Episode Transcript
[00:00:05] Speaker A: 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. You 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.
[00:00:47] Speaker B: Hello and welcome everyone, to the Annuity Straight Talk podcast cast episode number 110.
My name is Brian Anderson, founder and creator of Annuitystraighttalk.com.
Coming at you with some brand new content because I made it all, did it all, takes a tremendous amount of my time to get it done. As markets change, opportunities change. A lot of these things are going to need to be updated over time. I try to offer advice and information that will stand the test of time so that if you find this four years from now, it gives you something you can use. But keep that in mind.
I would appreciate it if everyone would subscribe to my channel on YouTube or any of your favorite podcast platforms. Give it a thumbs up. If you like it, share it with a friend who you think might be able to use it. The feedback I get suggests that there's a lot of people out there that would like to see it and a lot of the information you get online is pure garbage. It helps to have someone clear the air and that's what I'm going to do. Today's topic is choosing the best fixed annuity or MIGA. A lot of people are familiar with that term now multi year guaranteed annuity. It's a fixed annuity with a rate that's guaranteed for multiple number of years. Going to share my screen and give you guys a visual aid, which is the newsletter. And there it is. There's one link you can follow out here to another page. We'll get to that in a second. So there has been a lot of frenzy around annuities in the past year and a half.
Processing times at insurance companies slowed dramatically. More and more people flocked to get the rates that haven't been available since probably 2010 or so. Rates settled a bit earlier this year, so we saw that kind of the top last November.
We're at the end of October now and I guess that was the peak, november, december rates slowed. It came back a little bit. Then everybody was griping because they didn't get the deal they wanted.
I thought, I'm going to have to update this, maybe eat my words. We'll see where it goes. Beginning of last year, I thought rates were going to be a lot lower. I thought we'd see more of a drop in the stock market. But tomorrow is a new day. You never know what's going to happen. And I'm a little ahead recording this, so maybe it has before I get it done, but I'm not making a call on that. So recently they came back and are probably about the highest available yet. That translates to fixed annuities, growth potential in indexed annuities, payout rates, and all types of income annuities, good deals, income or accumulation.
If you're tired of the stagnant but volatile stock market, you want to protect something or guarantee something going forward, especially in retirement, an annuity is a great place to do it. Right now, the biggest buz has been surrounded fixed annuities or migas. It's such a simple product, it works for a lot of different retirement planning goals. You can balance portfolio, you can do income planning with them.
A lot of people are just parked in money with a decent interest rate, but those are just a few of the things you can do with them. For a lot of people it's a good CD alternative. And if you got non qualified or after tax assets, you get tax deferral. Whereas with a CD or a treasury, you pay annual taxes, bonds, those kinds of things. So really good for that. But regardless of the purpose, I think the highest increase in my sales for sure over the past year came from this category of annuities. Before last year, these didn't really work. Free withdrawal provisions were reduced to keep rates high.
Nobody was excited about 2% locking in. But in this category, the highest increase for a lot of people, and that comes from the brokerage companies, other agents I talk to.
And it's good because they're easy, they're simple. People get what they want. So there are a lot of people out there that publish the highest rates. It's easy to shop around.
This podcast is about how the rate does not tell the whole story.
It's a very competitive market on the sales side, everybody wants your business. There are a lot of guys who sell just about anything to make a buck, and some of them do it just, hey, get you on their list of clients.
And I know that works because if we do good business together, you're likely to come back for more stuff from me later.
Or the fixed annuities always roll over. A lot of people just keep getting a new one, getting a new one, get with a new one. But I'm a little more discerning and I hold the contracts to a much higher standard. That doesn't mean you have to meet me at that standard, but I'm explaining what that means and why it's important and who it's important for. A lot of the contracts with the highest rates might not have all the benefits or the features that a person needs. So I'm not going to say, hey, this is the best fixed annuity.
Hey, this one's paying five and a half percent for five years, whatever it is. And somebody calls and says, I want that one. Oh, you need free withdrawals, you need this, you need that.
Then all of a sudden I got to say, you can't get that at five and a half. You got to take five and a quarter or five if you want all those things. So I don't want that's a waste of my time. If somebody else wants to field those calls or the people that have call centers, they announce themselves online. Hey, look at me. I know all this stuff about annuities. There's some good people doing it. But then you call in, you got to talk to somebody who is not putting their face out there online. So I field all the calls, I make all the appointments.
So when it comes to choosing a fixed annuity, you got to take all the features in consideration, plus how those meet the goals that you have set for retirement. I think financial strength, the issuing company is of paramount concern.
That puts me at a disadvantage to the guys pushing higher rates in order to sell as much as possible. I get my numbers no matter what. But I stand on my principles. I stick to what I believe in. When you want to talk about the best value, mean the thing that works the best for you. There's a lot of other variables that got to be evaluated.
If any of these you can listen to this and you go through this, you can read the newsletter. If it doesn't matter to you, then you can ignore it and go with whatever you want. So I'm going to explain all of these things so the rate shoppers pay closer attention to the details. That could be important. Number one, financial strengths.
I honestly don't know why anyone would pass up an A plus company just to get an extra half percent annually from a B plus company. Or it might be A plus to A minus. And when it gets down to A minus B plus, I think you need to scrutinize those companies a little bit and see why they're there. Safety is a primary reason for using annuities for whatever purpose you have. This one just doesn't make sense to me. On top of that, this is kicking a hornet's nest a little bit, but I don't care. And there's going to have to be a separate podcast on this at some point. It's been requested from several people. Many of the top rates are offered by private equity led companies.
In a lot of cases, a private equity firm purchased an insurance company in order to gain management of all the company's capital. So it adds a little wrinkle to the traditional operation of insurance companies. And I don't trust it. It's not the way things are meant to be.
Go. Like I said, this could be an entire podcast. If you want to do some research, look into the Bermuda Triangle of insurance companies and TSR ratios.
Tango. Sierra Romeo. Kerry Pector of the retirement Income Journal. Annuities for Dummies. I've had him on episode 101. He's done a significant amount of research on this, and I linked one of his articles that's available, publicly titled why Life Insurance Fly into the Bermuda Triangle Again. I plan to do a specific podcast on this and may even have Kerry back as a guest if he's willing to do it. So that's a big one. Company safety, company structure, all that garbage that's out there. And a lot of these people that are trying to change the way, are they taking too many risks?
Are they disclosing all their assets? That gives you a hint about what you might find. Number two, simple versus compound interest. So look closely for this one. There's a couple of them out there. I don't know if they're the highest rates in the market now, but it's that fine print. It'll say simple interest. So compound interest is obviously superior. In the last year, at least one of the very top products paid only simple interest annually. So when you calculate the long term effect, the actual effective yield is much lower and in the range of others. Plus, it was a B plus, a minus company. It's forget it.
For anybody who's taking interest payments, a lot of people will use these as just generated income. They'll just buy it and peel the interest off of it.
Then it doesn't really matter because you don't get compounding anyway. If you want accumulation over multiple years, then you have to compare long term calculations to see where the balance eventually ends.
The longer the term, the less compound interest. You need to beat the simple interest balance.
So do the calculations work with somebody who can? It's easy. Okay. Free withdrawal provision. This is a big one for anyone generating retirement income. Free withdrawal provisions can range anywhere from 0% to 10%. There might be a couple that are higher, like 15% free withdrawal. But generally speaking, take a look at it, make sure you get what you need.
There's been one popular company in the past, B plus. Hey, here's the rate. But if you want interest only withdrawals, we're going to peel a little bit off the rate. If you want 10% annually, then we're going to peel even more off the rate. Those little things in there. So you post the rate and it's only good if you sit there and you don't want a death benefit and all that stuff. So, yeah, you could run into no withdrawals interest only or even just 5%. And it doesn't matter. As long as they work for you, they're all fine. But you got to look at more than the poster rate to make sure. Like I said, if you don't want liquidity and you're not taken out, I know a lot of there's a lot of people I work with that don't take money out. So that's not a deal breaker. It's just something you pay attention to.
Big one is renewal terms. What happens at the end of the surrender term can definitely have an effect on your overall financial plan and any flexibility you may need to make changes.
Many of the micas available give you a 30 day window to move the money when the surrender schedule is done. So if you're in five year contract go five years, you get 30 days.
If you don't move the money then you're going to automatically enter a new five year period, new surrender charges, same as before. So it puts pressure on you knowing that five years from now you're going to have to quickly make a decision. Shop for higher rates. Now I've sold these, it's not a bad thing, but just think about that in terms of what you're going to do in the future. You got 30 days to enter a new window. Now you're going to get a renewal rate. And I've seen in the past where renewal rates were actually higher than what was available in the market. We let that 30 day window lapse and the owner of the contract just kept it. It was fine. You're still going to get interest, but you're going to lock into that new period. I prefer contracts that are annually renewable at the end of the initial surrender period. That means there are no new surrender charges for leaving the money there and the rate renews each year subject to a guaranteed minimum rate that's stated on the issue date. You buy one today at the end of your term we're going to renew the rate each year. It will be no less than this, two and a half to 3% right now. So that's pretty good deal because you don't have to move the money in 30 days. You can wait six months, seven months, eight months, two years, four years, five years. I have a handful of contracts that were purchased 1819 years ago. Ten year fixed annuities, annually renewable. Those are still enforce. That a nice guaranteed minimum.
Those guys are all in their mid 80s now, so hey, keep it. They're all on a guaranteed minimum 4%, so they're just making 4%. It's fine, right? Fully liquid, no big deal. But the annually renewable ones give you a whole lot more flexibility because you don't have to rush to make a decision. You can take your time planning the next move with no penalty at all. I covered this a lot in surrender free annuity. It was a podcast. Last year I had a client getting rid of an indexed annuity or getting to the end of the indexed annuity.
And those are all annually renewable at the end of them, but that's not the point of this deal. So the last two are actually kind of one, but I'm going to do them separately so it's easier to explain. Management Fee a lot of insurance companies have a fee based option contract that doesn't pay a commission sold by a broker dealer and registered investment advisors. The rates appear higher because the advisor on record will charge a management fee, which reduces the effective yield. Depending on the brokerage agreement, you will likely not do any better by chasing the rate alone. That one's a big one. For anyone who likes to do all their business through a brokerage house or with a registered investment advisor, they're recommending an annuity. It's a lot of times going to be a fee based annuity. It's five and a half percent posted rate, and your brokerage agreement states that you're paying a 0.9% management fee, then you're down to 4.6. So it reduces the effective yield. Again, just pay attention to it.
A lot of times I think those guys will probably charge a lower fee for that. I'm not quite sure how most people do it, but the companies will set a maximum no more than actually, I think it's one and a half percent, which is no bueno for you because a lot of the commissions aren't even that much, or some of them aren't even that much. So that guy makes one and a half, the company will let him take one. One and a half a year. That's pretty rich, honestly. I'm going to talk about that in another podcast. Anybody is, oh, we don't do commission products. Okay, fine. But you're disregarding a whole asset class. I digress. So commissions, this is a tough one to explain, so you're going to have to ask about it because you guys can't see commissions. I don't think it's posted publicly, but commissions and interest rates should be similar across the industry or very close.
When a commission is really high, along with a top of the market rate.
I scratch my head because I think, what does this company know that no one else knows? How can they do that? In the worst case, they have a riskier investment portfolio which stay away from that, or they're making little to no money by selling the annuity. Some companies will even lose money just to gain more assets and juice the balance sheet. It does happen. I heard that from a very reliable industry insider. How about that? There is one company that I like the company a lot. They have really good products, good free withdrawal provisions, renewal provisions, all that stuff. It's not the highest rated company, but I see their rates are typically very competitive.
I've used them a lot for people that are building fixed annuity ladders and stuff like that. But I've got confidence and they pay some really low commissions. It's like low enough where it's like, oh, it could be a tractor to sales. Maybe they don't sell as much because they're not paying the commission, but it tells me that they're doing things the right way. So five and a half percent rate with 1% commission is about equivalent to a five to five and a quarter percent rate with a 3% commission. Again, it's just something again, it's hard to explain, but you look at the cost structure of the contract to see if it's within line of everything else in the industry. If one company is way out ahead of everybody else, then you got to try to figure out why if you can or just stay away from it if it makes you nervous. Biggest thing is, first and foremost I want you to make money safely. Then I want the insurance company to make money so they stick around to honor promises. I've talked about it a lot. Colorado Bankers Life, everybody ran to get 4%. Colorado bankers life went belly up. It was a fraud deal. Money's been locked up for four years I think is about what it is now. So it's not rate chasers, rate shoppers. Oh, I want that annuity. They're not all the same here's. Five or six different reasons why they are different.
So there's so much more to fixed annuities MYGAs than just the rate. One or more of the above is likely to be relevant to just about anyone wanting to buy one. I think they're probably all relevant. There's a lot more to buying annuities when considering all factors of a solid retirement plan. This website is not focused on sales for that reason alone. If there is anything about a fixed annuity that you'd like to know but aren't getting from another agent or an online search, you can bet I'll set the record straight. Shoot me an email, give me a call, I'll set the record straight. Just make an appointment, we'll get it done. Hope this gave everybody something to think about. Educated a little bit on how all the products are different, how companies make it work. Restrictions and free withdrawals create higher interest rates. Company can afford to offer more interest rate if they know you're not able to take money out.
Commissions cost structure for the contract up front.
Anyway, this has been episode 100 and my name is Brian Anderson, founder and creator. If you want to get a hold of me, make an appointment by clicking the box on the top right corner of any page on annuitystraighttalk.com. I'd love your questions, comments, feedback. Please subscribe comment like share the YouTube video or the podcast itself, or the newsletter even as well. Goes out by email every Saturday and this one's coming to you soon. So I appreciate everything you guys do for me and all the great ideas and comments I do get. Sharpens my blades makes me very effective at what I do. And I'm looking forward to coming back to you next week with the next great episode. Thank you so much for joining me. Have a great day, okay, goodbye.
[00:18:33] Speaker A: You have been listening to Annuity Stray talk.
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No information presented today should be acted upon without meeting with a qualified and licensed professional.
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