Episode Transcript
[00:00:00] Hello and welcome everybody, to the Annuity Straight Talk podcast, episode number 205. My name is Brian Anderson. I created this website, wrote everything on it. So I guess that makes me the founder and creator of Annuitiestraighttalk.com here for the 205th time to talk about something that will help you make better decisions for retirement. If you're in the market for annuities, we separate what's important from what's not important and that it depends on your situation because every annuity has something good about it.
[00:00:29] Every annuity is right for a purpose, but you've got to figure it out because nobody else is going to help you besides me. Anyhow, Happy Thanksgiving to everyone. This is the week we're at coming in on the end of the year. Please, like subscribe or comment on any of your favorite podcast platforms or on YouTube to schedule a call with me, you want to look at the top right corner of any page on annuitystraighttalk.com I'm going to show you right here because I'm going to share my screen, give myself visual aid, talk about this topic today. So, yeah, see that right there at the top? Boom. Schedule a call, hit it, grab a time, enter some information. I will give you a call. Okay. It really surprised me when I went through the newsletter a couple weeks ago and was talking to someone and I tell everybody, come ask me if you have a specific question, I can point you to the right place. 200 plus episodes is a good thing, but it's also, you know, it's hard. I don't expect anybody to go through and watch every single one because in most cases, which I say all the time, there's three or four probably that'll get you everything you need for your situation. And what you need is different from what someone else needs.
[00:01:35] And, you know, it's probably ties together more than a dozen podcast episodes.
[00:01:41] So if you have questions about any of the details in this, you just let me know. And there's probably something very specific for each of the points I'm going to make. So how do you choose the best fixed index annuity? Everybody's got an opinion. An opinion is going to be part of it, and I've got an opinion as well.
[00:01:55] But you got to start with your goals first. If you start with your goals, you're going to whittle down the options to a point that it is very manageable.
[00:02:04] So last week I made the point. There's two purposes for using a fixed index annuity. You can use it to protect and grow money, or you can use it to generate guaranteed income. So within each of those, there's a few nuances or several nuances that separate the favorable from the unfavorable. So our job as agents is to teach you what those options look like. We make a recommendation based on what we think is best, but you should end up with the knowledge to choose what you think is best. I can always give you a nudge. I can always say, hey, I really recommend going this path because that's what I think is best. But not everybody does that.
[00:02:43] If you do it differently, want you to do it with confidence, or like, no matter how you do it, with confidence. So we're supposed to give you more than one option. A lot of other guys drop the ball, kind of. They'll say, well, there are others, but this is the best. And this is my favorite favorite. And our preferences do not matter when it comes to your money. The only thing that matters is that you get what you want and you get something that meets your goals. So regardless of your purpose for using a fixed index annuity, one thing we all have in common is to stick with only the highest rated insurance companies. So we'll just take that off the table. I could talk about safety and to bolster any one of these points, but if the point of buying annuities is to protect assets, so if that's important, don't settle for anything of lower quality. It's the point of using an annuity. It's not hard to do. And honestly, you usually don't have to give up a whole lot or even anything. And you might in a lot of cases do better with the higher rated company. You know, those guys will get kind of in a tunnel. It's like, oh, I'm close to my sales goals with this company. I'm going to try to get it here. Or the marketing organizations that distribute the products will do that. Hey, everybody, we need X more for this. We're really putting the focus on selling this product and then you walk in, who cares? The chances are that product wouldn't be right for you. I've been strict about using high quality carriers throughout my career. I will continue to do so because it has helped me avoid two major issues. When insurance companies got into trouble. Colorado Bankers Life and Sentinel Security. Atlantic Coast. I think Sentinel Security is allowed to do business again. But after what happened last year, why would you go there? I don't know. And why would people keep selling it? I don't know. That's an easy one. So move on to other parameters you should consider. So buy objective.
[00:04:19] If your objective is production and growth, great place to put money. You want to keep it safe from loss. It's one option. So first you have to make sure that your other options have been covered.
[00:04:30] So, you know, bonds, money market, fixed annuities, mygas, whatever. Right. And if somebody says this is the best way to do it, you might think it's the best way, or he might want it to be the best way. But you need the context. You have to understand the alternatives and why that is preferable. It's got to be your choice. Okay, so first is the surrender period. Make sure it matches your objectives. There are more than just 10 year options available.
[00:04:54] I've done podcasts on all of them. There's a decent three year index annuity for anyone who wants to go, I want to just try it. You could do it for three years now. You get more benefits for taking the longer term. So when we sell a longer term contract, we've covered a lot of that stuff. This includes higher growth potential and a greater variety of index options. But regardless, the surrender period has to work within your time horizon. And for the most part, retirement money is kind of sitting in one place. It's locked up one way or another. I mean, I've got a lot of people who bought these annuities over the past several years. You know, liquidity, surrender terms, always a concern. There's a ton of people that don't even touch them, just like the rest of their accounts. Okay, so keep it in mind because somebody else might say, oh, don't lock your money up. Well, what do you mean lock your money? Your money's already locked up. It's been locked up for 30 years. Index options. So the index options are the way you can allocate your money to see how much it was going to grow. Some people like it simple and others don't mind a little more variety. The more index options you have, the harder it can be to decide what to use. You want to ask a lot of questions about the history of blended indexes, and at a bare minimum, you should have at least one pure equity option so there is no second guessing the yield when it comes out. Happened recently with a blended index where we had that big hit in the market in March and April. So the index was up, it dropped quite a bit and it didn't quite recover as well. So it ended flat. We got to be able to explain how that works. And a pure equity index like the S&P 500. It's beginning of year to end of year. It's easy. Okay. So it's nice to have that if you know you want some certainty in what you're doing. But again, shorter term options are going to have two or three indexes available up to the 10 year deals are going to have, you know, 12, 15, a lot of difference. I like a lot of different options, but some people like the simplicity of just a few.
[00:06:39] So bonuses can be a good thing in certain situations, but you have to realize there's a trade off. Free money at the beginning will give you less growth potential over time. Now, with or without a bonus, I think should average out to about the same. So you need good reason for the initial boost so you can can use it to get out of other annuities. That's a podcast. Others like the death benefit. Right, that's a podcast. And some just like the initial boost. We talked about bonus annuities a fair bit. Some people say, hey, I would like to bank that extra money now. I know it's not going to grow as much, but. Right. And then again, for somebody in their 70s, maybe health isn't, you know, health isn't great. And just in case you want to make sure that there's as big a death benefit as possible. So a true bonus will be available for a death benefit. Okay. Now don't ever use it to get additional benefits that should otherwise be included in a fixed index annuity anyway, like a 10% free withdrawal. And you've got to beware of a vesting schedule that goes beyond the surrender term. So we're working currently with some people who have heard both of those claims. Well, you'll get a 10% free withdrawal if you take this one with a bonus. Well, you can get a 10% free withdrawal just about anywhere. And then we've also got a person who's through the surrender schedule, but the vesting on the bonus is six more years. So they got to decide, do I wait? Because after 10 years they might still not get the bonus. So yeah, just questions you got to ask people. Free withdrawals. So how much liquidity do you need? Now? I don't sell anything that comes with less than a 10% free withdrawal on an accumulation product.
[00:08:01] Some companies will reduce that to 5%. So pay close attention to something that looks too good to be true. If their rates are way higher than everybody else, that could be one of the reasons, you know, and that'll work okay, for someone who just really plans, hey, I don't really need to Touch the money. It's no big deal.
[00:08:17] So free withdrawals can be used to supplement income. Meet your RMDs if a 10% is available. If your RMD is only 4, you can use that extra 10% to satisfy RMDs from another account or. I've had several clients who have taken the free withdrawal, rolled it back into another IRA or something, and just average. Like, I had a guy earlier this year, right at that drop came his anniversary date, and he said, take 10% of the money he bought into the S and P at 5300. So in doing that, he got 10% of his money boosted, and now he's up to probably 20% from the bottom. Pretty good move. So you can do that, too. Lot of optionality here. If you're working with the right person, that's interactive and helps you figure it out. But my advice is to stick with 10%. You won't have to give up anything to get it because it's not that big of a difference, you know, as far as the extended benefits. Okay, Customer service. This is something you won't understand until you get there. It applies to the agent you choose and the company you buy the annuity from. For my clients, this is more important for me than you guys because try to handle all the service work. I did a bunch this morning, except for the really independent ones. You guys know who you are. I took care of it. It's easy. No big deal. But believe me, there are companies that are difficult to deal with. All right, so that's the accumulation products. So objective number two, guaranteed lifetime income. That's the other reason you might buy it. So we've covered this a lot of times, too. We've compared the different ways of getting guaranteed lifetime income. Fixed index annuities often have the highest guaranteed payouts, whether immediate or deferred. But you got to make sure the guy that's pitching your annuities has checked. Spias and Diaz, single premium, immediate annu annuities, or deferred income annuities as well. There's always a chance. And I talked about case studies in the past where everybody was trying to sell a guy an index annuity. The spia paid more, or one guy. Last year, when we talked about the difference between deferred income annuities and fixed index annuities, the deferred income annuity had a better remainder option. That was his purpose for buying it. So there's always a reason to look at those. Anybody who gets a quote from me can guarantee I have Checked both just to be sure. So I'll give you a ballpark. Okay. This is about what you can expect.
[00:10:18] If that sounds good, we'll bird dog it and go look at everything. Make sure we can't just get you a few more pennies somewhere else too. I want to make sure you get the best deal and that no one else can beat it. That's the only way I get business. Because why would you do business with a guy in Montana if I'm not getting you the best deal? So most of the time, the best deal is easy to find because you simply need to find the highest payout. But a few other factors are also important depending on your situation. Now, we first have to recall that there are two different types of guaranteed lifetime income. You can get it with or without a fee. That's a podcast. If not two or three, if you pay a fee, you're going to get the maximum guaranteed income available. If you don't want to pay a fee, then the eventual income will depend on the performance of the contract. Be absolutely sure that a proposed contract is not showing you hypothetical numbers that are claimed to be guaranteed. This happens all the time.
[00:11:04] I talked about it just a few weeks ago. They told me it was guaranteed. It's nowhere near what they said. Oh, she had a performance based contract and liked the fact that it didn't have a fee, but she was never given the fee option. Now she needs to maximize income. So to do this, you got to request every page of the illustration. I know this happens with a lot of those fancy contracts that I've talked about. We're not talking companies right now, but I say, well, how many pages did you get on the quote? Well, there's just one. Okay, well, there's a guaranteed minimum as well. If the guaranteed income doesn't match on both the guaranteed minimum page and the hypothetical scenarios, then walk out the door. You'd be dealing with a dishonest person if they don't clearly explain the difference.
[00:11:40] Okay, in a guaranteed income contract, max guarantee income's the same, but the cash value is different. In a performance contract, the income will be different in each of those scenarios. And the guarantee is all you can count on. That's what people are getting upset about. They're only getting the guarantee. You're very close to it, but not what the projection was four or five years ago. Major components that apply to both types. So guaranteed lifetime income, forget about the bonus. It only affects the income amount. And I've seen a lot of people take a lower payout just because a specific contract has a bigger bonus. Happens all the time. Here's your, your quote. Your top payout is $10,000 a year. Well, but this guy said this one has a 25% bonus. It's an income bonus that calculates the income. Okay, well that has a 25% bonus. That means nothing. And I showed you 10,000. That one pays you 9,400. Which one are you going to take? Stupid agents have no respect for your intellect. They don't know enough about the products. They just like, oh, 25% bonus. The bottom line folks, this is what's important. How much income will it pay?
[00:12:39] Go with the highest payout. Fee based contracts will have the biggest guarantee. And in doing that, you're shifting all the risk of your income to the insurance company. A performance contract with no fee, They've got a lower guarantee and potential to get there, but you're going to carry the risk of what the payout will be in the future. Now take the one you like, but you have to look at both to fully understand the decision you made. So you don't get four or five years down the road and you know, putting up potentially a buying for it.
[00:13:05] Growth potential. This is going to tell you how much money remains in the account it leads to, what your beneficiaries will receive when you pass, or how much money there is available if you want or need to get out of it. For instance, six years in terminal illness, you got two years to live. How much is there?
[00:13:20] Because obviously the lifetime guarantee doesn't matter. What's going to matter is what cash is available for you to spend over two years. Right. Fee based contracts have higher payouts and fees that drain the account more quickly. Performance based contracts without a fee will come with more growth potential. Combined the likely low lower payout with more growth and the lack of a fee. It stands to reason that this will produce a larger remainder. Flexibility. Change your mind, emergencies, whatever it would be. Most of the time that's kind of a secondary concern because we're trying to maximize income on a portion of the portfolio. The rest of the portfolio is available elsewhere. Right, but again, you have questions about this. We can talk about that for you know what your goals are and your purposes. A single versus joint payout. So it used to be the case that you had to decide when you bought the annuity whether you wanted a single or joint lifetime payout.
[00:14:08] Talk to a lot of people over time. Well, I bought joint. One really good client, someone told him to buy a joint annuity. His wife was terminally ill at the time. I said, buy this one where you can choose single or joint, right? She passed away within a year. I think, sadly, it's been a while. But choose one that lets you choose single or joint at the time you elect income. So you buy it as like say it's an ira, it's an individual contract. You get to choose down the road. Now, some of them still require you to pick at the beginning and have fees based off of that, but you want one where you have the option because anything could happen, especially in deferred scenarios. We don't know what's going to happen in the next five years, 10 years. If you're deferring an annuity for 10 years, anything could happen. You want that optionality. So it's tremendous amount of flexibility for the contract owner, especially when the plan to start income is several years away. Now, this needs to be made clear before you commit to buying something. It's common sense to understand a major financial decision. It's a big deal. That's why I put so much work into it, so you have the ability to verify everything. So this post ties together, I called it more than 20 individual podcasts. Each of these points can be described in much more detail. Enough for a lot of you guys to say, oh man, forget it, it's too complicated. But you got to remember, establish your goals first and the rest is easy. You only have to look at a few of these. If you know exactly what you're trying to achieve, then a half dozen or less of these episodes will give you all the answers you need to make a good decision. And there's a half dozen or left annuities that will actually work. You can use this as a way to line them up and say, what has this? What has that? Piece of cake. So I mean, if you're looking at five or six episodes like max, not even two hours of your time, and you'll be able to create a headache for any of the other advisors if you ask the right questions, put their feet to the fire. I hear a lot of people come back and say, why? You started getting really mad at me because I was asking questions. I like it. And then some people tell me, I'm sorry, I have all these questions. No, no, don't be sorry. It's a big decision. After you're well armed, you just need to find the right person to show you the few products that meet your stringent requirements.
[00:15:58] So hope you cut the hint there. I sell annuities and I'm dang good at it.
[00:16:02] Guys, thank you so much for joining me. This has been episode number 205. Please like subscribe or comment on any of your favorite podcast platforms or on YouTube. Top right corner right here. If you're looking at the video schedule a call, get on my calendar. I will help you out whether I sell you anything or not. Just want to help you sort things out. So I appreciate you guys joining me. We're coming to the end of a really good year. Got a lot of good content out there for people. I appreciate your involvement in it and look forward to doing one for you next week, episode 206. You guys all have a great day and hope you enjoyed your turkey. I'll talk to you soon. Okay, bye.
