Finding Value in Fixed Indexed Annuities

Episode 143 June 28, 2024 00:19:05
Finding Value in Fixed Indexed Annuities
Annuity Straight Talk
Finding Value in Fixed Indexed Annuities

Jun 28 2024 | 00:19:05


Show Notes

Welcome to episode 143 of the Annuity Straight Talk podcast! In this episode, titled "Finding Value in Indexed Annuities," we dive deep into the world of indexed annuities. Host Bryan Anderson sheds light on why so many people are pitched indexed annuities and the confusion that often surrounds these products.

Bryan explains the key aspects of indexed annuities, including their purpose in protecting money, creating income, and legacy planning. He also addresses common misconceptions and the alternatives available, ensuring you have the information needed to make informed decisions.

Throughout the episode, Bryan shares valuable resources available on, including the Fixed Index Annuity Guide and various newsletter articles. He emphasizes the importance of understanding the product and its benefits compared to other financial tools like bonds, CDs, and MIGAs.

Bryan also discusses the often misunderstood concept of bonuses in indexed annuities, highlighting the difference between real and phantom bonuses. He explains the significance of guaranteed minimum surrender values and how they protect against market value adjustments.

Tune in to learn about the value proposition of indexed annuities, their growth potential, and how they can be an effective part of your retirement planning. Whether you're new to annuities or looking for deeper insights, this episode provides a comprehensive overview to help you navigate the complexities of indexed annuities.

Don't miss out on this informative episode! And as always, if you have any questions or want to schedule a consultation, visit Bryan will be back next week to discuss annuity ladders, so stay tuned!

Disclaimer: The information presented in this podcast is for informational and educational purposes only and does not constitute tax, legal, or investment advice. Always consult with a qualified professional before making any financial decisions.

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Episode Transcript

[00:00:00] Speaker A: Hello and welcome to the annuity Straight Talk podcast, episode number 143. I called it finding value in indexed annuities. The majority of people who find me have been pitched a product. Most of the time it's an index annuity. They don't know why they're doing it. Maybe their goals aren't in place, but they get confused because they get a product put in front of them. It's an index annuity. I got to clear the air. I got to explain the product and the alternatives to that, depending on what your goals are, protecting money, creating income, legacy planning, all sorts of stuff. That's why there's so much information. And I'm gonna share my screen. For anybody watching the video, you'll be able to figure out where all this is. And that's something that we added several years ago as a search function to the newsletter page. So here's right on the top bar is the fixed index annuity guide. We did a ton of work on it last year to get all the information organized. I remember I did a, a podcast on informational site that had a lot of misinformation, inaccuracies. It was poorly researched and written. And again, the point of this is to make sure that you guys get the truth, you get the straight shot, and you can then use that information to make good decisions. But I'm going to go to the newsletter page, and in addition to that, fixed index annuity guide, which has got volumes of data, I don't know, 1516 different articles, all organized in different areas, things you got to figure out about index annuities. But I got the newsletter right here because I'm going to, you know, just read through this and then I'm going to show you guys how to search. So search bar over here is the first one to talk to. Don't just jump to indexed annuities. Now I know the names of them. You might want to search more general terms like indexed annuities. If you can get more specific, then maybe, you know, have, you know, more direct shot because of index annuities, it's going to return 30, 40 results, stuff like that. There's just a lot of information. So don't just jump to index annuities is again, you know, kind of talks about the fact that a lot of people are just throwing a product dinner, seminar, meet at the office, hey, buy this. They don't know why. They don't know how it relates to other ones. Index annuities. You don't go from saying there's a lot of people like advisors. I want to protect some of my money from market downturns. Buy an indexed annuity. There's a lot of different ways to do it too, and there's a lot of initial steps. You know, there's bonds, there's cash, there's cds, there's fixed annuities, mygas, and then there's indexed annuities. So you have to understand the benefits, maybe of an index annuity over those other products. And it's going to come down to preference. You know, mygas can do just about anything that will do anything an index annuity can do. The only difference is the yield expectation, but you still have to have those building blocks in place. All annuities are essentially a bond with reserves. The insurance company has added insurance, so a safer deal. I think I'm gonna do something on bonds annuity ladders next week. I got a recommendation from a new client who said, hey, era, I see this everywhere. You got to do it anyhow. So. But when you're talking about hardcore sales pitches, a lot of the components aren't really explained properly. That's why I've done all the work. And the biggest one you're gonna see is the bonuses. Oh, I'm getting a free bonus. And you know, the big ones, the 30, 40% bonus, 45 maybe. Right now that's not free money, and a lot of people think it is. A lot of some people know it, but I thought it was done. But even in the last week, I've talked to people who think a 40% bonus in ten years, I walk away with my cash, plus at least the 40% bonus. That's not true. All of this is explained. Now, there are some products that have what I call a true bonus, a bonus that goes straight to the cash value. That's again a preference. If you want to bank that money, what you're going to, you're going to have to give up something in exchange for the bonus. It's just the way it is. So bonus annuities talks about all of this stuff. I don't think. I don't know if I did a podcast on that. Yeah, I must have, because 2022, that's when I was doing the podcast. Yeah, there it is. Look at me. Yeah, I was sitting right over there. So you differ between a real bonus and what I call a phantom bonus. Increases. Maybe the death benefit or an income value, but it's not money in your pocket. Never will be money in your pocket. So that's how you check that one out. Search for bonus. There's a 35% annuity bonus. That's your alliance. 222 annuity. Death benefits has got some stuff about bonuses as well. All right, so when you're talking about annuities, you know, market risk, retirement, guaranteed income, the number one reason is safety. So I did this one. It was a newsletter several years ago, and then I redid it into a podcast because I think it's important. A lot of people come in to say, what is an annuity for? An annuity is for protection. So you decide what you want to protect, and the annuity is that luxury item that you can afford to do it. Set money aside, it's always going to be there. But the different types of annuities had a primary purpose, and it's right here in the middle income annuities of all varieties offer guaranteed lifetime income. They protect you from running out of money. Variable annuities, no matter what anybody says, were originally created to as a non qualified tax shelter for wealthy people because you get the investment in the market, but you get the tax shelter of the annuities, you get deferred, you can defer your taxes. Fixed and fixed. Indexed annuities protect you from market volatility. Decide what you're trying to protect against. There's an annuity that can get it done. Very simple. If you want to start with the basics, basic building block. Now, before I keep going, I'm going to tell you guys, I've got the newsletter written. It's going to be posted on the top. All these things are going to be linked, and this is not all of them. And you'll see in a couple of these topics. So, finding value in index, annuities, bonuses, the biggest thing that is often overlooked. And I got a couple of comments from other advisors that kind of, hey, high five. Nobody ever talks about it. And this is the minimum values of the contract. So just type guaranteed. This is going to turn a lot of results, and I'm going to go find guaranteed minimum annuity values. This was a little over a year ago. It talks about the surrender value and market value adjustments and the internal compounding of that, which actually, on a guaranteed basis, and a lot of the best contracts, is going to return a guaranteed result over, you know, the seven or 1010, 5710 year period of doing it. So internally, the guaranteed minimum surrender value protects you from a negative market value adjustment if you do surrender. But this is a really valuable thing in the contract because when you have, we've got rates now that are pretty good. And the result of it, on a guaranteed minimum basis is going to produce yields that are comparable to, say, historic money market rates. So if it's just safe money you want to put there, you know you're going to get one 2% on a baseline, but you still have the upside potential in the market. That's a tremendous value in the index annuity. It also helps with potential surrender if you get out of it early and you're not taking as big a hit. And in some, on some cases, you're still making money even if you surrender early. So that comes down. Surrender value, market value adjustment, minimum guaranteed surrender value. That is a key point. And it's something, when I run through an illustration with someone, that's one of the first things we hit, and nobody else talks about it. So everybody knows that the easiest thing to understand in annuities is the myga, the multi year guaranteed annuity. And when rates started coming up a few years ago, you know, as soon as they got to four or 5%, a lot of people say, ah, hell, with index annuities, when the rates were super low, you'd buy the indexed annuity because you had a shot at four or 5% and you're only giving up maybe two, two and a half on the fixed or in the myga. What the hell? And now that we've, you know, now that rates are up, we're selling a whole lot more mygas. And it's fine with me. People are happy with them. But I wanted to keep everybody's attention on index annuities because if migra rates were two to 3% a few years ago, and now they're five to 6%, or in that ballpark, if those have doubled or tripled, then so has the growth potential with an indexed annuity. I think I'm going to show you a couple of annual statements coming up soon. Where in the past year people doing 1214, 15% in some of the indexes, tremendous value. But again, not saying it's for everyone, but when interest rates increase and my goods look good, that just doubles or significantly improves the growth potential with an index annuity in the long run. So there's that one. And that was, oh, this was interesting. I've never done this in a podcast, so I'm just playing on my website talking to you guys. I hope that's okay. When I say index annuities are better than we have a couple of these products. This was before I did the podcast. This is just a newsletter, but I remember this was really cool. The guy went through his first year. This is, you know, mass mutual ascend. It was great american at the time. So he bought a contract for 166,000, took an RMD of 8546. 8546. So he had 158 left, and he got interest earnings of $16,008.59, 10.12%. His very first year, surrender fees were wiped out on a dollar for dollar basis. He wasn't going to surrender it. He's done well since then. These were just cool to see. And it's a great experience to have your first year. It's. Wow. And this, again was in 2019. Rates weren't great, and we were still able to get a double digit yield out of it. So it's a matter of timing in the market as well. Next page. Man, we got a lot of stuff here. Try to get it. Oh, then I was going to show you. There's another one. This was a really good one, where in 2020, what it's like to own a good annuity. Another one that's not a podcast. Guy bought the contract in 2019, if you remember. June 5, 2020, the market was just kind of starting to climb back from the COVID crash, whatever the hell that was. And this guy came through his first contract year, and I actually did a newsletter previously the year before, talking about this case study. So those ones are good links to see. Hey, it opened up, but you can see in the contract if you're looking at the screen in the bottom here, he put 500,000 in it. Interest and index credits, first year, 60,300. That's a shade over 12% return when the market was in the dump. That's pretty good. So that's what it's like doing a good annuity. You can get those. We got them. Good index annuity. So. And on the same one, because that was, again, when the market was down, that was up. It's a different blended index at gold in interest rates, sensitive index. So that can be positive. There's also a negative right now with some of those, just because of where interest rates may be heading and what they've done in the past couple years. As rates rose, some of those indexes fell flat. A lot of people are upset, but you have to be able to pivot and adjust. So growth potential is a big deal. And I did a series on this. This is your value is obviously, you know, you got protection, but you also want to grow the money. Interest rates. Let's see. I'm going to search index rates, and you can learn all about it. We've got index annuity rate adjustments, talking about how they can change, why they might change when they don't. The companies that are good at keeping them pretty steady. How to choose annuity indexes. Guaranteed index annuity rates. You know how to choose an index. If you've got 15 indexes, a lot of people look at it and it's, you know, it's like reading Mandarin Chinese. I don't get it. So that's a good one to look at. It's, you just have to understand the components of it. That's why you got to have a good qualified advisors who can speak about each one individually. If you got twelve or 15 indexes in a contract, then you have indexes that are built to perform in different market scenarios. So they're also contracts that guarantee the rates will not drop in certain situations. So I did a whole podcast about that because some people say, I don't like the fact the insurance company can change it or they can change the deal. That's the deal. Then there's some companies, they'll say, all right, if you stick it into one index, we'll guarantee that rate for a long time for the whole surrender period. And then I did adjustable index annuity rates. That's a good one to look at because I showed examples of contracts. I have a handful that have increased in rates year over year. So it can go both ways. It just depends on the environment right now. I mean, right now we're not seeing increases because rates have been relatively steady in the past couple of years. Some of the contract I sold in 2018, 2019 have held their rates steady because rates came up. They did really well with it. I saw a couple go through, all the way through surrender, never touched the rates. So that's good. It's not, it's something to understand, not something to be scared of. All right. But a big one there. So value in the contracts based on how they treat the rates and some of the guarantees you can get as well. Now, one of the biggest value propositions of index annuities, we've talked about this. I've done a ton of podcasts. I don't even know I'm going to find. But if you type income in the search bar, you are going to get a ton of information. You want to talk about annuity income. There is a lot here. One of the best values of index annuities is that if you're deferring income for a year or more, that it is typically the best value. And in a lot of cases, by a wide margin. So my good Espia is a way to buy a fixed annuity for a period of years. When that's surrender free, rolling it into an immediate income annuity. That has been a strategy that can be used or can be beneficial at times. Right now it does not beat what the index annuities will pay, not in most cases. There are a couple specific situations where, no, I think you're better off doing this. Somebody, I got one guy get mad at me because I told him to buy a myga, but there was a 20 year age gap with him and his wife and he was quite a bit older. And I said, buy a myga. He wanted to buy income to protect his younger wife. I said, buy a myga. Then when you pass away, you can have access to it. When you pass away, she can take it and go buy a spea because she would then be doing immediate income. And immediate income is best with the immediate income annuity. It's not rocket science. And if you have a specific, if you have a unique situation, then obviously the general information is going to have to be altered to fit what your strategy is. That's why you make appointments, so we can figure out your deal. So I think index annuities work really well for retirement. They can be considered in almost every scenario. Some people say, no, I want to deal with it. All right, that's fine. And you know, there were times, there was a time when Mygas didn't have a 10% free withdrawal, so they didn't really work. Welfare income plan, you get two and a half percent on a myga and you can only take the interest. That's pretty weak, in my opinion. So a lot of this has to do with the company you choose to work with. I get ton of questions on this is a side note, but I get a ton of questions on what if the insurance company fails. So there's three newsletters slash podcasts on that. It's all there. I'm going to probably do it again. Just remind everyone. But I, over the years, I've learned what companies are good to work with. I say this a lot. It's, you can tell when you call for customer service and you're talking to someone who has a smile on their face. Wait times on the phone. Everybody I work with, I urge them to let me or my assistant Leandra make the servicing call for them. We can get through in three to five minutes with the good carriers and you know, your customer service, the, you know, the consumer line, it might be a 30, 40 minutes wait and that's just the way it works. There's a lot of people calling in and you got to wait in line. So that's why it helps with good production at certain companies. We get a straight line in and can get somebody on the phone and usually figure your stuff out well before you'd even get, you know, get somebody on the other end of the end of the line. So lean on us for that. That's what we do. So I did this last year after I went to a conference and Midland national being my number one recommendation. A lot of people have seen that. They ask about it year to date, they're probably 25% to 30% of the business. Last year, that's about what they were. So it's not something I send to everybody. But I went to this conference and typically I don't like the conferences. I just. They're not my kind of people. Obviously being a contrarian in this business, kind of being a lone wolf, it's hard for me to find someone where I match philosophy with and really click with. But I can't tell you how impressed I was with the level of advisor that was there. And it seemed like everybody had kind of found it for the same reason. It's agent direct company. It's easier to get things done. They don't have a third party in the middle that's mucking it up, pushing products, influencing the decision. It's just straight to the good company, very high level advisor. And I think, you know, you'd be crazy if you think that doesn't make a difference or doesn't say something about the company. But again, it's not where everybody goes. But if there's a small difference between cost for certain products, then I'm always going to lean to that and I'll explain it, but it's going to be your choice in the end. So that about does it value in index annuities. Get a good company. So this has been episode 143. My name is Brian Anderson. I appreciate you guys joining me for this episode. We're going to keep the content going next week. I think I'm going to tack the annuity ladders, but we will see. So if you want to make an appointment, hit the top right corner of any page on schedule a call. Enter your name, email, phone number. Pick your time zone, write a few notes about what you want to talk about. I'm going to be out this weekend, so I'm excited to do my kind of my first pack trip with my buddies that I went with last year. I don't look at that episode. You have to want an annuity. So good, solid dudes. We'll have fun in the outdoors. So you guys take care and I will see you next week. Okay, thanks. Bye. [00:18:08] Speaker B: You have been listening to annuity stray talk. The preceding information is for informational and educational purposes only and does not represent tax, legal or investment advice. The views expressed by guests on this program are their own and do not necessarily reflect the views of annuity, straight talk or its partners. No information presented today should be acted upon without meeting with a qualified and licensed professional. It is important that you read all insurance contract disclosures carefully before making a purchase decision. Guarantees are based on the financial strength and claims paying ability of the insurance company.

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