Episode Transcript
[00:00:00] Speaker A: Hello and welcome to the Annuity Straight Talk podcast, episode number 151. My name is Brian Andersen, founder and creator of annuitystraighttalk.com. dot here again for the 151st time, like subscribe or comment on any of your favorite podcast platforms or on YouTube. Share it with your friends. Let everybody know. A lot of people are getting good information. And that's my goal, is to help as many people as possible. The more people that see it, the more people I talk to, the more people I helped, the less pressure it puts on any one individual, because I don't like to do that. I'm going to do a follow up to last week's episode, the D ed deferred income annuity versus GLWB.
There's another way of looking at it and a few things that I left out. So a lot of people ask questions, or they took that example to, and I'm not singling anybody out. They take that example, is like, oh, he thinks I should do this. A lot of people kind of do that. That's not the point. So unintentionally, I missed a few key details that might make a difference in your decision. And that was based on a question I got from one guy who used this to say, oh, hey, I'm going to do the same thing. And then maybe it doesn't work out for him the same way. But the thing is, any of these case studies I do, the idea is to get you to think about it a little bit differently and understand the lengths that I go to in each and every case to make sure you get what is best for you.
Education first. Then you get to choose the option. If you know what all of them entail, you can pick the array of benefits you want with the contract that works best in your opinion. It isn't about what I think. I'll offer my opinion, but it's always your choice. So we established last week that in certain situations, dias are better for a legacy. You get less income than a guaranteed lifetime withdrawal benefit on an index annuity because there's a better remainder with the DIA. So in that case, we looked at putting a specific amount of money into a contract. We'd get the best combination of income and legacy. This was ongoing legacy. This was specifically for legacy. It wasn't retirement planning. We've done that before. He's set, everything's taken care of. And it worked in that example because it was a single life payout scenario. Now, if it's a joint life scenario, different numbers, but the spread is going to be probably pretty similar. So I'm not going to call that a major difference right off the bat, but if you change the input slightly, the results could be very different for you, since there are a lot of other people that want to look at it this way. And again, when I do an income scenario, I look at all of these products and we check every one of them. What do you want? And if you want to combine income with legacy, you'll take a little less income to make sure you know that asset's going to leave some behind, then the deferred income annuity is the right choice. If you want maximum income, which is what a lot of people do, in a lot of cases, it is the best thing to do. It just wasn't that way with the very unique case we did last week. So there are some structural differences between the two contracts. When you take income and who is getting paid can change things considerably. So guaranteed lifetime withdrawal benefits. They have either a single or a joint life payment. It's simple. One or the other. Diaz deferred income annuities also have joint or single life payments, but there are a lot of decisions to make in regard to what type of remainder you'd like to leave. I've got a little table I'm going to show you when I get to this little case study that I'm going to do, period, certain installment refund, all that stuff. And when you change the certain period, or you choose an installment refund, which is installment refund is basically you're guaranteed that your heirs are going to at least get a refund of any premiums that weren't recouped via income payment. So if you put 100 grand in and you only click 60,000 worth of payments, the installment refund gives your family, your heirs, $40,000. But what you can do with the D is you can customize this for income and legacy. The GLWB only leaves a legacy to the extent that there's cash remaining in the account. You've got a growth factor, but the payouts are high, so the account drains quick. Does it grow enough to replenish that? Again, it's a maximum income product. The next one is with the Glwb. Upon purchase, you do not choose whether you want single or joint life or when you want income to start. Those elections are made on the income start date. So if you're waiting eight years, you don't actually elect that until you start taking income.
We project what the guarantee is and we tell you what the guarantee would be but a lot of people will say, I was going to wait eight, but really I'm tired of working. And maybe your stock portfolio performed really well. It's like, yeah, we got extra money. We're fine taking a little less because we want it sooner. You can do that really easily now with the GL. In most cases, it's either jointly owned by a couple and or it's, if it's an IRA, one person in the couple is the owner, the spouse is a primary beneficiary, and that gives you joint life. So you can name that. You got to name that on the contract when you start, but you don't actually activate single or joint until you take the income. So if something happens, not saying, think about the worst case scenario. What if you're in a ten or 1112 year deferral period?
Something happens. Lots of things happen. And say one person in the couple unfortunately passes away. You're not stuck where a lot of contracts used to be like this, maybe 2025 years ago, you had to choose single or joint and then defer it for seven or eight years. And if something changed, you couldn't elect something different. Things are a little bit different now. Most contracts, it's an important question to ask, and maybe it's not bad. Maybe one person is given a health issue, a shortened life expectancy, another person is healthy. You might want to change your election with the deferred income annuity. The DIA, you got to pick the payout date when the contract is issued. The contract that I sold in the case last week, it allows the owner to change that date once during the deferral period. But that's it. It works great. If on the case today it was like, I think it was eight to eleven years somewhere in there where they wanted to take income, and it'll be closer. It's not a huge deal breaker, but it is a difference. That's what the payout is calculated on the date that you said from when it's issued to when you want to start taking income payments. So you got to have a pretty dang good idea when income payments are going to begin. The GLWB gives you a little bit more flexibility on that. So a study I read years ago, and I'll bet not a lot has changed, is that most people change their income start date at least once. With most people taking income earlier than initially planned, a DiA may or may not offer that option. I don't know if all of them do it probably do. But again, there's a major difference in my opinion now, the first case was all about leaving a legacy. Please do not forget that I said most people are trying to maximize income. So while it's a good illustration of the difference of the two products, it's not a recommendation that the majority of people, or even a significant portion of people would try to do.
[00:07:06] Speaker B: So.
[00:07:07] Speaker A: If you're trying to maximize income, I would suggest getting the most efficient income stream and handle the legacy in other ways. So I have worked with that guy. I worked with Dan for nearly ten years. I've known him for at least that long. We've got everything else covered. This is just kind of, hey, let's pull this out of the market and make sure the kids get it. I'm going to help them with stuff while I'm alive. It's more fun, more enjoyable for him. Gets to enjoy his hard work and see his family benefit from it as well. So there are two ways to look at getting income with Diaz or GLWB's. There's two ways to calculate it, right. You can either take a sum of money and try to get as much income as possible.
So say I have $100,000.
I want to get as much income as I possibly can for 100,000, or you can target a certain amount of income for the least amount of money. In this case, day, I wanted $2,000 a month. What's the lowest purchase price I could get it? So you're going to solve for income or solve for premium required. So the guy I talked to this week, you watched the podcast, hey, he starts gaming the numbers. Really sharp guy. He's the one that brought to my attention the fact that, oh, I kind of missed a couple of these things. So he wanted the best way to get 2000 per month joint life in eight to ten years. I think it was eight to eleven, but eight to ten, generally speaking.
So I'm going to look at eight years of deferral, for starters, and make the comparison there.
So he wanted the same 20 years period, certain from a Dia because of the combination of income and legacy. Now, I looked at first, well, I looked at both of them. I think I looked at the GLWB knowing it would be cheaper. The DA would cost 254,000 for joint life with installment refund. That was guarantees heirs get the remainder of any part of the premium that was not paid out via income. So he figured, and I agree with him, that was comparing apples to apples. With the GLWB, which has about the same type of minimum guarantee, you're probably about going to get the money you put in it, like the growth is enough to offset any fees you pay, and it should work out pretty well. So I'm going to show the dia payouts, and we're going to look at that a little bit. It's kind of small on the screen, but for 254,000, joint and survivor lifetime only is $2,014. That means if you collect one check and you get hit by a cardinal, it's gone and you only got 2000 back. Very risky. Insurance companies don't even like doing that. A couple times I've sold that where it made sense, and they actually made the contract owner sign an additional disclosure saying that I understand that both. At the bottom is joint survivor lifetime with installment refund, that's $2,004 per month. And then you look at the other ones. When I said there's very, there's more options with the DiA payouts, the GLWB is just single or joint. That's it. Now, both of them you can do increasing income level or increasing, stay away from that right now. I hope you guys remember that. I don't think inflation adjustments and annuities are worth it, cost more or provide less income to begin with. But all of these are about the same no matter what you do. So you kind of look at this, and I would say we looked at installment refund the other day, $2,004 a month. It's close. I did kind of work the numbers back and forth to get close to 2000. If the company, this company has a solve function for 2000 a month, I don't know what it is, but we're close. But the 20 year certain. So this was 254,000. Right. So the installment refund guarantees at a very minimum, if he doesn't live long enough to collect the payments that his family is going to get back to 254,000, the joint and survivor lifetime with 20 years certain is only $49 a month less.
But he's guaranteed to get 2000 a month. That's 24,000 a year for 20 years. If he doesn't live that long, that's $480,000 he's guaranteed to get out of it. So you want the 254. I would say you'd be better off. And if he really wants 2000 a month, you can put a little bit extra into it to get exactly 2000. But it's a better remainder on the back end for that one, because between 254 and 40, that's an extra, say $230,000.
So this is what you have to think about. I took that and I looked at the GLWB for the same 2000 per month. It only required 188,000. Initial investments saved him $66,000. Now, this is more of an income place, so I'd recommend the GLWB and the DIA has a better guaranteed remainder. But saving 66,000 at the beginning gives him the same additional investment funds now that can grow over time to be used for any additional planning, including legacy.
So the difference between the guaranteed payout was 254 versus 480. That's $230,000.
What's the use of 66,000 going to get you over the next several years? You got to decide if that's worthwhile. Now, guy, last week we looked at the same numbers and he said, hey, this is just a piece. I want to guarantee it's out there. Nothing wrong with doing it either way, to be honest with you. And when you look at GLWB's pay a little bit more, but they pay more commission. But the DiA, if you want that is a bigger premium. So it almost kind of washes out. That's. I don't care. I can't self deal on this stuff. I just have to tell you what the two options are. So do you want to get the cheap contract and have additional money that you can invest elsewhere? And the guy I talked to this week, I really thought, I think he was kind of stuck in the middle somewhere. I think you'll be happy to see this. And I'm going to email him, let him know it's coming, because I think the 20 year certain, if he's going to go the deer route, would be the better bet. For only $49 a month, you guarantee an extra 230 out to your family. Pretty dang good. So the reason those are all so close is because on an actuarial basis, this is a 60 year old couple, so they're going to take income at 68. There's a high statistical chance that one of them will live to probably pass the 20 years. So it's not going to make a difference. That's why they're all so close. At the beginning, I mentioned he was trying to decide if they would take income in eight or ten years. The GLWB would give them the option to delay the decision until the day they decide to take income.
And if something happens to either one of them, then they are not locked into a past decision that would give either individual lower income. Could be a potential benefit, especially when you're talking about ten, 1112 years. Deferral. Who knows what's going to happen. GLWB's are for maximum income with the most optionality Diaz work in unique situations like I shared last week, they would work in this situation. If you want to bridge the gap between income and legacy, only giving up $49 a month but it costs you $66,000 or more, you have to decide if you'd rather have that remainder in your hands or if you want to shift that risk to the insurance company as well. I did this again because it's very important to educate yourself on the various options and the benefits of either strategy. That is foremostly important. The reason being, I want you to understand exactly which path you are taking and you have full confidence when you do it. Now, if you want to talk about this or anything else I've covered, then get on my calendar. Top right corner of any page on annuity straight talk.com. schedule a call, name, phone number, time zone, time, and a quick parting message. So get a hold of me, schedule a call and we'll figure things out for your benefit. You guys have a great day and thanks again so much for being here. Okay, bye.
[00:14:30] Speaker B: You have been listening to annuity straight talk.
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