Episode Transcript
[00:00:00] Hello and welcome everyone to the Annuity Straight Talk podcast.
[00:00:04] Episode number 172 back in Montana. Great five weeks in Mexico. Enjoyed it, was ready to come home. I had good bluebird skies when I got back, so it was a nice welcome home. And then it turned into snotty March weather and there's a lot of, a lot of spring left. I could go somewhere again or back there, who knows, we'll see. Anyhow, please like subscribe or comment on any of your favorite podcast platforms or on YouTube. Top right corner of any page on annuitystraighttalk.com if you want to get ahold of me. Best way is to schedule an appointment. But we're going to do a case study. A lot of people say they like case studies. This is one that came up a couple weeks ago. It was actually in the tail end of my Mexico trip. Then we had a follow up last week when I got home and just really bent my brain around this one trying to figure out. And it wasn't really necessarily because he had a bad plan or anything that wouldn't work, but it just again, you should see alternatives and there's different ways of doing things and that's at a minimum kind of what we're required to do. If you want to talk about fiduciary standard or what's in your best interest, again, you're the only one that truly knows that you can't make a decision in your best interest if you don't have options.
[00:01:12] So which annuity plan would you choose? Which one is best? How does it work? So this is a couple I met, yeah, just a couple weeks ago and got a follow up soon to cover my line of thinking and I thought I'd just flesh out the ideas in front of everybody here, Go and share this with your friends, ask me questions, make comments. This is one that's not cut and dry and so I'm going to do my best to explain it to everybody here. But there's a couple that has a retirement income plan in place. They've got $600,000 in MyGas that they bought a year ago or a little over a year ago. I don't know where they come from. They say they're getting 6.7% interest, which is higher than anything I've seen. So I'm guessing it's one of those private equity startup like I think Canvas Annuity. A lot of people ask about that. They remove the agent. It's a brand new company, nothing proven. The rates are touch aggressive. So I nervous about it. But I always tell people, if you want it, go. Yeah, go for it. You're on your own. I'm not going to make a comment one way or another. And some of those higher rates are simple interest. But these guys are peeling off about $40,200 annual income.
[00:02:17] And if your goal is just to strip the interest off for income every year, then a simple interest contract where it doesn't compound is just fine. Cause the money's coming out anyway. Now they met with some investment managers, some other advisors, who said, I'm changing the numbers a little bit to what's available. I think they want these other guys, want them to go a little more aggressively into annuities. But they've got an additional $400,000 in IRA assets that's gonna go into an annuity, maybe, plus some. They wanted to be 60 to 70% protected from what they told me if they put 400 into another annuity, they'll be about 60, 65%. And the guy said, oh, buy this fixed index annuity. This is what's gonna work. And it would work fine. There's nothing, absolutely nothing wrong with the plan. But if that's the only idea, you call me and say, what do you think of this plan?
[00:03:04] I'm gonna say, maybe there's another way to do it. And at the very least, you should look at both. And I'm gonna compare these two. And the yield on the fixed index annuity is gonna vary, obviously from zero to whatever. It's best to use a going MYGA rates of today. If the index annuity works out to yield that much, then it's just fine, it'll be okay. But we'll use the guaranteed interest rate for comparison purposes. So the MYGA's got four years left. After that, that 6.7 is not guaranteed. You got to figure out where to get the 40,200 per year. Now, there's plenty of money. We're talking about a million bucks. There's plenty of money to deal with here. But once that myga's out of surrender, it's going to roll into a new rate. I'm guessing it's not going to be as high as 6.7. It could be a lot lower. And then you got to go figure it out. If rates drop, then income has to be cut, unless they dip into principal, which is fine because they're not in danger of running out of money. And they've got an IRA that at some point is going to be subject to rmd. So at least they're going to have to swap around a little bit because they'll have to pull from the ira and the MYGA they currently have is non qualified. So they don't have to be pulling from that. I think it'd be good to start the RMDs but again some mix of that. So they're going to have to do some adjustments to their plan anyway. Is there anything we can do now to make it simple, simplify it, give them a better guarantee? That's the option, not a recommendation. Hey, here's an option. What do you like best? So since migrates today are already much lower, they can't expect to simply replace the interest withdrawals unless rates increase. So you're banking on a rate increase increase to keep things the same. An alternative is to use the IRA funds to purchase a deferred income annuity. Now that pays $40,200 annually for life starting in four years.
[00:04:50] Then the MYGA can be rolled and accumulated over time at the highest rate available in four years or in other investments. So see how doing that would. Or either way they're not locked in really long term on any of this stuff except if they bought the income it would be a lifetime lock in but on a much smaller amount of money. So you can get leverage out of that $400,000. So we run the numbers on both of those and see how to figure it out. Now this is difficult. Took me a second to figure it out. So the MYGA, the MYGA strategy or deferred income after four years, if you peel all the interest off the MYGA, it's still going to be $600,000. Now the additional 400,000 if we use a prevailing competitive rate from a decent company. I'm not going B plus, I'm not going private equity guys that are way out of the out of ballpark. I think it's get risk more risky than annuity should be. Talked about it a bunch. I'm going to continue to talk about it because a lot of people are waking up to this. If that 400,000 goes into a MYGA or FIA at the prevailing rate of five and a half in four years it'll be worth $495,000 guaranteed up. So now they would have $1,095,000 to presumably be growing at 5.5%. But 40,200 needs to be withdrawn annually. So we run this out over 20 years. 5.5% of the balance -40,200 after 20 years total, the remaining value of the account will be 1,570,000.
[00:06:19] Pretty good results. See, again, these guys are sitting in a position where they've got the luxury of having the money available to not have to worry about any choice of available strategies. So alternatively, what would happen if they buy a deferred income annuity today instead of another MYGA or fixed index annuity to get 40,200 for these guys in four years, it costs $390,000 today. After four years, the income is turned on and the MYGA is reinvested to the tune of 610,000. Now, we're not going to do that, but that's the total balance of money that we have to evaluate. They might just buy a little more income or whatever. Remember that 390, the deferred income would go in an IRA and they saved a little bit of money there. So after 20 years, at five and a half percent, we use the same rate, we can project a remaining cash value of 1 million 4 36.
[00:07:10] So about $134,000 shy.
[00:07:15] So it's close. And you look at it now, if your concern is just accumulating as much as possible, then you'd obviously go the migra route and you're going to run the risk of what are interest rates going to be? Now it's interesting, I ran that five and a half percent down to 5% or so. And at 5% they run neck and neck. So it really is a gamble on what interest rates are going to be going forward. The higher they are, the better it would seem to you're taking the risk. The better it would seem to use the MYGA strategy. So that's you taking the risk. Buying the deferred income is offloading that risk on the insurance company. Does it really hurt you that much? And you got to decide which is easier. And some people will do it different ways and there's different reasons for doing that also. So the MYGA strategy comes with risk. In the future, it could be better or worse if rates are higher than they win. But if lower, it won't work out nearly as well. There is also an issue with rmd, so the strategy is going to have to be switched somewhat. I just mentioned that a little bit earlier. That's probably not a material advantage or disadvantage because I guess if the IRA was locked in now and then income withdrawals were focused on that, when the time comes, that's possible.
[00:08:27] Just a consideration to make sure you've got it organized the right way and you're not stuck, then you got to think about what's easiest? Sticking with the myga strategy will be fine, but you got the risk of insurance rates and you might have to cycle annuities every 3, 5, 6 years, however long you want to turn it into. And there might come a time when you don't want to do that anymore. So you get in your mid-70s, late-70s, early-80s.
[00:08:52] Do you really want to be shopping for mygas, rolling things over, adjusting your plan based on where rates went? It's a question I'm not telling you, but a lot of people look at that and say, hey man, if they're close, I want to take the easy path. For years I've said the greatest advantage is one of the short term strategies. You remember I promote these strategies. So I do think it's a good idea if that's the way they want to do it. But they've got to see options. The best thing is that it can change a lot of times. When I was doing the flex strategy in the early years, the powerful income products were available in the early to mid-70s is when they got there. Hey, you might swap. I've had lots and lots of people swap from short term mygas or index annuities and roll into income products when they hit 70, 72, 73. And a lot of those guys really benefited because we had real spike in interest rates that you guys all know about in the past few years. So with higher rates today, the advantage of either strategy is a coin toss. Take your pick. What's it going to be in the future? We don't know. All we can project, these guys are going to be just fine, but they need to have an option. So the benefits of buying a deferred income now are going to make life a lot easier and depending on what rates do in the future, might end up being more profitable as well. We're going to give the positive benefits to each side and each option so they can decide which is more appealing so you get consistent cash flow. No need to readjust the plan, except for to replace the maybe the myga money and continually keep that in competitive spots. One decision. But you don't have to alter your income plan. It automatically would eliminate concern for required minimum distributions. You turn the income on, the income's going to cover the rmd. You never have to worry about doing that paperwork every year. It's just automatic and it's done. It's going to become real handy in your late 70s, early 80s when you don't want to think about it anymore. Or heaven forbid, maybe you can't think about it anymore and you don't want to explain it to your trustee or your power of attorney and all that stuff, then it would significantly reduce the risk associated with interest rate fluctuations. I think the guaranteed income annuity has some real benefits for these guys. We'll see what they think when I present it to them.
[00:11:02] But. And a lot of those things are gonna become apparent over time and again, depending on what interest rates do. It could end up being more profitable if rates go down. If rates go up, the MYGA is gonna be an advantage, but still something you have to manage and deal with. You want variable returns and interest rate risk or do you wanna set it aside, forget about it, and reduce the number of assets you gotta worry about, have your income covered forever. Those are the two options. Which one would you pick? I'm curious what your thoughts are. I'm not saying one way or the other. I think there's benefits to both sides and. But there's more risk on one than the other, to be honest with you. And depending on what rates are, six of one, half a dozen of the other, what do you like best? That's the idea of giving good advice regarding annuity plans, income plans. Now, there's other assets at play for these guys, but I wanted to strip it down to just what they had already planned on doing. I think because they're conservative, it's safe to say they said they wanted 60 to 70% protected. You've got good rates available, good payouts. No matter how they do it, it will be fine. But I wanted to put it out there as an option so you guys could tell me what you think. I appreciate you guys joining me for episode 172. We had a heck of a market meltdown this week. Supposed to have John back to talk about what he thinks is going to happen and to read the charts, give you an idea of what to expect.
[00:12:20] If you are freaked out, it's because you're not prepared. So use this time to reevaluate what's really important going forward. A lot of people chasing returns and all that stuff. This has been episode 172 which option would take Annuity Case Study My name is Brian Anderson. Please like subscribe or comment on any of your favorite podcast platforms or on YouTube. Upper right corner of any page on annuitystraight talk.com if you want to talk to me, schedule a call. Name, time, zone and time. I will give you a call at the time you suggest. And if you're not going to show up, don't do it. I had two people this week. Are you kidding me? I love my time. I do this for time. My payment, my compensation is my time. If you're not going to be there, don't bother. I'll probably have to say that again. Thank you guys for showing up. I'll be back next week with episode 173. You guys have a great day. Okay, bye.
