Episode Transcript
[00:00:00] Speaker A: Hello and welcome to the Annuity Straight Talk podcast, episode number 150.
Getting up there kind of consider this maybe a milestone, but this is a little case study about a really good client. Solid guy. We're on the same page. We worked together long enough, we know what we're doing. He asked me for advice, explain what he wants. I was like, here's what you should do. I explain it to him. Okay, makes sense. Let's do it. Another one of those cases. But we're going to talk about deferred income annuities versus guaranteed lifetime withdrawal benefits. And because this is episode 150, I consider one of the great clients of Annuity Straight talk is an important episode for that. So we're going to go over it now. So please like subscribe or comment on any of your favorite podcast platforms or on YouTube. Schedule a call with me in the top right corner of any page on annuitystraighttalk.com.
schedule a call button. Name, email, phone number, time zone, time notes. Hey, I want to talk about this. Pretty simple. I will call you. That's how it happens. No zoom calls unless you request it specifically for a follow up appointment. No big deal. So I'm going to share my screen. Got a newsletter here for you. Back in the writing mode. Everyone loves it that way. The people that don't like to watch the videos, I have people, I don't like to watch the videos. I just want to read it. Okay, but you're going to get more here in the podcast, there are two main options for using annuities to produce deferred income. Both of them have an advantage, and it all depends on what you want. So you got to see, somebody's got to be able to look at all of this stuff. There are too many one trick ponies out there. And that's why I've made a mark on this stuff. Because I get one guy that's only showing one thing and another guy who's only showing another thing. Then you have to figure out, hey, what's the difference? Well, I'm going to tell you what the difference is. So when we're talking about divert income, most of people are just trying to maximize it. Portfolio management. Let's maximize the income with a piece of our assets. And that makes, it's a pretty easy, objective decision to make. This one happens to be where legacy comes into play. It's a material difference between the two contracts, in my opinion, and the guy who's putting up the money for it believes so as well. It's the golden rule who he who has the gold, makes the rules. So I can't pull over one over on him. He's been around too long. He keeps me consistent, and he'll tell you I have been consistent. So deferred income annuities. Diaz kind of self explanatory. It's basically an immediate annuity and an immediate annuity. You give the insurance company money and they send you payments or monthly payments for the rest of your life or annual or quarterly however you want them. A Dia is a spea single premium unit annuity, deferred income annuity, where the owner wishes to defer payments for more than a year.
So these have become popular against longevity, where it's like, hey, I want to set aside some money. It's going to start paying me in three years, four years, five years, something like that. Longevity insurance was, you got qualified longevity annuity contracts. Longevity insurance would be a deferred income annuity, where you say, okay, I'm going to set aside some money and it's going to pay me at age 85 for the rest of my life. So it's insurance against outliving your money. That's why they call it longevity insurance. Qlacs came along, qualified longevity annuity contracts that let you take a little bit of your IRA and take it out of the RMD discussion. So you could defer it and you could take, and I think the limit's 145,000 now, but there's some pretty good deals out there you can say, okay, well, I don't want to pay RMD's on this. I don't need the money, but I want to make sure that I always have some late life income.
Great deal if you live to 97. If not, your heirs get back what you put into it, plus a little bit if you don't make it that far anyhow. But you can skip RMD's on a portion of the IRA funds and then provide for that longevity risk. So as with most other assets, creative uses came about that made these contracts viable for other uses as well. You don't have to wait 20 years to start income. You can wait three or four. Most of it was just regular old retirement income. This one's more about legacy distributions. They can be used that way. So aside from when income starts, deferred income annuities are just like immediate annuities. We already talked about that. Whether you get payments for one month or 30 years, it doesn't. It only matters how long you live. Now, if you take one check and you get hit by a car, money's gone. So most people don't buy that type. They like to add a certain period, a guaranteed period.
You can do like an installment refund where you get back the unused portion of your initial premium. Or you can add a certain period and they go as low as ten years, up to 30 years. I sold one years ago that was a 30 year because a young couple, that's actually a cool story. Why would a 47 year old couple buy an immediate annuity with a 30 year certain on it? I don't know if anybody wants to ask. I don't know. Tell that story. It's kind of fun. So most of the time, it's like the period certain is range of 20 years. Now, a lot of people have a hard time understanding this. It's written pretty clearly. So if you have lifetime income with 20 years certain, the payments will be made to the annuitant or beneficiaries for the life of the annuitant, or 20 years, whichever time period is longer. So a lot of people say, okay, well, oh, it's 20 years certain. So if I live 22, it's not gonna be, no, if you live 22, it's gonna pay 22. If you live 27, it's gonna pay 27. If you only live twelve, it's gonna pay your beneficiaries for eight more years. All right, so that's one kind. Now, guaranteed lifetime withdrawal benefits. I've talked about these a lot. Shouldn't be a surprise to anyone. They're attached to a fixed index annuity. Those are the highest payouts. You get. Variable annuities have them. Well, we're not talking about those at this point in time. Although a variable annuity could be used for, you know, a legacy play, I suppose. But we're sticking to the simple facts and we're not looking at outlandish market projections. Most of the time that payments are deferred for more than a year. A GLWB will pay the highest amount of income. But you can't add the same long term guarantee of payments if you don't live long enough to collect. You do get a residual account value that grows. So your account value grows at some interest is why people liked it. Because, you know, you put a couple hundred thousand bucks into it, you have an account with a couple hundred thousand bucks into it. When you start taking income, that count account is reduced by the income payments and the fee. Now it's indexed, so it grows a little bit, but it's a managed decline of the asset. Right now, the payment or payouts are really high, so the cash value drains quickly and there's not much left. After maybe 1112 years of income. Guys are buying these and deferring five or six years and getting a 10% payout of their initial investment if the contract's not growing that well and there's a fee coming out of it, right? So GLWB's have the highest deferred income payments. Been a great deal in the past few years. People maximizing income for the least amount of cost. But not everyone is foremostly concerned with maximizing income.
A couple weeks ago I ran into this and I realized that the DA deferred income annuity with a lower guaranteed income was actually a better deal. In this specific case, shows a material advantage for the DS. So it's the type of analysis that needs to be shared because not a lot of people are going to do this. You're going to get guys that sell ds and guys that sell GLWB's and they're both going to state their case why you need it. Well, how about somebody who talks about both of them when they're appropriate? So give you his first name. I've worked for Dan for more than eight years. I've known him for ten or eleven because he contacted me before he retired and before he could access his 401k.
He has owned pretty much every type of annuity that I talk about. He did a really good job of laddering different time periods of income and deferred contracts that had him going short during low interest rate periods and more recently, replacing those contracts all were surrender free, no penalties with longer term guarantees at much higher rates. So he played the interest game, interest rate game really well. In the past couple of years, as rates continued to rise, he peeled off some stock market gains, locked into higher rates. What looked like maybe a lackluster portfolio eight years ago looks pretty dang good right now because he's got solid guarantees on all that annuity money. The portfolio of annuities he has owned worked out beautifully considering the timing and the rate of differences. Now, if there were a poster child for annuity, straight talk, it would be damned.
We're at the point now. Hey Brian, I'm thinking about doing this. What are your thoughts? I'll give him my opinion. It's worth looking into or no, it's not. We've done that a couple of times. Give him a couple of reasons. He says, hey, that makes sense. He's a smart guy, successful, no b's. Okay, we're past that.
Easy to work with so over the past several months, we've been talking about he decided to take some more risk off the table, out of the stock market. And he waited until it got kind of gotten up to a top, and then he sold it off.
But the goal this time is to slowly gift the money to his kids. He said, well, they're all going to. They're going to. They're going to wait for some undetermined period of time, and I'd rather start dripping it out early and helping them along the way. And I talked to a lot of people about this, a lot of people that have money set aside, oh, my kids will get it one day. And I even know people that scrimp on their lifestyle just to leave money to kids. And I, a lot of times I'll say, why don't you enjoy it with them, do things with them for your kids, your grandkids? Not everybody has to do it, but it's a really good idea. I don't know if you heard me say it or if he came up with it on his own, but it's a pretty good idea. He gets to see his kids benefit from that over the next 2025 years of his life. That's a huge positive effect. So he gets to watch it. He's got more say in how they use it and what's done with it. And there's a lot of people that prefer to leave an income stream rather than a chunk of cash. So taking a portion of his assets, he wants to purchase a deferred income annuity that starts just before he needs to take required minimum distributions in five years.
His first thought was a dia because he's got his investments at Schwab. And Schwab said, hey, here's a good deal. Buy the dia. And he wanted a DEA that started paying in five years for life with 20 years certain. So it's going to pay for 20 years no matter what. And more than that if you live longer. So if he doesn't live more than 25 years, his kids will still get the maximum guarantee in the contract. Is that 20 years of payments? So I looked at it naturally, I figured the GLWB would pay more, and it did. The Dia paid $3,600 per month for 20 years. So it's going to pay out just shy of $800,000, which he can guarantee to his heirs over the next 25 years, he'll just take it. And for anybody who says, oh, that's not a great return, you could also reinvest that, and the returns would be astronomical. That's the efficient frontier of retirement. That's how to beat the market with an annuity. It works. The DA was 3600 a month. The GLWB was 4600 a month. That's a $1,000. That's a lot more. That's about 30% more income from the GLWB. And I'll tell you why that happens, because the GLWB doesn't have the back end guarantee of the DA with the period certain on it. Now, when we do period certain income streams, we test them. We do ten years, certain 15, 2025. And there's kind of a sweet spot for everybody, you know? And a lot of people have been, hey, it's about 15. So if you go a lower period certain, you get a higher immediate payment. So anyone trying to maximize income, it's an easy choice to just take the highest payout, and that's exactly what most of the people do. Now, you know, he's 67. So this thing, 20 year certain, takes him all the way out to 92.
Probably not going to make it that long, but he might. That's a really good guarantee. So a lot of agents have tunnel vision. They'll sell one or the other.
They only think about things one way. And there's a ton of guys who sell one or two different contracts. They just kind of, okay, well, I just use this, right? So when I showed him the higher payment, the GLWB, he's like, there's got to be a catch. Tell me what it is. I was honest with him because our relationship is important to me. We've got more business to do over the years. He's got, my guys are going to roll, and if I treat him right, he's going to be there with me. And these, the clients like that. And any one of you who's like that are going to be the guys that see me into a casual retirement, wherever we're rolling contracts. And I'm here for you for the next 2030 years, because I'm only 45. So the DA was guaranteed to pay for at least 20 years. The GLWB is only guaranteed to pay for as long as he lives. So if it's not 20 years, then it's, it might not pay out as much. So any remainder is purely based on performance of the contracts. The maximum GLWB contracts are not built to grow a whole lot, and high payouts drain the cash value very quickly. So if he waited five years and took the higher payment, he'd have to collect for at least 16 years. It was just shy of 16 years before he collect payments that were equal to what the DA would guarantee. I think that put him at age 86 or 87. He's not confident in that type of longevity in his family, so he's putting a risk on the last three or four years of that out there, and he doesn't want to worry about it. So before the GLWB turns positive, from a guaranteed standpoint, I would advise him not to take the risk. And that's exactly what I said. It's like, well, it's higher payout, but you don't have that long term guarantee. You only have guaranteed payments with a draining cash value. And there are guys that are going to sell it hard and say, oh, it's going to grow, it's going to grow. He's had experience with a lot of different types of annuities. He knows that they can work just fine, but he doesn't want to put the risk on that. And I said, because your purpose is the legacy and for providing steady cash flow to your kids to help you and them enjoy what you have created through your retirement, the best deal is to go with the DIA. Now, the GLwb pays twice as much. That's why guys try to sell it so hard. But I know a small percentage of something is bigger than a large percentage of zero. I don't care. I don't have a dog in the fight. Want to do the best thing for you. Am I a fiduciary? I guess I can't say it legally, but you make the choice. So that's the core difference between the two of them. He gets a guarantee that's going to last past or to his age, 92. Pretty amazing. If he doesn't make it that far, his family still gets the money. So good use of some assets, using some market gains, peeling them off, putting a guarantee in place. Help his kids enjoy leaving a legacy with them over time. I think it's a brilliant idea. And Dan, you're the best. I appreciate you putting the trust in me, and it's been good working with you. I look forward to doing it for years to come. I'm here for whatever you need. So I'm not trying to scare anybody away from buying GLW bees. They're awesome. Contracts with the guaranteed income index. Annuities are even now becoming a little bit more. There's a little bit better value proposition in relation to other contracts. And there was, I'll carry it, cover it next week. So I'm not scaring you away from take the highest payment because it's in a lot of cases, it is without a doubt the best thing to do. That's when there's a piece of your portfolio and go to that. The rest of it grows for stuff, you know, even Dan did that with a piece of his assets before, but he let the rest grow and now he's ready to take some chips off the table. So in this case, the deal was the best deal for his purposes and what his goals were with this money. So it may be different for you. So it's best if you seek help from someone who can see all sides and explain them appropriately, help you find what is best. If you need that kind of help, that's what I'm here for. Top right corner of any page on annuitystraighttalk.com dot schedule a call. Please like subscribe or comment on any of your favorite podcast platforms or on YouTube. I appreciate you guys being here giving me the all these great ideas. It's fun to do this and communicate with you. I get some negative feedback that I'll address at certain points in time, but I want to let you guys know, if you have something negative say, just say it. I'm not going to get all worked up about it. I'll state my case and give you what I think. So appreciate you guys joining me. Elk hunting season is coming up this weekend, but I'll be back next Monday and I'll get you episode 151. It's going to be good, so come on back and I'll see you then.
[00:16:07] Speaker B: You have been listening to annuity straight talk.
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