Episode Transcript
[00:00:00] Hello, everyone, and welcome to the Annuity Straight Talk podcast, episode number 204.
[00:00:08] My name is Brian Anderson, founder and creator of AnnuityStraightTalk.com often copied, never duplicated here in its original format.
[00:00:17] A lot of work to put this out there. Just want to help you guys and lift the business up for everyone. So we're going to clear up a easy topic today that causes a lot of confusion because there are lots of different ways of using annuities and fixed index annuities are just one of the types of products you can use for various reasons as well. Please, like subscribe or comment on any of your favorite podcast platforms or on YouTube.
[00:00:44] If you want to talk with me, you can schedule a call. Any page on annuitystraighttalk.com top right corner of any page. I'm going to show it to you real quick because I'm going to share my screen. Okay? See that? On the top right corner of the screen, if you're watching the video, it says, schedule a college. Click that button, put in some information, and pick a time. I will give you a call or Nate will give you a call. We will take care of you.
[00:01:05] Okay? So it's not uncommon for people to get terms mixed up. Again, a lot of people are starting from the beginning, and that's okay.
[00:01:14] That's why we've got a lot of information. That's why I urge you guys to take your time. It takes a lot of diligence on your part to make sure you fully understand the products you use for retirement.
[00:01:22] When people do that and take a lot of time, I rarely see them make mistakes. The ones that do make mistakes or ones that kind of get in a hurry or, oh, well, I trust this or that, or this is what he said and I'll take it. The likelihood of that working out for you is much, much lower than if you say, hold on, take a step back. I mean, even just this morning, I've been trading emails with a guy who said, I'm just really confused.
[00:01:45] This guy's got these two products.
[00:01:48] Level or increasing income, one company.
[00:01:51] How do I compare? Well, there's no way for him to compare. You need an agent who's going to compare it for you and show you the different types of things to do. That's why my work is documented. And that further complicates the products.
[00:02:03] Just like I said, when there's an advisor who has maybe just a couple products that he sells from one company, hey, you can either have level income or increasing income. Well, that's true, kind of. But usually those products are different companies. Those are not the only two types you got fee or without a fee. Anyway, don't get too far into it, but I understand this to a great degree and that's why I'm publishing as much as I do. So it is fair to say you might only get a piece of the information elsewhere and it's honestly quite likely that's what will happen. So I'm here every step of the way to make you sure you learn everything necessary to make a good decision. So twice this week I proposed fixed indexed annuities with a guaranteed income rider. And both people looked at it, said, wait a second, I don't get it. And how are these different than other products?
[00:02:47] So fixed indexed annuities can be used for a variety of reasons. In each of these two cases, the annuity was the top income payout on the market. So what was important to them was that their goal was, hey, we want the most efficient payout, I give them the payout.
[00:03:02] That's the bottom line. What's the guaranteed income for life?
[00:03:05] And fixed index annuities regularly have the highest payouts. So it makes sense to look at em. You should just to make sure, you know, if you go with a SPIA versus fia, you want to make sure that you're not giving up some income. But there's a lot of other details in the contract that might seem a little bit confusing. So the basic premise of a fixed index annuity is market length growth with no loss loss protection. On the downside. The purpose is for people who want to participate in the market but don't want to risk losing money. If you add guaranteed income to that, it's available by way of an additional rider that you place on the contract. It's a box you check on the application that means no matter whether growth is good or bad income contract is guaranteed for life, meaning as long as you are alive. That means guaranteed for life.
[00:03:53] If I say joint life, it's two lives and it will be paid if either person is alive, one or the other.
[00:04:02] Amazing. Very simple to understand. For life means as long as you are alive. Joint life is as long as one of two people is alive. But a lot of people wait, what does that mean? It means if you're alive, you get it. Okay. Guaranteed income places all the risk on the insurance company to make that payment, so you never have to worry about income in retirement.
[00:04:22] One example is a couple we're talking about right now. Who can get guaranteed income from a fixed indexed annuity that pays 7.5% of the initial premium for a joint life guarantee. As long as either one of them is alive, they will get that seven and a half percent payout. Now, it's still an index annuity. We looked at everything and found that to be the highest payout in this case.
[00:04:42] So the account will perform outside of that to give them a residual balance that declines over time as the guaranteed income continues to be paid.
[00:04:51] There's a fee for the additional income rider. So the income payment plus the fee will quickly deplete the account, usually in about 12 to 14 years is when that runs out. And what that residual is good for is say if, heaven forbid, something happens and you don't live long enough to collect a bunch of money, there will be a remainder that goes to your heirs. That's one thing people really like about it. Or let's say there's a terminal illness and there's a waiver within the contract and you're only expected to live three years, you might want to get the bulk of that money out, something like that. So there are contingencies in place. A lot of people were, oh, what about long term care, what about this and that? So yeah, it's not the best case scenario, but there are waivers available for things like that. Now, lifetime income payments are a liability to the insurance company. So index annuities with guaranteed income are built to grow very conservatively. They're not built to grow a ton.
[00:05:40] Between the fee and the conservative growth, insurance company can project sufficient reserves to meet the guaranteed income amount.
[00:05:48] So they can't give away everything if the one thing they're guaranteeing is the income. That's why it's the highest payout. On the other side or at the base of this is just a regular old fixed index annuity. It has protection from loss and growth tied to a market index.
[00:06:01] You can use this type of product to produce retirement income, but it doesn't have guaranteed income. You don't have that high level guaranteed payment regardless of what the market does over the next 20 years. Right.
[00:06:13] One thing people like about this is there is not a fee for a base contract and growth potential is at least 50% higher than a product built to provide guaranteed income. So it stands to reason you'll have a residual balance that holds up much longer. If you're not having a fee drag and you're growing at 50% more taking those withdrawals, the money will last longer than it would have in a guaranteed income contract.
[00:06:37] So if the index annuity grows at 5%. And you want to simulate the guaranteed income contract by taking out 7.5% of that, then the money will. I ran a scenario, just an amortization schedule. The money will last for almost 22 years.
[00:06:53] Now the money could run out faster or last longer depending on how that yield changes. If it's 4%, then it's only going to last 19 years. If it's 6%, it might last 27 years. Or you have a bunch of money left. One way or the other, it could change the result. But you're taking a little bit of risk on yourself by taking that payment stream or doing the payment that way. This is what I consider a better play for discretionary income or required minimum distributions when you do not need the maximum payout. I introduced this more than 15 years ago for people who wanted more control over the outcome. You have to realize that in the past the payouts were not seven and a half percent. A joint couple in their mid to late 60s were lucky to get five. That's what I called the flex strategy. Let's skip the income rider and the fee and just simulate that same withdrawal. We know it's gonna last at least 20 years. The growth will give us plenty more. Good deal. A lot of the people that bought that were able to closely maintain their residual balance and in the past few years have been switching over to guaranteed income contracts that are paying a lot more and shifting the risk to the insurance company.
[00:07:58] So that's how advice changes based on what type of products and what opportunities are available.
[00:08:03] When I started looking at fixed index annuities, there were less than 150 on the market.
[00:08:08] Now there are more than 1000.
[00:08:11] To understand them all could seem like an insurmountable challenge. You need help from someone who does understand them all. And it's a small percentage of advisors who truly have a handle on the market because most of them are just comfortable selling like a range of a few products or so. The most competitive products for growth are different products than the ones that are most competitive for income even within a company.
[00:08:33] Hey, if you just want to grow the money at say, Midland National Retire Vantage is a pure growth product. But the Income Planning Annuity is a pure income annuity. So even within the companies they have different products for different purposes. Because we're able to look at and evaluate the entire market. We have become very effective at helping everyone find exactly what they need.
[00:08:51] And there are some products that I can't sell, but it's because they're variation for different distribution. Channels. Usually I have something similar. It's just different.
[00:09:00] Look, if you talk to a guy at Merrill lynch, he's gonna sell a different Midland product than I can, but they're gonna be the same thing anyways. We're here to do it for you guys, to make it really easy. And again, when I tell you the product, if you look at the purpose of the index annuities, say there's over a thousand of them. Well, a certain percentage of them are income annuities.
[00:09:19] So if you're just looking for growth, then you can not look at all those. That's actually a lot of them. If you want to filter by, hey, I want a solid company A or A plus, a double plus.
[00:09:31] You can do that. That's going to really whittle it down. And then you're kind of six, one, half a dozen the other. It's actually a lot easier than you think. So fixed index annuities with a guaranteed income rider are highly recommended for necessary spending needs in retirement. Set up that baseline.
[00:09:46] That works really well. Fixed indexed annuities met only for growth are a good option for discretionary spending, whether it be for vacations, home repairs, new cars, or anything else that does not happen every day. I'm going to evaluate the validity of both for just about everyone who expresses interest in a secure retirement, because that's what I do. I feel like you guys should have all the options and choose what you like. Number one, choose whether you like it. Number two, choose the path that you like.
[00:10:11] And it takes time to do it. So take your time figuring it out and when you come to a conclusion, it'll be easy and you're going to get what you want, not what I want you to have. Thank you guys for joining me. For episode number 204, fixed index annuities growth versus guaranteed income. How it's different. I appreciate you guys joining me for this one. If you want to chat with me, you can hit the upper right corner of any page on annuitystraighttalk.com where it says schedule a call. Please, like subscribe or comment on any of your favorite podcast platforms are on YouTube. We're rolling up to the holidays, taking stock of the year and we'll probably do a review at some point in the next month or so. Thank you guys again and have a great day. Talk to you later. Bye.
