranteed income and it's fine if that's your goal. But all these people that come and say, I had no idea what this was. They were just looking for a safe place to park money. And they got the contract.
Speaker 2 00:15:49 That's only worth something. If they take guaranteed income, maybe it's bad for your tax situation. Maybe it's not the optimal way to get money outta the market. Maybe you were gonna leave that money to your kids or your grandkids. And there's not as much money there cuz it never grew. There was a fee on it and all this stuff came, right? So it has real consequences. And you could go to a lot of people, a lot of, a lot of advisors, financial planners and CFPs are as bad as anyone else. And so you ask me, people ask me why I don't get a CFP designation because I've run into a lot of 'em that don't know anything. They know how to pass a test. And that's about it. I've seen them do some of the dumbest things in my life. And so I don't feel like I have to put that badge on myself because <laugh>, I don't have a, I don't have all that much faith.
Speaker 2 00:16:37 And we say, oh, are you a CFP? Well, I will only talk to a CFP. It's like, go ahead. Good luck, cuz they're about as competent as the average advisor period. And so again, just listen, if you want take the advice, if you want, you don't have to buy annuities from me. I'm not here to sell to everyone. I'm here to provide information. And I will say that bonus is, do enhance annuities and are appropriate at times. But the advantages for one contractor so specific that that one contract only works best in unique circumstances. It's not always a custom fit to you now when the bonuses work and all this stuff. So like an income annuity, a bonus it's gonna come with. If one has a 20% bonus and one has a 10% bonus, you can't just look at that because the one with a 20% bonus might pay out at 4% or the one with 10% bonus might pay out at 5%.
Speaker 2 00:17:37 So you get more income from the one with, you know, with the lower bonus. Now one's gonna be good for the first few years. If you defer 1, 2, 3 years and the other, one's probably gonna be good if you defer four, six years. Right? So that it's different. And so you can't tell me someone who needs income within a year is not the same as someone who needs income in four years. And I guarantee if you want the bonus and you want the guaranteed income, if that's the right solution for you, those two people are gonna end up with two different contracts. Okay? Simple and easy. I think, I mean, everybody kind of knows, like I kind of stick and that's why my solutions are fairly creative because they come in the context of financial planning and with flexibility and liquidity to do all the other stuff you need.
Speaker 2 00:18:21 So you need the highest growth potential possible and you need no fees and good free withdrawal provisions, the right term that fits with your plans. And so I've always said, you know what? It all comes down to how much you're gonna get out of it. So I asked two questions, like how do you want to get your money back? And when do you wanna get your money back? So you get guaranteed income route. And this is kind of going off top about guaranteed income route. You got 18 to 22 years before you get all your money back, go to deferred contract and say, I'm just gonna grow as much as possible. Well, that money is always yours. So it's right there. So, but anyway, I mean just like any other topic, I kinda keep this general and I'm touching the edges of it because I'm not gonna sit here and talk for two hours about bonuses.
Speaker 2 00:19:04 I try to keep it so that you guys don't fall asleep and I'm trying to be as efficient as possible. If you want to nitpick one detail or another. If there's an advisor that has some objection to me, by all means, come at me. I will take it. I'll have a civil conversation with you. I'll tell you and explain in detail. If there's something that you know, I didn't put in there that probably deserves to be, uh, discussed. You can always respond to the email that this goes out by, or you can comment below the newsletter or the podcast on the website. And I wanna remind everyone, I don't think I've said this publicly. I've told a lot of people, you can put a pseudonym in there. When you comment on the website and ask for your name and your email address, only your name is published.
Speaker 2 00:19:49 If you wanna write it like bill Jones, I dunno. Maybe you have a bill Jones on the list. So I'm not talking to you bill Jones, but you don't have to put your name there. The email is only visible on the administrative back end. So it's not publicly available. I would never do that. Do not put personal information in there. I've had a couple people and I'll always screen 'em. So I have to approve the comments and I'll approve everyone. The only ones I don't approve of the spam, I will approve. But you know, if somebody says, Hey, I've got $250,000 in my 401k and a hundred thousand cash in the bank and all this stuff. I I'm not, I do not post those. So don't bother writing those. If you want to, you send me an email and you can tell me all about that stuff, but I'm not gonna make that public so you can write.
Speaker 2 00:20:26 Yeah. Right. Bill Jones or Susie Q doesn't matter. And it won't, your name will not be shared with anyone. So you'll you put your email in there that way after reply to you, then you'll get a notice saying, Hey, he replied to your comment. So, but I'm happy to take comments or questions discussions regarding this. Again, I'm not trying to be too abrasive on this stuff. I understand. Uh, we can go into more detail and all that stuff. So that's why I invite you to make an appointment on the annuity straight talk website, upper right corner calls, uh, button says, schedule a call. It's kind of got like a little green oval around it. Pretty simple and easy set your time zone. Write your name, make some notes about what you wanna talk about. Easy to do. Or you can call me at (800) 438-5121. Yes.
Speaker 2 00:21:08 I answer the phone. Sometimes I let it go to voicemail because I do get a lot of spam calls from marketing agencies. I get recruited heavily by insurance companies. They're all trying to get me to sell for 'em and I'm not interested. So if I'm having a long day or if I'm on the phone and I don't answer it, just leave a message. And I'll give you a call back as soon as possible. And a lot of people they'll get a call back three minutes later and he'll say, wow, I didn't think so. Or other people say, oh, I didn't think you'd answer the phone. I thought there'd be like a secretary or something. I, yes, I, I agree. I should be that busy and popular all the time, but usually I've got time for, for a conversation. A lot of people are just shy and don't don't wanna reach out, but not gonna bite. I'll happy to answer your question. So go ahead and call me (800) 438-5121 annuity straight talk podcast, episode number 50 bonus annuities. Hope you got something out of it. If you didn't or you want more, let me know, reach out any way you need to, and I'll be here to help. I will see you guys next week for episode 51. Thank you so much and have a great day. Okay, bye.
Speaker 1 00:22:19 You have been listening to annuity straight talk. The proceeding information is for informational and educational purposes only and does not represent tax legal or investment advice. The views expressed by guests on program on their own and do not necessarily reflect the for his partners. No information presented today should be acted without it is important that I.
