Episode Transcript
[00:00:00] Hello and welcome everybody to the Annuity Straight Talk podcast. Episode number 219 on location in Tucson, Arizona. Great backyard, good backdrop, lighting, a little, I don't know, that's just my challenge going forward. My name is Brian Anderson, founder and creator of annuitystraighttalk.com. please like subscribe or comment on any of your favorite podcast platforms or on YouTube. Share it with your friends, your advisors, anybody who you think would have benefit from seeing it, who might have comments or suggestions, ready for it, and love a good conversation. Makes us all smarter. Today I'm going to talk about, I want to start doing more case studies on my calculator and I'm really excited about that part of it. I'm going to share a screen because I'm going to get my newsletter up and talk to you guys about a case that I saw recently and something different we can do with the calculator. Met a nice lady a few weeks ago and just looked at it and thought about her situation, what people were telling her, and I was like, you know what? I, I think I can use my calculator to illustrate it. Point. What's important in these cases is like a lot of times you do this, you have to first kind of look at the basics and kind of see where you're at. You know, look at your current plan to see if you need to change anything or do anything. Right. I've been doing this for long enough that the basic numbers, the general numbers kind of come to me naturally. A lot of people recognize that when I say, hey, you know, this is going to work, that's going to work. How do you know? It's like, well, I've seen it so many times. Kind of give me an idea. All right, you want to tell me how much you want to spend in retirement? I'll tell you how much you need. Tell me how much you have, I'll tell you how much you can spend. Realistically, I'm not telling you what to do, but it's just kind of an idea of what it takes to retire comfortably and be happy and enjoy your life. So if you add the rate of return, I can figure out how long the money will last or if you can leave money to your heirs or plan for inflation or long term care, any of those things. Now, I do use calculators to, you know, get the numbers, but typically deal with kind of general idea of where it would head. And then obviously we need to get specific. We'll hammer it down with an actual calculator. We'll Go to the penny if we need to. But the first call is just to kind of set the stage for that and get an idea. Generally if we're talking about the right thing and then, hey, do we have a reason or a need to go on another call? The woman I met a few weeks ago, she talked to a CFP that gave her some numbers. Her and her husband want to spend about 65,000 per year in retirement.
[00:02:16] They are very risk averse. They had all their money in bank accounts and CDs just sold the business trying to figure out what to do with it. Bank account CDs. So the CFP told them if they say with their plan, which is currently like, hey, this is what you're doing, this is what it's going to look like. Told them that if they stayed with their current strategy and spend the expected amount of money, they'd have 850,000 left in savings. At age 90. She's 62 years old, so that's 28 years. It made her a little uneasy because it kind of made it sound like she was going backwards. So now I can tell you basically with current CDC rates, if they projected that remainder and that spend rate, then they'd probably need about 1.5 million.
[00:02:54] And depending on whether inflation, if they want inflation, then it's probably 1.7, 1.8. Right off the bat, I kind of knew that's the ballpark we were in. Now one common tactic in financial services is to create fear. It's no different than what happens in politics. If you're worried about what is currently happening, you are more likely to accept the solution. Government's really good at doing that. Oh, look at this problem. What we happen to have the solution for that, right? And it's just more government. It's the same thing in financial services. Like, hey, listen, I'm going to show you that you have a problem. But as luck would have it, I can solve that problem for you. If I were to tell these guys that there's a problem with their plan, they might be open to hearing an alternative. In this case, the CFP was trying to convince them that they need more yield. Pretty obvious, hey, your money's going backwards. Clearly you got to make more than you're currently making.
[00:03:43] That's just a pitch to get money into a managed account where they will pay a fee. So that's some form of self dealing for the guy. If I know they're risk averse, obviously you know, they probably don't need to be.
[00:03:56] Yeah, maybe they don't want any money in the market. Right. When she told me that they had 2.4 million, I knew something was not right. Because a simple 4%, that's CDs now, was going to create 96,000 per year. So in order for them to go backwards in, the assumed rate of return would have to be much lower. So break out the old calculator, reverse engineer the rate of return, find out what the expectations from the CFP were.
[00:04:18] So if they spent the 65,000 for 28 years and had 850 remaining, it takes a whopping 0.42% rate of return.
[00:04:28] Clearly, he worked the numbers in his favor to get them worried about running out of money.
[00:04:34] That's a little better than mattress money, right? Go stick it on your mattress. You do about 0.42%. And what about inflation? Well, if the inflation adjustment, I don't know if they have factored it in. So you could do a 3% cost of living adjustment to have 850,000 left and the required yield goes to 2.07%. Still not great.
[00:04:54] But again, convincing. Yeah, you guys need a higher yield for these guys. This guy is not falling. I can use my new calculator to show something completely different.
[00:05:03] Whether it's an annuity or not. We can see what asset distribution and compound interest will do over time.
[00:05:09] Fixed interest rates are easy because we don't have to do anything with variable markets. So interest rates will change over time, but we'll get immediate satisfaction for a short period of time. So you can say, okay, well, this is a good path. It may only last a few years or five years, whatever, anyway. And then the longer we can go with a guarantee, the more assurance we can have that works out. Not that you have to always lock in for a longer time. So I'm pretty sure this lady called me because CD rates were falling. She was finding it hard to get the rates that she was used to in the past couple of years. And for 2.4 million in CD is a burdensome process to get that kind of money spread out under the umbrella of everyone's favorite social program, the fdic. Right. If there's an easier path that makes a lot more money, then it's worthwhile. Let's put my calculator and in the input side here, we're going to go, they've got 2.4 million and now this doesn't have to be in an annuity. All we're doing is we're going to run it on interest. So I'm not saying Put all that money in annuity. They want 65,000 per year.
[00:06:06] They are. I think they're in Arkansas. Don't matter because it's just a fixed interest rate. This is going to simulate what a 4% rate of return would do. That's all we're doing with this. It is joint. The youngest is 62 income in a year at 63 is when they want to start it. And if I go to the advanced settings, then I will. We'll just go 20 years. She'll be at 82. I mean, if we know we're running out of money, then we'll be able to see it. Right? So let's see what 4% does. And I'm going to run the flex strategy. We're not going to do an income quote, anything like that. There is a play for these guys to use an income annuity, but I don't think they're going to do that. So not worth it. Let's see what the output is with 4%.
[00:06:40] Even the CFP told them they'd be down to 850 at age 90. So what are they at when she's 82? Here we go. And it is going to show you the market numbers.
[00:06:50] What's interesting is a 4% rate of return.
[00:06:53] Best and worst. Doesn't matter if she can always get 4% on her money, she'll get to age 82 and have about 3.4 million left. Same right. Compared to the market in the worst 20 years. That's a better strategy in the stock market. And in the last 20 years, it's not quite as good as the stock market. There's nothing wrong with. There's nothing wrong with having a little safety in your portfolio. You guys are going to see that it will over time, Right? You'll do just fine. Oftentimes a lot better, especially when withdrawals are taken into account. So that gets them spending their $65,000 a year. Right.
[00:07:23] Let's go back and let's say, what if she can increase the yield to 5% with a MYGA? How is that going to change the deal? And there it is.
[00:07:31] 4.2 million bucks.
[00:07:33] 5% on the portfolio, best or worst.
[00:07:37] So this is really simple. Pull up the sheet to show the returns. Again, this does not have to be an annuity. If I were these guys are recommended if they want to stay on the safe path. Then you'd start with CDs, your ladder. You start moving into, you know, 5% or better deals. You can get it all over the place. Right? And what's interesting, there is no danger of them running out of money. They don't have to really do anything differently right now, but if they want to stay safe, they can increase the yield. It's very simple and straightforward. Another thing that we can do with the calculator, and obviously if we look at this, the CFP said, was telling them to do 30% of their portfolio in the stock market. So we can take this back to a 70% annuity allocation.
[00:08:19] So that's 1.68 in the fixed rate. And automatically what does it do? The last 20 years in the market is down by about 500,000. So at that level, it's actually worse to be in the stock market. The reason being the withdrawals work is that it's going to drain that stock account. So you're just not getting the growth out of it. Could be a little bit different in practice, but there's a little bit of. That's why you have to really analyze this and see how it works. But you can't say, no matter what scenario you run, no matter what you do, like, you can't definitively say that the market's going to be better or they should have 30%. So if I use that logic that was used before, it's like, oh, you need to increase yield, put 30% in the market. What you'll see with this is you'll probably have a better result if you have maybe 60 to 70% in the market is going to be a better result in the last 20 years. But in the worst 20 years, it goes down, down, because then you're just taking more risk in a very volatile market.
[00:09:13] So I don't know what numbers the CFP is using. The sky is not falling. Fear is not an issue. I don't have anything that they're doing that I can blow up. Just a recommendation that they could increase yield if they wanted to, if that would make them more comfortable. The purpose of showing this is not to convince everyone to put an entire portfolio into annuities. I will say some people do it. It's something that happens over time when they get really comfortable with it, but it's not something we recommend.
[00:09:39] At the very least, it proves that an annuity is not going to kill you. Again, I was just running fixed interest rates. Pick your rate and where you get it. You also just need the liquidity, you need the guarantee. One of the things with the annuity is some of those best CD rates are 6 to 12 months. You don't have the high rates for 3 to 5 years in CDs anymore. You still have 5% plus in the fixed annuities.
[00:10:00] But it helps. I mean, the point of this, I've been seeing the spreadsheet and how that money grows over time. You need a time component compound as well. If you're resetting CDs every six to 12 months, then you're gonna have a lot of taxes. Taxes are a big consideration in here as well. Good and bad for the annuity. You can defer those taxes, but it's gonna build a, you know, lump of taxable stuff potentially in the future. If anyone tries to scare you into making a financial move, then please move quickly in the opposite direction. Most people need to just calm down, take their time and analyze things in a very simple way. Numbers are a lot easier than most people realize. As concern for retirement builds, it's common to stress about all the variables that need to be factored. Taxes, income, long term care, you name it. Everybody's got their own list, right? This is an easy lesson. Let's take the big numbers down first. Realize that in a world where the numbers work really well in your favor, then all those other little things are going to be much easier to deal with. Once you realize that you're not going to run out of money, then nobody's going to be able to convince you to do something that you'd rather not do. In the beginning. These guys can forget about running out of money. Yes, it would be helpful to improve yield, but they don't need to rush into anything. Now. If you guys want to similarly get your bearings and look at this calculator in a different way. Hey, let's run some numbers. We can do income quotes, we can do fixed quotes, we can do market simulations, all that stuff. And it's going to continue to improve and get better. So if you guys want that, get on the calendar, top right corner of any page on annuitystraight.com we can run some simple numbers, make it all as easy as possible. It's not hard, just takes a little bit of time and patience and you will get it too. So thank you guys for joining me. For episode number 219, share it with friends. Like subscribe or comment on any of your favorite podcast platforms or on YouTube. I will be back next week with episode number 220. Thanks so much for joining me guys. Have a great day. Okay, bye.
