Episode Transcript
[00:00:00] Hello and welcome everybody to the Annuity Straight Talk podcast, episode number 192. My name is Brian Andersen, founder and creator of AnnuityStraightTalk.com man, this website's been live since late 2008. Been in the business since 2003. I've seen it, I've done it. Still a lot to learn, but I think you can all learn a little bit from me too. And that's what I'm here to do. I have found recently that man education really is just the key to figuring this out and being confident. First and foremost, decide if annuities work for you and then secondly what type is most beneficial. Try to cover them all here. I'm not partial to one or the other. Got a podcast coming about that soon. It's not based on how much money I can make anyway, don't want to get too far ahead of things. But please like subscribe or comment on any of your favorite podcast platforms or on YouTube. Share with your friends, anybody you think it might help. And top right corner of any page on annuitystraighttalk.com if you want to make an appointment with me. You can also talk to Nate who you saw last week, who will be a guest from time to time when he's got the time to do it. Because he's going to be working with me and available to chat with anyone who feels that his style or his expertise might be a better fit. And that's fine with me. So I bring in good people that are qualified to help. Anyhow, going to share my screen. 17.42% first year guaranteed index annuity return. This is not a case study. This is not what happened. This is what you could have so you guys can see it. I'll walk through the newsletter and explain how this works. Yes, you could buy an index annuity today and guaranteed to get 17.42% in the first year. Sure it is a marketing gimmick. It's also true and comes with some conditions. So I pop this up because I've seen it in a marketing perspective a lot of times.
[00:01:45] Been used as self fixed index annuities for a while. I'll give you the pros and the cons. Tell you where it works. So most sales pitches only fall apart because full details are not explained to the consumer. Had an awful one the other day. A large amount of money people had no idea but they signed the paperwork anyway and it's. It's sad. I always wonder is a salesman afraid you won't buy the product if you Know everything. That's negligence, right? And if not, it's either ignorance or laziness. That's not good either. You don't want anybody like that. We are never going to get to 100% of financial transactions being optimal, but I sure can try.
[00:02:20] And to be honest with everyone, you have to realize that this happens in every corner of the financial services industry, from banking to investments, everything in between. Think no further back than the 2008 financial crisis. Banks were not disclosing everything. That's why they got in so much trouble and that's why they needed the fdic. But again, another subject of another time. So before we go any further, right up front, we're talking about bonus annuities and more specifically, a true annuity bonus. There are also income bonuses. Talked about those a lot. Those only increase the value of the income payments, but do not translate to greater cash value money in your pocket income bonuses cannot be used for free withdrawals and you never get to walk away with the money. So I don't want to hear anybody talk about that fancy product out there that seems so good that just bumped up to a 50% bonus. That's a phantom bonus that is used to calculate your income. Now, if you need more detail on that difference, I'm not going to go in detail here because if you don't know this and you weren't around to see it about a year ago, I talked about the difference between these bonuses and that's it. Our bonus annuity is a good deal. I was not too kind to them, but there are situations where they work. Everybody's gonna ask, how do you get 17.42%? So all you do is you start with a true bonus of 14% and allocate the contract at the fixed rate of 3% for the first year after a year of compounding. So you get 3% of the bonus as well. And after one year, it turns out to be 17.42. An excellent way to start with an index annuity. Now, in all the years that I've been working with them, I have learned that success in the early years is what sets expectations and improves experience over time. When we miss it the first year, it's not that much fun. We like to be able to explain why that happened.
[00:03:56] Again, depends on the indexes you use. Got podcasts about all this stuff. If you want to be pointed in the right direction, just ask me a question. This is 192. There's a lot of them. There are a few advantages starting this way with A big boost at the beginning.
[00:04:08] Now it is a bonus. So haven't been a huge fan in the past, but they do work in some specific scenarios and it's only fair to give you the downsides of doing that as well.
[00:04:19] So first of all, sometimes it's necessary to get out of an underperforming contract. Contracts issued prior to three years ago were done so with low underlying rates. The bonus offsets the surrender charges, so the contract owner gets a boost to the cash value and higher rates going forward.
[00:04:35] Now there are a few requirements in the industry to get the new contract approved, but it basically means that a clear benefit needs to be demonstrated. I talked this year about how clear need was not demonstrated. The source of the transaction was obscured. That was unethical transaction. The insurance companies do not want to screw anybody over.
[00:04:54] So we as agents need to play by the rules. And I outlined that August 1st of last year.
[00:04:59] Again you want to go into the details of that. If you're looking at hey, I want to get out of this, I think I can do better.
[00:05:05] Go look at that podcast Surrendering an annuity now next is pretty simple. Some people just like the guaranteed boost that comes at the beginning of a long term contract.
[00:05:13] The outcome of a fixed indexed annuity is not guaranteed. It needs the market to participate. So the bonus puts money in the account at the beginning, increasing the likelihood of a satisfactory result using the fixed rate. Every index annuity has a fixed rate cause it's a fixed annuity at its core.
[00:05:31] As mentioned, the subject of this podcast makes it just a little bit better on a guaranteed basis. Then you don't have to rely on the market at all for the first year. You can decide in the second year whether you want to participate in that and shoot for more yield. The third situation, which is directly applicable to some people, usually for someone who's a little bit older and a lot of people, there are a lot of people holding on to this money saying hey, I'm just here to leave it for my kids.
[00:05:54] So the death benefit could be important. So a true bonus pays as a death benefit immediately after the contract is issued. Get the contract issued, die three days later, all the premium put into it, plus the bonus and a minimal amount of accrued interest after three days will pay as a death benefit.
[00:06:10] Now there's a lot of the death benefit enhancements. Oh, the 50% bonus can be paid as a death benefit. That requires a multi year payout which only reduces the present value. I covered that once. An enhanced payout of 50% if you gotta wait to get it in five annual installments decreases the present value of that by 15%. So it's not as much as you think when you draw it out over five years of waiting. I talked to a guy this week who has a variable annuity that's significantly appreciated in value. He's thinking about trimming risk. He's leaving it to his kids to entice him. Or what might appeal to him from this index annuity is that he can get a 14 to 17% bonus on that cash value, have a significant increase in the first year, and depends on how long he thinks he's going to live and if he thinks that's a value. Because again, the value is going to depend on how long it takes until that benefit is actually collected on. So for inheritance minded people who like the idea of preserving cash and being safe with some market upside, a bonus adds nice value from the get go. And the last situation where a true bonus is useful comes for those planning on using the contract for systematic withdrawals. One risk to doing this with an index annuity is in sequence of returns. And now it's not as bad as fluctuating assets, variable assets like the stock market.
[00:07:24] But the bonus ensures you can start making withdrawals without invading the principal for a few years.
[00:07:30] By then you'd surely have some positive returns in the account. So this gives you a better chance at maintaining or even growing the balance over time. Yes, the bonus does increase the free withdrawal amount and that should be factored into any planning to use an index annuity for necessary or discretionary spending. So four reasons to do it that is help you get out of a contract that's underperforming without costing you money.
[00:07:53] Some just a guaranteed boost to the cash value to get you started right away.
[00:07:57] Third, with a death benefit that is available right away and in a lump sum, not required to pay out over a certain period of years. And for systematic withdrawals or income planning purposes. Now said I'd list the downside. It's quick and easy. There's two that I see.
[00:08:12] First, nothing comes for free. This has been one of my issues with bonus annuities in the past. So the indexed annuities with a bonus or even fixed annuities with a bonus will have a lower growth potential. Either cap participation, fixed rates. So you got to decide on the trade off. In the past I've always said just go for the higher growth. And when you run the illustrations, it kind of averages out in the long run. But that bonus gives you a Guarantee you're going to get lower growth potential than you would in just a pure growth contract.
[00:08:40] But who knows which one is better? Should average out. Second reason, you still have to own an index annuity for several years after. So it has to be something you want for other reasons, not just because of the bonus. Well, I took this because it's a bonus. Realize that index annuities require participation. You have to actively manage the contract. That's more my job, if you get it from me than it is yours. Talk to people all the time. The guy disappeared like a couple weeks ago. Deadbeat annuity agents, guys who don't service contracts. Huh. I don't know what you should do. So you have to like the structure of the index annuity, the market upside with no loss and all that stuff. What's interesting now is like when rates were really low, people would use that as like, well, the rates are low, so I'm getting this. But you still only, you know, take a big bonus with a 2% cap rate or growth potential. Wasn't that great? Well, the cap rates and stuff in bonus annuities now are higher than, you know, some of the good contracts we did in the past. So I'm not going to argue. And I've done this with several people in the past year or so. That's why a lot of people have swapped out and more people are interested in it now. And I'm actually saying, hey, this is a pretty good deal and kind of list the reasons why it might work. Bonus annuities are not for everyone, but the early addition is appealing for some and really makes sense in some specific scenarios. Now, the best product on the market comes with a 14% upfront bonus and you can get 21% if you want to pay a fee for a little bit more and some other benefits. I don't typically like the fees, but there's a couple of additional benefits that might be something you want. I'm going to talk about this product specifically next week because I sold it to a few people last year who finished with a really good result. Even better than the 17.42. It's worth considering for now. Think about the concept. Get on my calendar. If you want to talk about it ahead of time, I'd be happy to run some numbers with you. It works in the four situations I mentioned. If it sounds good to you, it's safe money. It's an A plus company, no market risk, big boost to the cash value up front.
[00:10:35] This has been episode 192, 17.4. 2% guaranteed first year index annuity Return.
[00:10:44] Please like subscribe or comment on any of your favorite podcast platforms or on YouTube. My name is Brian Anderson, founder and creator. You can get a hold of me top right corner of any page on annuitystraighttalk.com thank you so much for joining me. I'll explain this product in greater detail next week on episode 193. Thank you guys so much and have a great day. Okay, bye.
