Fixed Annuities vs. Fixed Indexed Annuities

Episode 114 November 24, 2023 00:14:51
Fixed Annuities vs. Fixed Indexed Annuities
Annuity Straight Talk
Fixed Annuities vs. Fixed Indexed Annuities

Nov 24 2023 | 00:14:51

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Show Notes

Join Bryan Anderson in Episode 114 of the AnnuityStraightTalk.com Podcast as he delves into the intricacies of fixed and indexed annuities. Broadcasting from Northwestern Montana, Bryan offers a straightforward and factual approach to retirement planning, helping you make informed decisions.

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Episode Transcript

[00:00:00] Speaker A: Hello and welcome everyone, to the Annuity Straight Talk podcast, episode number 114. Brian Anderson here, coming to you from Northwest Montana, western Montana, sharing information that will help you make better decisions for your retirement planning. Please like subscribe or comment on any of your favorite podcast platforms or on YouTube. Share it with someone who might you might think would benefit from this in a little bit of clarity and product selection in retirement. I'm excited to share it with you. Last week I talked about the new build on the website to put all the information out there, to make sure there was a place where you could find the answers, the explanations to certain things that was written in a way you could understand. 100% factual, 100% true, no artificial intelligence, no scrubbing other websites for little bits of information and smashing it all together to something that doesn't make sense, that happens a lot. No, the real deal, 100%. My creation, my research, my work, 20 plus years. And here it is. So today we're going to talk about the big build was to put all the information about information out about fixed indexed annuities. And so right now, one of the first things I'm going to talk about is what is the difference between a fixed annuity and a fixed indexed annuity? Fixed annuity, a lot of people are coming to know them by another term. MYGA multi year guaranteed annuity. It's just a fixed annuity with a guaranteed interest rate for a period of years. So I want to go through this with you guys right now. Look at the screen. If you're watching the video, you can listen to it. Visit the website. You'll notice on the top of the website it says the newsletter, the podcast newsletters one. That's where you can see all the videos, all the past newsletters in chronological order from today all the way back until it started years and years ago. All the information on there. And then there's a little about if you want to learn a little bit about me. And then now there's a fixed index annuities. And the reason I spend so much time talking about fixed index annuities is because they require a lot more explanation. And it's a certain benefit to a group of people who like the protection afforded by annuities in general. So not for everybody, but they're good products as long as you do them correctly. So started off, every fixed index annuity is first, a fixed annuity, plenty of other similarities, but they have more in common than they do differences. So whatever is better depends on kind of your risk tolerance and what you're trying to accomplish. Not risk tolerance as in you'll lose money. They're both fixed, they're both guaranteed against loss. But the index annuity is not guaranteed to grow. It's zero plus. We'll go into that. Okay, so we're going to talk about the similarities. We got bonuses, fees, guaranteed income, long term care enhances is about the extent of it. And then the differences, the credited interest, the free withdrawals and renewal periods. After a surrender term, you get to decide which is better because this is one place and I'll say it over and over again. Most of the people that come to me have only seen one product. They try to make sense out of the entire market by simply looking at one product, or maybe even just a little piece of the product, maybe just the hypothetical. I'm going to try to offer an unbiased source for general information on all of them so that when you come to me you can have that general knowledge and see basically what the differences are. Then when we talk about what you're trying to accomplish, the goals you have, we can test the outcome of several different strategies, different products, ideas. You get a very honest look at the entire market, including alternatives to annuities. When you work with me. And I got to start that by having information that is beneficial to you guys. So both of them are considered fixed because the principal balance is guaranteed by the insurance company. Again, one to one with the insurance company, you put 100 grand into a fixed annuity or index annuity. They go by 100 grand worth of bonds, so they're not leveraged. You got 100% of assets backing it, plus the reserves of the company. So it's insured money. Say it over and over again. The insurance companies are the only companies that actually have money. They're not leveraged. Like banks are big corporations with corporate paper, stuff like that. So the safest financial instrument out there. So fixed annuities were first on the market years and years ago, just an alternative to a CD. Hey, you're going to get a fixed rate. Maybe it renews each year, maybe it's a multi year guarantee and is locked for a certain period of years. And the fixed index were a variation of the original product, came to market in the mid ninety s. I have a feeling that fixed index annuities came in the mid 90s. Fixed annuities were probably paying 10% guaranteed annually. And it may sound insane right now, but a lot of people, while the market was doing so great in the, wasn't good enough for a guarantee. Fixed index annuities leveraged those rates to potentially get more earnings out of it that could compete with the market. So the fixed index annuities are supposed to fall somewhere between the fixed annuity and what the stock market does. The only difference between the two is how interest is credited the account. We'll go into the differences. But both fixed annuities and index annuities have bonuses. Neither one of them have fees on the base contract level. If there's a contract that does have a fee for the basic contract, it means it's trying to give you something in addition that you can skip that and go get a contract elsewhere that doesn't have that on there. But essentially you have no fees on a fixed or a fixed index annuity. You can have bonuses, no fees. Both of them have lifetime income riders. You can tack that on. That is going to come with a fee. But both of those will have guaranteed income riders. Both of them have inflation adjusted payment options. I don't think that's typically a very good deal. We can talk about that more, I guess. I did an old newsletter, it hasn't been on a podcast. If you guys want to see a podcast where I talk about it for 15 or 20 minutes, I will. So let me know. That's why the comments are helpful. And both of them have long term care enhancements for the most part. The fixed annuities are, there are a few specific ones where the account is just kind of fixed interest and the money you put in is multiplied by two or three x, which is available for 100,000, could be 250 or 300,000 available for qualified long term care expenses. When you see that in index annuity, it's just kind of an income enhancement. So you got to take an income rider. Both of those will probably come with fees. Again, that's an additional benefit to the base contract. You pay a fee for that. So those are the similarities and that covers a lot of things that you will see. Talk about these if you want to go to the page and read about those in a little bit more detail. These are all spelled out as you go down the page. There are some small differences between the bonuses, the income riders, the long term care enhancements, but they both have their options in either contract. Okay, the differences now number one is the credited interest. Fixed annuities have a guaranteed fixed interest rates, either guaranteed annually or guaranteed for a multiple number of years. Indexed annuities, the interest. Again, the insurance company will take that interest by an option in the market index. If they lose, you lose the interest. It's zero, that's your risk. It's an opportunity cost and it's indexed to the market or any number of different indexes that are blended. You got stocks, bonds, commodities, treasuries, all sorts of stuff that you can blend into an index. You got to know about those, but the floor is zero and the upside is theoretically unlimited, but there's not a ton. I mean when someone says unlimited but yes, you can see 15, 20% sometimes. Free withdrawals are a big part of this. I've said it before. The only reason I started using indexed annuities, I started this website believing that you could use a fixed annuity to just a guaranteed fixed rate annuity. You could solve any retirement problem, income, RMDs, portfolio, balance management, reduction of fees, longevity, risk, legacy planning with just a fixed annuity. The reason I switched to indexed annuities is rates got really low so the fixed rates, nobody wanted to lock in for a longer period of time. And in order for the insurance companies to keep them somewhat competitive, they reduced a lot of those contracts really only had if you wanted 3% on a fixed annuity back in 2013 1415, you had to accept limited withdrawals. Some of them had 0% liquidity and a lot of them had you can take out the interest. Only now that we see rates bounce back, you got up to 10%. A lot of contracts have 10% free withdrawal is what we're looking for. But back the free withdrawals were limited on the fixed annuities. I started using index annuities because we couldn't really do a lot of the dynamic planning the withdrawal scenarios with just interest only then it's kind of just like a bond. But the indexed annuities had the 10% free withdrawal. So that's why I started using them. Now the playing field is a little bit more level because you've got 10% free withdrawal on both sides of that. The renewal after surrender term. I've talked about this last year sometimes surrender, free annuity, how it works if you can get it. What I like is the annually renewable, which means just each year they declare a new rate. You decide if you keep it or not, you don't enter a new surrender period. But the fixed annuities, a lot of them, but again, this is not all of them. A lot of them, you have a 30 day window to move the money or you're going to lock into a new surrender period. The index annuities have always been for everyone I know about is just annually renewable. That way you're not forced to make a decision. If you're chasing rates in the fixed annuities, the multi year guarantees, a lot of times you're stuck in that 30 day window. Who knows what the environment is going to be like then you may not want to be rushed into locking in or moving the money. So I like that annually renewable down the road you have a lot more flexibility. You definitely get that with the indexed annuities. It's not available in all fixed annuities. So again, you have all these explained here and then it comes down to which is better. It's the same foundation, identical protection, a lot of other similarities and differences. You got to consult with someone who knows the difference and can explain it to you so you can make a choice. I generally say now this is not black and white here by any means. I think the index annuity that's I'm going to buy because I understand the risk and I want to shoot for a higher yield. That's what I'm going to buy. But I'm younger. So if you're starting in your 50s, early 60s, go with the index annuities, take a shot, your money's protected, you're not paying fees and you have a chance to really keep up with stuff. Some people don't like fixed annuities because what if the market makes 20%? If the market makes 20, the index annuity might make 10, 12, 15 maybe. So you have a better chance to keep pace of that. But it's not guaranteed. Once you get in your 70, 75, 80. I'm always telling people, just take the guaranteed fixed rate. You don't have enough time to really learn to appreciate it. You had to worry about other stuff. Take the fixed rate. That's kind of where it falls in a general sense. But I know 75 year olds who say fixed rate is great, but I want to try to get more. And I also know 50 year olds where just their profile and their expectations are very reasonable. They don't want to mess with the complexity. So they'll take the mica, the fixed annuity. Again, not black and white, but that's kind of how I look at it. If you're younger, take the risk and try to make more. If you're older, take the guarantee, ride with it, enjoy your life. But those two things can be swapped. So it comes down to what you're trying to accomplish. And if you need to get more yield and you feel like the risk is worth it, again, opportunity cost, and I really like the idea of splitting it. Some people can't decide, so you have half in one, half in the other. So I really like that if a lot of people do that anyway. But this is just as quick and simple as I can make it. What's the difference between fixed and indexed annuities? This has been episode 114. My name is Brian Anderson. I appreciate you guys joining me again, please subscribe like comment give me the thumbs up if you like it. If you don't, give me the thumbs down. Comment, positive or negative, one reinforces me, one strengthens me. I take them both. I'm happy to do it, but on any of your favorite podcast platforms or on YouTube, please share it. Just send it along to someone who you think might benefit from it. Newsletter goes out every Saturday where this is delivered to your inbox. Or you can subscribe to one of those channels, you can skip the website altogether. If you want to get a hold of me, you can schedule a call top right corner of any page on annuitystratalk.com. Schedule a call, enter your name, phone number, pick a time, some notes, what you want to talk about, and we'll go from there. So thank you again for joining me. Look forward to episode 115 next week. We're going to keep going through this list of things that are general annuity questions in relation to fixed index annuities. But a lot of it applies to every type of annuity. So it's something that's just kind of a base level knowledge. Everybody needs it's. Frequently Asked Questions I get these questions all the time, and so I'm knocking them out one at a time while I'm on the road and that's I thought a pretty good idea to close out the year. So thank you again so much for joining me. Have a great week and I will catch you next week for episode 115. Okay, bye. [00:13:54] Speaker B: You have been listening to Annuity Straight talk. The proceeding 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 the purchase decision. Guarantee are based on the financial strength and claims paying ability of the insurance company.

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