Case Study: Annuity Income Options

Episode 79 March 09, 2023 00:18:47
Case Study: Annuity Income Options
Annuity Straight Talk
Case Study: Annuity Income Options

Mar 09 2023 | 00:18:47


Show Notes

Before delving into the world of annuities, it is crucial to carefully consider the various annuity income options available, as each option has its advantages and disadvantages. It is also important to work with an expert to determine the option that best suits your unique financial situation and retirement goals. 

To assist you in this decision-making process, Bryan will provide you with some common annuity income options.

What You’ll Learn from This Episode:

[2:29] Choosing the right strategies for purchasing annuities.

[4:42] Starting with a specific goal is the most effective approach

[5:37] Analyzing a case study and breaking down options

[6:16] Only consider annuities if you are genuinely interested in purchasing one

[7:22] Numerous beneficiary options are available, offering even stronger guarantees

[13:45] Examining the four fee options

[15:11] Benefits of the “FLEX strategy”

Key Quotes: 

[2:55] "An annuity is a safe and stable asset, and currently one of the best options available."


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Episode Transcript

Speaker 1 00:00:05 This is annuity Straight talk. Since 2008, your host Brian Anderson, has helped clients nationwide navigate the complex market for annuities with Brian's assistance, hundreds of clients have achieved a profitable and secure retirement. I would know because Brian has answered many of my questions concerning annuities and retirement planning so that you can benefit as well. Let's get started. Here's Brian. Speaker 2 00:00:49 Hello and welcome everyone to the Annuity Straight Talk podcast episode number 79. I'm excited to be here. I'm getting ready to go on a big road trip, the annuity road trip, traveling across the Western United States for the next five weeks. Mobile office, office is gonna be with me. My calendar's open, so don't think that I will not be available. Maybe I'll talk about it a little more down the road, but episode 79, all the annuity income options. Very important when you look at annuities. We did a case study last week where we talked about fee versus no fee. Income riders, I got a bone to pick with almost everybody else in the business. You have to settle on a strategy first and then look at products too often. And I, I wrote this newsletter and I'm not quite done with it, but I'm gonna share it with you anyway just as a visual aid for anybody watching the video. Speaker 2 00:01:33 And it keeps me on track as well. I don't have a script. He'll say you have a script? No, I just turn it on and start talking. But you gotta have a strategy if you start, almost everybody that comes to me, oh, somebody showed me this annuity, they didn't even know why they were doing it. Maybe they had a goal in my, here's the product. And then they look at the product and they think the solution is to find another product and look at all the products until they find the best one. And then you end up looking at, you know, some people 15, 20 different contracts and it becomes a mess in their head and they don't like it and they get frustrated and it doesn't work. So that's like a bottom up approach. That's why I wanna record this. Uh, podcast is specifically for, cause I've seen a lot of this in the recently. Speaker 2 00:02:14 Rates are up and people are aggressively looking at annuities or more seriously looking at annuities. And before you get into the weeds of any product, you gotta look at what strategy, what are you trying to do and what. So pick the strategy. Once you say, oh, that's the strategy, you're going to whittle it down from 500 possible contracts to about five just by defining the strategy first. So let's share a screen. You can look at this post that's almost finished. Okay, so case study, annuity, income options, do that for, I wanna say all the income options. If you're going to be using an annuity, it's safe, it's stable, it's probably the best possible asset you can have right now. I'm gonna cover that specifically very passionate about, about that. But if you're in or near retirement and you do not have an annuity, you're at risk. Speaker 2 00:03:03 Okay? So, but I've seen this come up a lot in the past year. You got better deals, wider variety of options. If you're looking for retirement income, it seems like a big task to handle, but you should look at it as many options as you can. And that's why a lot of people, yeah, go meet with that guy. Go meet with that guy. Let me know what they think. If they got a great idea. I'll tell you, this guy came to me oh a few weeks ago, a month ago probably, and he's been, he kind of did the product first approach and he came to me and so it was like, hey listen this product, ah, I decided this is all whatever. Didn't it didn't really like it but he kind of went into it backwards and I kept trying to pull him back up to the bird's eye view. Speaker 2 00:03:38 Hey, figure what strategy first and then you don't have to look so many stupid annuities, right? Little back and forth on email. Talk to him a couple of times and his quote on the email. So I guess I'm looking for immediate single lifetime payment, high return with loaded no fees or charges. There are a couple other things in my response. The only thing on your wishlist I can't deliver cuz he did say he won a fully vested bonus. Those don't exist on income products. Any annuity's got a surrender fee. So it could be a sticking point. Somebody, I just don't want a surrender fee. Okay? And then you want to talk about liquidity and all that stuff. If you might surrender the contract in just a few years, do not get an annuity. Some people say, well what if I need the money? Well what do you think you're gonna need it for? Speaker 2 00:04:15 Well I don't know. You know some people say, oh I'm gonna buy a retirement home or we're gonna do this or that. And then you don't put your money into an annuity for a large purchase down the road. Goes back to the story everybody read about my dad, I didn't sell my dad at an annuity anyway and surrender fees on guaranteed income. If, if your goal is guaranteed income then it doesn't really matter, you know, but still people, I don't want a surrender fee. Okay fine. So before anybody asks me to do the same thing for them, I need to make sure y'all know the specific goal is the best place to start. Some people come to me and say they need an exact amount of income. That was Kathy last week. She said I need 2000 a month. It's easy to calculate the amount of money you need to produce the income. Speaker 2 00:04:52 The opposite of that is to say I have this amount of money that I want to be protected and then you've got a lot more options. Okay, you wanna protect this amount of money, let's see how much we can get out of it. You either want income or you just want to grow it. In this case guys looking for getting the most out of a $700,000 initial investment, single lifetime income, he is looking for income. So here are all of the options in simple form and I'm not gonna share contracts with you cuz the point of this is to make it simple, you decide from the top level what you want to get. Okay? So single premium, immediate annuity with an installment refund. So give your money to this case is different than last week. Last week we had a two year deferral. So the single premium immediate annuity would not have worked. Speaker 2 00:05:33 The immediate annuity income payments have to start within a year. He wants them to start within a year. So that's fine. That gives him another option. Another guy talked to last week, he's gonna defer four years, the immediate annuities off the table, but it is the highest income payment available for single life. I'm gonna talk about this. I had a couple of questions and I may do a specific podcast to refine this for joint life couples. I'm doing a single, single I payout cuz it's simple and because I, I've got a number of people currently right now that have had that specific request. If you're looking at, and again break yourself free of wanting to like stare at annuity contracts a lot cuz it kind of frustrates a lot of people. So why not just focus on the strategy first, don't look at annuity unless you're serious about buying one. Speaker 2 00:06:15 But if you have a a joint life couple, the payouts are gonna be lower. You know, X amount of investments gonna produce less income for two people it's another contingency, it's two lives, not one. So two lives last longer than one life does on an actua aerial basis. So it's either less monthly income or it takes more money up upfront to create the same amount of income. So the installment refund I found this is the highest payout may not be what what he goes with it also g, it guarantees that you or your heirs will get all your money back in the worst case scenario. So he's getting 54,000 bucks a year and if he only lives four years, will his heirs will receive the payments that make up the entire initial investment. That's the installment refund. So they're gonna get the 700 back if he lives longer than that. Speaker 2 00:07:02 And I think what's uh, it's not quite 14 years, it's 13 and a half years until he is back there. Once he's got that, he's just on the insurance company's dime. So he is back to his money, his breakevens there and he'll continue getting him if he lives to 95. Yeah, he's 65 years old, I guess he didn't. So there are a lot of little refinements I need to make in here. There are a lot of different beneficiary options available. Provide an even better guarantee. Income payment's gonna change where it's gonna drop. I remember in this case it was like a 15 year period certain, which means it pays for the rest of his life or 15 years, whichever is longer. If he lives five, it pays an extra 10 to his beneficiaries. If he lives 26 it'll just pay for a whole 26. So a 15 year certain was quite a bit lower payout, but it was essentially the same amount of guarantee and the really nice guarantee. Speaker 2 00:07:46 So this is like the best maximum income and the best guaranteed return period. That doesn't require, I'm not talking about projections, I'm not talking about hypotheticals. Okay, a life with 20 years certain pays out 7.2% annual income for life or 20 years, whichever is longer. That means it pays no less than 20 years if you're not around to collect that long minimum guarantee 144% of the initial premium. So 7.2 is about $50,000 a year for 20 years. That's the minimum guarantee. If he lives longer than 20 years, it keeps going but he's guaranteed to get a million bucks out of it. There's nothing else in the financial business that will do that on a guaranteed basis from a AAA rated company. That's a really good company. That's another thing. All of these are a plus companies or better. Next option, fixed index annuity with a fee-based guaranteed lifetime income rider popular, you get the guaranteed income in a residual value that can be managed over time. Speaker 2 00:08:39 Best product in this class A plus company pays about 7.2%. So it's similar to the immediate annuity with 20 years. Certain if the cash value grows over time there can be a fairly good size remainder for your beneficiaries. People like the additional cash, they're not, you know, you, you don't see an asset disappearing. You know you got your cash value and it's drawn down by the fee and the income payments. So if it performs well there's a remainder but it's not guaranteed. And the income payout along with fees make for a steep climb if you wanna leave money to the next generation. Most of these illustrated are built to about return what you put into it over a 20 year period or so. Payout rates are higher. So if you live 20 years, these obviously would pay really well. So anyway, good option. And again, you want the guaranteed income, the remainder value gives people a sense of control but the cash is held to hostage by the income payments. Speaker 2 00:09:29 Additional withdrawals are available but will proportionally decrease the guaranteed income payments. So damned if you do, damned if you don't, right? It's nice to have that flexibility but if you use it then they're gonna ding your income. Taking free withdrawals in excess of the income payments is not the best way to use one of these contracts. In cases where someone wants to defer for a few years, this will likely offer the highest payout. Immediate annuities are not, they gotta be taken within one year. And then these have the, you know, the roll ups every year. So this is typically the best for anyone that wants to defer more than one year. Okay, highest payout. Okay then we got the fixed index annuity with a free income rider, right? We talked about that last week. Free income rider does give you more control over your money but yet less income in exchange. Speaker 2 00:10:13 This option has a 6.25% payout in this case. So it's a meaningful drop but you have much more control over the assets. Same amount of money, less coming out means a bigger remainder. Plus they're built to grow better. That's where the company puts the juice because they're not putting it in income. Still a pretty healthy payout compared to last year, a year ago. These things are phenomenal. I wanna say you could take a percent and a half off of any of these if we were doing it a year ago. So man, now is a great, great time to do it. Great time to be in the business. It's an awesome time to have 20 years of experience to know what the hell I'm doing cuz we can get you set up easily. Okay, so we talked about this more specifically last week, but it's free. Speaker 2 00:10:54 You don't pay a fee so you don't have as big a hurdle to climb to maintain that balance. Plus you're taking less money out. It's a great option for anybody who doesn't need to maximize income and would prefer to manage the contract for remainder value. You want a little bit, you got the better growth potential. You want a little bit of control the a little bit of guarantee full control. So if you got good performance, you can replace the contract down the road, you've got freedom to do other things with it or leave it to your beneficiary and you still got the guaranteed income. So that's kind of a nice, like that's a sweet spot for anybody's. Like, I don't wanna pay a fee and I don't want this so I want, I wanna grow a bunch and I want a bonus and I want take the free income rider that's gonna give you all of those things. Speaker 2 00:11:34 And of course within that, so if you say that, is that the one I want there? There's only a few of 'em that'll do it. And then of course my my baby. The flex strategy using deferred fixed or fixed indexed annuity. Just a reminder that annuities are not just for income. This strategy is best for anyone who does not want to make a lifetime commitment but still wants to, to protect the asset and take income from it. Use the free withdrawal provision to simulate income payments. Set it up on direct deposit just like an income writer, right? Simply draw the asset down over time. The people I know who like this use the account mostly for discretionary income. So the amount of withdrawals will fluctuate from year to year. Sometimes they take it, sometimes they don't, sometimes it's more than others. It's great for home improvements, A new car, maybe a vacation, things that don't happen all the time. Speaker 2 00:12:20 Great place protect money and have some discretionary income. It works. You can also do long range planning with it as well. So I'm gonna give you an example. Use a fixed annuity earning 5% and as an example in this case, take a 10-year contract at 5% and that's r it, it is available, it's, it's just a guess. Again, we're doing long range planning. You can do it shorter periods if you want. Pull out 4,200 a month, that's over 50,000 a year. So it's in the ballpark. There'd be about 535,000 remaining in the account guaranteed. So you're 10 years down the road, you still got 535,000. But then you gotta figure out what to do with it from there. Some people like the flexibility and others don't like that. And right now I think it's a good option for anybody who wants that control. But this was a r a great option when the payout rates were much lower than they are now. Speaker 2 00:13:09 If you can get that guarantee locked in, it's a good deal. It is a good deal. So you can guarantee it with a fixed annuity or shoot for more with an index annuity. So we got those good fixed rates translate to excellent growth potential in index annuities. Some people like to play that game and say I'm gonna go for it. You get good performance, you'll see exceeding the top level guaranteed contracts for income and you still have full control over the asset and you're not paying fees. Talk about fees and Ken Fisher a few weeks ago I gave you the four options, okay? You could put in here the fixed X annuity with a fee-based guaranteed lifetime income rider. Variable annuities fit in that category, but their payouts, the guaranteed payouts are not as high. And most people have other investments in the market that do this. Speaker 2 00:13:54 I don't think a market-based annuity is appropriate. I met a lady today, they, I'm recording this who had a hundred percent of her stuff in the stock market and she had a variable annuity that somebody sold her a few years ago. She got hammered in the market last year. I was like, oh, why? It's gotta be something protected, right? So variable in news could fit in, but those are the options. I'm not talking about dividend stocks and bonds and all that stuff we're talking about. Guaranteed cash value, guaranteed return of your money, return on your money. Insurance companies are the only ones that can do it. Okay? So out of these three options, there's only one of 'em that has a fee. Pretty interesting. Most annuities don't have fees but, and I can't stress enough how important it is to settle on a strategy if you like one of these like, hey I'm kind of, you know, you can look at all of these things and that's typically what I do. Speaker 2 00:14:47 The SP is gonna pay this, your index annuity's gonna pay this. If you don't wanna pay a a fee, it's gonna be this. Or if you wanna maintain control, typically, I, I always look at like the flex strategy, like the point of that is it tells you where the value is in the market because you look at the highest fixed rates and you say, let's just guarantee, you know, a return on the money and we'll dip in for the money, uh, for the income we need dip into it. It tells you whether it's a good deal to buy the long-term guarantee. So you wanna find the value in long-range interest rates is a pretty good value on 10 years. And again, one other thing, if we're talking about a joint life scenario, the flex strategy is gonna be more compelling for people joint life because that money would create, it would take a lower withdrawal to match the guaranteed income payment, right? Speaker 2 00:15:36 So a lot of times we're looking at the flex strategy with a fixed or an index annuity and that's because it's a joint life scenario. Maybe a younger couple that's not getting as high a payout rates. But if you take the payout rate from six and a quarter down to five, then obviously a 5% fixed annuity, you're gonna tread water cause you're basically living off interest, right? But again, this strategy, easy to go through this list of things. Every single one of these things, I gotta log into two different databases and do a three minute amortization schedule. What I have, like I, this is my amortization schedule for the fixed annuity, right? 5% effective yield that's nominal 4.8 8 9 4200 bucks for 10 years. 5 35, 8 75 left, right? So that takes me about mm, 60 seconds to do. The rest of it's quick and easy. You can run around and talk to whoever you want. Speaker 2 00:16:26 You can chase salespeople and have them chase you all you want or gimme a call and in 30 minutes we'll have it figured out. Uh, take your choice, right? I can't, I don't have the time to work with everyone, but I'd be happy to answer your question. So anyway, my name is Brian Anderson annuity straight Schedule a call, clicking on the top right corner of any page on annuity straight gets you to my calendar. You can call me at (800) 438-5121. Please subscribe to the podcast on your favorite platform. Leave a comment, share it like it, whatever it is, helps me out with algorithms, gets it out to people. I've got a lot of good feedback, a little bit not so good. I suppose the people that don't like it maybe aren't saying anything but a lot of compliments. I certainly appreciate it and I want to, I just want everybody to know that it is because of you. It is because the feedback you give me, it is because the cases you bring to me, it's because of all the hard work that you've done to get to the point where you can retire. You deserve the best and I'm here to help if you want me. So gimme a call, schedule an appointment. Thank you so much for joining me on this episode. Send your questions over via email, whatever you'd like to do, and I will see you next week for episode 80. Okay, bye. Speaker 1 00:17:50 You have been listening to annuity straight talk. The proceeding information is for informational and educational purposes only. Does not represent legal investment. The views express by on and do not necessarily reflect the view his partners. No information presented today should be acted upon without meeting with its important disclosure purchase.

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