Episode Transcript
[00:00:01] Speaker A: Hello and welcome, everybody, to the Annuity Straight Talk podcast, episode number 239.
My name is Brian Anderson, and I
[00:00:10] Speaker B: am Nate Lee joining you from Des Moines, Iowa, this time.
[00:00:13] Speaker A: Ooh. One of the insurance capitals of the world. Am I. Am I correct in saying that this is true?
[00:00:19] Speaker B: Yes.
[00:00:20] Speaker A: Okay, wonderful. Well, we appreciate you guys joining us. Nate normally does it when he's here in Montana, but he doesn't live here in Montana, so we'll save that for the couple times a year he comes to visit. It's his first shot with doing it in his own studio. I'm gonna. I'm just gonna say to get something on the wall behind you, dude, it looks like he's in a closet. It's kind of like when John Ballmer does it from California. He's got to go into a closet to do it.
[00:00:40] Speaker B: Yeah, it's my little mini home office, but it works, so.
[00:00:45] Speaker A: All right, cool. Thanks for joining us, everybody. Please, like, subscribe or comment on any of your favorite podcast platforms or on YouTube. Do schedule a call with us. You're going to get one or the other of us. We both have your best interest interests in mind. That's the top right corner of any page on annuitystorytalk.com so schedule a call, click your time zone, click your time, and few things you want to talk about. Name, email. We will call you. Okay. It says it in the email. You get a confirmation, all that stuff. Anyway, we have to keep saying that. So anyway, but Nate's. Nate, you had a nice question, and that leads to the title of this, so I'm going to ask you that question now.
[00:01:17] Speaker B: Okay.
[00:01:19] Speaker A: We had a recent case where this was a good question, and we don't mind it at all. But does a bonus increase guaranteed lifetime income?
[00:01:28] Speaker B: The answer is no. There are many companies that do offer a nice, attractive bonus. It's very enticing. Right. It gets you interested in their product.
But my answer to this client was, just because they have a bonus doesn't mean it necessarily will increase your payout. But I do want to mention that's something that we absolutely take into consideration. And I will add, that's probably more important if it's an income now or an income soon scenario, to be able to take income off that bonus amount.
[00:01:57] Speaker A: Right? So that's a perfect answer, to be honest with you. And one thing you guys need to understand is if we say, here's the top top product in the market, that's the top product in the market, with all things considered, bonuses and everything. So what the bonus does, and we're going to give you a really good example of that, is the bonus just creates a higher payout factor, but it's going to be influenced on the payout rate as well. And so what, what a lot of agents do, and I think this is the issue is like some people will say, oh, well, I got this really good quote from Annuity. Straight Talk. Well, yeah, but buy this product that has a 25% bonus on it, right.
And oh, wow, that's really cool. But they don't know the result of that is actually can be at times lower income. So you gotta go for the bottom line. And the highest payout on All Things Considered, that's included. But go for the highest payout. It doesn't just mean a bonus is going to give you that. Okay, so you want to talk about. We want to talk a little bit about this case. We're not going to mention names because they don't know they're the subject of this. But we just did one and this is where the question came up. So we're offering, like a very detailed response to that.
[00:03:05] Speaker B: Yeah. And one thing I want to add, and I say it a lot, and I know you're aware of this, but nothing in this business is free.
So when these people are designing these products, right, if they're giving you a big bonus on the front end, they're taking away from somewhere else. And a good example of that is on the payout side. So you mentioned this, Brian, but if it's the rate, so let's just say 5% instead of 8%.
Well, that's a significant difference. And I think you have some examples that we'll look at here later on the podcast. But that's where the proof is in the pudding.
[00:03:37] Speaker A: Okay, so how do you want to do this? Do you want me to share the quote list from the website or do you want me to share that little document? It's not dressed up yet, but all these numbers are going to be in the newsletter. If you want to go get a visual aid, you can check it. Check that out on the website, especially anybody that's just listening on the podcast. So that's kind of why we'll just kind of explain it and then I'll dress it up in a newsletter before this goes out to everybody. So should we. Well, we can look at the list. Okay, I'm going to show the quote list. How about that? Okay.
Okay.
[00:04:05] Speaker B: And while you're pulling that up, another thing, too. Another one of those Trade offs just to add is if you have a bonus. A lot of times we see lower caps and lower participation rates on the sub accounts.
And that's going to factor into the numbers that we look at when we're evaluating these products.
[00:04:24] Speaker A: Okay, yeah. And so in this case it was a joint life income. We did some income planning for them. They kind of found a sweet spot of where they could get some, you know, what would get them to their kind of baseline income goal.
And so it's a younger couple, 55 and 56, and kind of determined that's what they were comfortable with. The 200,000 is going to add about $17,000 per year more. Okay, so the difference in these products and if I go to the main database, this is the one that we create based on the products we recommend. If I go to the main database, these are all at the very top.
Now from, we're going to talk about North America Midland and Prudential for a very specific reason. American General is right in there too. But you can see those top three products are only separated by a couple hundred bucks a year. Right?
And so what we look at on the North American product, because I have to go do, I'm going to go, I'm going to go to the, the sheet that I made because I got to, I got to cheat a little bit, you know.
So these are the numbers, right?
So Prudential has a 25% income bonus.
The annual rollup, which is the rate at which that income increases is 8% annual increase, simple interest. Okay.
So that income value goes to 330,000 a year. That's what's affected is that big income value. You see. Oh wow, that's a great big value. But that's not a cash value. It shouldn't even actually have a dollar sign in it. But the income payout is 5.05% for joint life. When these guys are 59 and 60, okay, that comes into guaranteed income payout of 16,000, 6, 5. And you can see their fourth on our list. They are actually over $1,000 back from the top. That is a meaningful difference, is it not Nathan?
[00:06:18] Speaker B: Well, yeah, it's a very competitive environment right now. And so, yeah, that's actually a big difference.
[00:06:23] Speaker A: Okay, so then you go North American, which is at the very top. They have a 0% bonus and an 8% roll up compound interest.
So what you can see directly between those two products is Prudential as a 505 payout and a big bonus. North American increases that payout to 6.6%.
Now, the American general product, it is in the mix and we talk about that, but that's going to be similar to, to North American, where they don't have a bonus, all that stuff. But we'll get to that. Right.
So with the 6%, 6.6% payout, you're going to see that income value is only 272,000. It's like, wow, that's a lot lower than $330,000. Right.
But it doesn't matter because that's not your money. It's just the fact that they use to calculate income. And these are the things that you need to research. Right.
So the higher income payout with a lower income value creates the guaranteed income payout of 17,958.
That's just about $1,300 per year difference.
Okay?
[00:07:29] Speaker B: Yes.
[00:07:30] Speaker A: And then the Midland product is a 0% annual roll up and a 0% bonus. They just aggressively increase their payout rate.
So the income value stays at the premium you put in, but the payout rate increases better. This is one thing we like about it. It's very simple to calculate. You don't have to do any, you know, simple compound interest. Here's the bonus, here's whatever. Right. And that creates an. A guaranteed income of 17,604. 17,600.
That's. We're off by four bucks between my calculator and in the big database. Right. Is that a big deal?
[00:08:07] Speaker B: No, I mean, these numbers are, you know, pretty dang close. And as you and I know, they can change, you know, from week to week, even depending on the.
[00:08:16] Speaker A: Sure.
So that creates an income payout that's just a little bit lower than North American. And Nate, why don't you go ahead and tell them why we did the Midland. Cause we touched on this a couple weeks ago. Right?
Yeah.
[00:08:28] Speaker B: So, you know, this is a great starting point, you know, using the calculator on the website. But as we mentioned, it doesn't tell the entire story.
So with this couple, it just so happened that the younger of the two has a birthday coming up in December.
And so the. The key with Midland, if you remember, it's the one carrier that will increase your payout on a birthday. And if it's a joint payout, it's on the younger of the two. And so they're going to get a step up here in a matter of months.
And so when you and I ran the numbers, and based on their timing, if they just wait a couple extra months, that Midland payout now will surpass North American because it's going to be a higher guaranteed lifetime payout just by waiting an extra month or two.
[00:09:15] Speaker A: It's going to be almost, it's, it's going to be almost $20,000. Right. It'd be 10% more, so 17, 160 bucks more.
[00:09:23] Speaker B: Yeah. It was like 19.
[00:09:25] Speaker A: 19,300.
[00:09:26] Speaker B: Yep.
So significant difference.
[00:09:29] Speaker A: So that's where, that's where we look at it. And again, and it's going to be different for everyone. Now I can tell you, Prudentials aggressively raised rates and companies target their product to be competitive for certain bands of people. Right.
So, you know, Midland and North American, four or five years to 10 is going to be really competitive. And at the top, Prudential just jumped in the business to be one of the very top carriers for immediate income. And that's where, if the ages are right and that, that's where the bonus will help you. So everybody's going to be different.
And it's important to know that we're going to talk about this one case of a younger couple doing it conservative, you know, peel off part of their portfolio, make their income guaranteed.
But if you're 63, 64, and you want income within a year, well, then Prudential might be, you know, could be. We run, we run the numbers and do the same analysis. Right?
[00:10:23] Speaker B: Yeah. And this goes back to, you know, you and I always evaluating the best possible option based on the client's needs. And so you nailed it. Right? It's, it's timing, it's, you know, is it immediate? Soon later?
So that deferral period definitely comes into play.
And I think you and I would both agree for probably six months, Nationwide was by far the top payout for immediate income. And now they've fallen down. And there's other companies that are more
[00:10:50] Speaker A: competitive depending on Nationwide was actually competitive for the last two years they've been dominating that immediate income spot.
And they, what they did is they pulled their immediate payouts down a little bit and they're now competitive in the four to five year, six year deferral range. So, yeah, just a different matter of where the company wants to be competitive, where they see and these companies will and will do this. And Nate, you might know a little bit about this, but they'll say, hey, we're really making a hit with people 65 to 70. Like let's really put all the power in our contracts by that time period. Right.
[00:11:24] Speaker B: And that definitely happens. I've sat in those meetings, listen to actuaries. And when they talk about building these products and really where they want to target, and it does come down to that age, that demographic, and then how long they want to wait and where they want to be competitive. And so that's why they make these adjustments.
[00:11:41] Speaker A: Right.
Let's see. I think we can pull off the sharing right now, but we're going to talk about a couple more things. One of them being the fees for the income rider.
And that will make a difference to people. If the fees are dramatically different between two contracts where one is where they pay about the same amount of money, you might choose the lower paying contract that's got a better fee structure. So when you look at Nate, you calculated the numbers for that. But prudentials fee is 1.20% of the benefit base. Because that benefit base is 330,000, then that creates. By the time you take income, it's going to increase to that point. But by the time you take income, you're going to be paying $39,060 or $3,960 in fees.
[00:12:30] Speaker B: And that's typically what we see with these bonus products, right? They're not taking their fee off your premium, they're going to take it off that bonus value. And that's how they can claw back some of that bonus that they gave you upfront. So it's not always as good as it sounds.
[00:12:44] Speaker A: And so. And then North American without the bonus and they have a 1.15 fee, it's a little bit lower fee, but it's also off a smaller value. So you're only paying $2,729.
That's about 1200 bucks less in fees. Right.
And the really cool thing about Midland, where they have the Highest fee at 1.25%, everybody's like, Whoa, the fee's crazy. Yeah. But they do it on the income value, which is your premium. So it stays level the entire time.
And the higher fee results in the least amount of fees over time. So you're going to have less drag on the account value. That's important if you want to. If you're worried about residual, you know, a remainder to your heirs, it's important if you want to worry about like a, a long term care doubler that goes away if there's no cash value where lower fee and a little bit better performance might get you a year or two of long term care supplements when you know another contract maybe would get you less just because the fee goes or the fee drains the account a little faster. Now I don't think 3929, 500 is not a deal breaker on this one. But we're just going for the highest payout and the best advantage for these guys. And that's where Midland won.
[00:13:53] Speaker B: Yeah. And I mean, it does go back to you and I evaluating everything, you know, big picture based on their individual case. But it is significant. And I think you, you touched on one of the key points is that fee. You know, almost all of these guaranteed lifetime income products have some sort of fee. There's a few options out there. We'd be happy to talk about those.
[00:14:14] Speaker A: But.
[00:14:15] Speaker B: Yeah. Knowing how that you're going to be paying for it and if know your agent isn't disclosing that or bringing that up to you, they should be.
[00:14:23] Speaker A: Yeah, well, and there's one, the one thing that you and I didn't talk about. But you know this. There's one situation where even if it's not the highest payout, you need the bonus. And that's if you're surrendering another annuity to buy a higher paying contract.
And a lot of people got stuff, you know, five, six years ago, they're not taking an income for another three or four years. They found great value in surrendering that old contract and getting into something paying higher. Now most, like the reputable companies have a max loss on your surrender of 5%. So if you're losing more than 5%, they won't accept it.
We've run into Midland doing that where the loss is even 5.2%. And they said, nope, sorry, we won't approve that sale. Okay. But companies nationwide got a lot of, a lot of my Allianz business. Cause Allianz had big surrender charges, market value adjustments, and they had a 25% income bonus. Even though it doesn't account to your cash value, they consider that recouping basically your surrender charges. Right?
[00:15:16] Speaker B: Yeah. And I mean, we talk about suitability, you know, quite a bit and it's very important. But we're always wanting to put the client in a better situation.
And that's one of my favorite places to use a bonus contract is to get them out of an old contract that might have even higher fees, no growth potential and definitely not as high of income. So as long as it meets their, their goals and objectives, you know, we do have opportunities. And that's where I like the utilization of those bonus contracts.
[00:15:42] Speaker A: Okay, perfect. So that pretty much sums up episode number 239. Nate, thank you for joining me today. We're going to do this more often because it's pretty easy and I think you sound just fine so you don't have to fly all the way to Montana even. I know you like the stakes out here but you got good stakes in Iowa too.
[00:15:58] Speaker B: We do have good stakes but it's not quite the same when we're not hanging out doing it together. But next best alternative for the time being. And yeah, hopefully we'll be doing some here before too long. Maybe in January.
[00:16:11] Speaker A: Okay, great. Well, if you guys want a straight shot and full explanation of everything available on the market, we don't sell things that aren't guaranteed to happen and we just want to talk so you can understand and actually have the options to make your own decision. Top right corner of any page on annuitystraighttalk.com thank you guys for joining us. We'll be back next next week with episode number 240. You guys have a great day. Okay, bye.
[00:16:34] Speaker B: Thanks guys.
