Episode Transcript
Speaker 1 00:00:05 This is annuity straight talk since 2008. Your host Brian Anderson has helped clients nationwide navigate the complex market for annuities with Brian's assistance. Hundreds of clients have achieved a profitable and secure retirement. I would know because Brian has answered many of my questions concerning annuities and retirement planning so that you can benefit as well. Let's get started. Here's Brian.
Speaker 2 00:00:49 Hello and welcome everyone to the annuity straight talk podcast, episode number 47. My name is Brian Anderson. Ready to go after three hard days of rain and some pretty junky June weather in Montana. We've got a partly cloudy sky. It's quite pleasant. When I get done with this, I'm gonna go do a little bit of work outside. After I run to the ups store to send a few things off that need to go to clients. And I wanna mention something that I didn't mention last week when I had John bomber on, is that new annuity straight talk hats are here. You see that. And so clients only, obviously I'm not gonna say if you buy an annuity, you get a hat that's called baiting. That's not legal. I'm not saying that, but in appreciation for anyone who wants a nice summertime cap that fits the moment you put it on anybody who's ever had, one will tell you, reach out to me, send me an email, all that stuff.
Speaker 2 00:01:38 We got the gray that I'm wearing, and we got a nice blue, a S T made in Montana. There it is. So I'm sending a few of 'em out today to people that I've told, who I've spoken with recently, if you want one, I will ship it to you overnight, maybe second day, you know, it's not urgent, but there's, you know, SPF factor, the hat breeze really well. Like I said, you put it on and it fits right off the bat. I like it. So I had some that I got about eight years ago and those were all gone as of last year. And I thought, ah, that's one of those things I'm gonna do. So I have new client customer in Austin, Texas, we're in the screen printing company. So thank you, Craig and Sandy for putting together these beautiful hats. They are great.
Speaker 2 00:02:21 They kept a couple and there's plenty more to go out. So anyway, little promotional deal, but this is the only hat I usually wear. I've got a camel one when I go hunting, but they didn't have camo colors in this. And I didn't suppose that everybody wanted one. So anyway, today I'm not gonna do a screen share. I'm just gonna kind of talk to you guys about something that is presently on everyone's minds and the rates, uh, interest rates are shooting up dramatically. I mean, not dramatically. They've come up a little bit. Last time we saw rates this high was in 2018 and I kind of wanted to talk about that because you know, multi-year guaranteed annuities, migas, they're fixed annuities with a guaranteed interest rate, just like a CD are at a point now where they're starting to bring back the 10% free withdrawal in a lot of contracts.
Speaker 2 00:03:07 And the interest rates are high. You know, you can get 4%, 4% plus for five years. And a lot of people it's, it's been tough because a lot of people have been interested in getting those and a lot there's different companies that will offer the product. So I'm not appointed with, uh, every company. So we gotta go through an application process to be able to sell for a company. And, and I'm appointed with probably a dozen different companies, but it's not always the one who has the highest rate. And over the last six or eight weeks, I've been chasing these migas and someone will say, well, you know, I've been listening to your stuff for a while and I do wanna buy one of these things, cuz rates are getting to a good spot. And so I said, okay, well it's a new company. I've gotta put in my paperwork.
Speaker 2 00:03:49 And it takes 3, 4, 5 days. Sometimes they'll evaluate your paperwork as you put a, an application in everybody's a little bit different, but I've been getting appointed with, I think, four new companies in the last month, which is, that's a big change for me to be honest. And it's interesting in a few of those cases, by the time my paperwork is approved, the rate changed again. And I say, oh no, no. Now I want this one. Let's go over to this one. And so it's an ever ending cycle of me chasing paperwork and all this stuff. And I don't, again, I mean, again, the point is, if you don't like the deal that's in front of you don't make the commitment we try to get. And I do really want, there's a couple of people that came in promotional rates come in for a couple weeks at a time from some companies.
Speaker 2 00:04:30 There's a few people that come in, Hey, I'd like to buy this from you. Can you go get it? And I say, well, the paperwork's gonna take me four or five days, maybe a week. And sometimes it can take two weeks. And I say, well, you know what? I'm, I'm fine with you. I'll give 'em a name of someone who can probably sell it and send 'em off elsewhere. So again, my goal is that you get exactly what you want. And so there's been a little bit of a frenzy around the fixed annuities with the rates going up recently. And what people don't understand is like rates on index annuities are going up as well. And so in many cases you can get an index annuity of similar timeframe, 3, 5, 7 years. And the fixed rate is gonna be within a fraction of what is available if you just take the fixed annuities.
Speaker 2 00:05:15 So index annuities all have a fixed rate because the fixed annuity is the baseline or is the foundational product of that opportunity. And so you can take the fixed rate. So I'll give you an example of 4% fixed annuity for five years. There's an index annuity with a three and a half percent fixed rate for five years and that three and a half percent, which is not common with all of 'em, but in that contract is guaranteed to not change. So you give up a half percent point if you take the index annuity, but what the index annuity gives you is it gives you the opportunity to exit that fixed rate and take a shot at a much higher, a six to seven, eight or 9% yield in some years. So as far as the optionality goes, now, I'm not here to tell anybody what to do.
Speaker 2 00:06:04 And some people are plenty happy with a 4% fixed rate, but you can take three and a half and you're essentially giving up on a hundred thousand dollars investment. You're giving up 2,500 bucks over <affirmative> over five years in order to have the chance of making more in one year, two year, three years. Okay. So that's kind of the dilemma that I faced. So I say, well, you know, what, why, why don't you just take, take this or think about this one now I don't really care. You choose what you want to choose. But again, I don't have to chase the products around as much. So you take a three and a half instead of a four, but you have the opportunity at some point in time when marketing conditions present themselves the right way. And you say, yeah, I'll shoot for a 10. Sounds pretty good to me.
Speaker 2 00:06:49 So, and when I look back at it, now, a lot of people with the index annuities have an issue thinking because they don't know it. If they've never done it, they don't understand what's gonna happen. And they think, oh, there's too many moving parts. And I'm, you know, the whole purpose of my website and podcast is, and it's not always been about index annuities right now. I consider them to be the best value proposition out there because you can take three or 4% on a fixed rate for three to five years, or you can take, you know, market upside and hope for a bigger return. So if you wanna settle for three and a half, 4%, that's perfectly fine. And there's certain situations where that is absolutely the right way to go. But I bring this up because I, I don't think there's been a time in my career.
Speaker 2 00:07:31 The reason I started selling fixed annuities is beca or index annuities is because fixed annuity rates were so low. So I have an example of a, of a couple that came over and bought an index annuity from me more than seven years ago, they just became surrender free. It was a seven year contract. And at the time I was talking about a bond replacement for their portfolio. And so we moved a big chunk of the bonds into an index annuity at the time five year fixed rate on a, a fixed annuity multi-year guarantee was around 2%, 2.1%. But those fixed annuities only had, you know, interest earnings for withdrawal. So they didn't have the same liquidity. That's where the advantage was with the index annuities and said, well, you wanna replace the bonds cuz you don't want the interest rate risk and a fluctuating value.
Speaker 2 00:08:20 And so we, we went with the index annuity. Well, because fixed rates were low. Then the accompanying index rates, the participation rates, the cap rates were not that high. And what happened is that index annuity. It was probably, you know, those products and that's not the only one I sold in that time period. But those products did the worst of any index annuity I've ever seen because the rates were so low when they bought it that, you know, in comparison to everything else they had, they did really well, but they didn't have an outsized yield. So in this contract, I think their yield was around 2.9%. So were 80 basis points above what the fixed annuity, if they would've guaranteed the interest rate, but they wouldn't have had the liquidity. Now they didn't take any money from the contract anyway, because they had so much money in the market, they just shot up and they made a bunch there.
Speaker 2 00:09:13 They never really needed to access it. So as things change over time, they probably will. And there's, you know, and I won't get into the details of what they did with it, but they're in the process of kind of moving it into a few different spots right now. Cause it did, you know, it did fine. They made some good money on it, but it was only a 2.9% yield. And in that year, other contracts range from about that, I think that might have been the low two and a half to three and a half. And a couple of them were, the timing was perfect or maybe they were a little more aggressive with their strategies. A couple of 'em did around four. And so that's what I say is similar to right now. Now, if you look at the 2.9, remember that's kind of a risk free or not.
Speaker 2 00:09:51 It's not technically risk free is only for like the 30 day treasure or 90 day treasury or something like that. But extremely low risk in a contract. They beat the fixed annuity and given the past six months and even so I think they were running neck and neck with a bond portfolio, but after the 15% drop in the bond index in the last six months, they're crushing the bonds too. So an index annuity was better than the fixed annuity. It's better than bonds. And I've talked about how they're better in bonds over time. Now it's not to say that you have to buy the index annuity. If the, the rate you're getting on a fixed annuity, a multi-year guarantee is appropriate for what you're doing and that suits your preference, then it's absolutely, we've got some better deals now than we've ever had. And probably it's been 2010 was the last time that I had a 4% rate on a five year fixed annuity.
Speaker 2 00:10:41 But understanding is that if the fixed annuity has three to 4%, three to five years and over that that's three to 4%. That's twice as much as they had seven years ago, when the one couple bought the index annuity and the fixed rates were two, they've got twice as much potential. You know what that means? You've got twice the potential on the top side, in an index annuity. So given that bonds have dropped so much, index annuities have increased an opportunity as much as fixed annuities. And so it's not again, not to te talk anybody into doing something that they don't want to do, but just so you understand now, I'm at the point where I've got 10 years of performance on the index annuities to say where they fit and how they compare. So if you've got a three and a half, 4% rate on a fixed rate in an index annuity, it means you've got growth, potential that's well into double digits in certain years.
Speaker 2 00:11:33 So I remember the couple I talked about before with the index annuity, they were kind of bumbling along like again, the cap rates weren't that high just cuz the fixed rates weren't that high, but we were doing well in comparison to everything else. I remember 2018 was a big year. The rates shot up in 2018 and those, the bonds dropped in value. So we could look at the chart from bonds, they sold and see that they were still ahead of the bonds. Again, we're talking safe money here. And so if you've got twice the budget, then you're gonna exceed the yield on a fixed annuity. So that's what I like to talk about because I've seen it enough where I've never had an index annuity that didn't beat a similar term. Fixed annuity from the past in 2018 were probably the best index annuities I sold because the rates came up to a point and those things are golden.
Speaker 2 00:12:23 You know, when rates weren't quite as high as they are now, but you still had, you've got contracts that are 3, 4, 5 years into it and they're averaging more than 5%. So that's exactly what I'm talking about. Index annuities are built to be better than fixed annuities and they do better than fixed annuities with the liquidity of provisions. They're certainly a lot better than bond funds and, and even just fixed rate actual bonds themselves because of the liquidity provisions without interest rate risk. So understand that while things are changing rapidly with fixed annuities, I'll chase them to the extent that I have the appetite for it, but <laugh>, I've gone to four different companies and I've sold three contracts. <laugh> so it's a lot of work and I'm happy to do it cuz hopefully, you know, some of these companies will boot me out for non-production.
Speaker 2 00:13:16 And so if I don't ever, you know, I got contracted with a couple that I'm never gonna sell some something from them and maybe I will, maybe my Mya business will just take off. I mean, if you want the highest fix rate, I think at this point I have it, but next week, who knows who's gonna come out with whatever else. Right? But I think for those people that it suits, I think the multi-year guarantee is a good idea, but understand that index annuities are built to do better. And in my experience they have done better. So the new fixed annuities coming out, a lot of 'em are adding back the 10% free withdrawal, which is a huge benefit. We can do anything that we show in the flex strategy we can do with a fixed rate over a short period of time, five years, six years, whatever it would be, the index annuities.
Speaker 2 00:13:55 We can talk about that a little more. I do like the longer contracts because the more years that you have an opportunity to get that higher yield, better chance you have of actually beating that rate. So a three year index annuity, you only have three chances to do it. And in a 10 year index annuity, you get 10 chances to do it. And it could be no joke. It could be a 20% yield in one year is really gonna boost your top line from 3% to 5% on an average over time. So anyway, index annuities are built to be better fixed annuities. They are better than bonds. It's a more suitable replacement for a bond portfolio. But again, we're talking safe stuff. I know last week we talked with John Ballmer, no loss, unlimited upside talking about risk in the markets in retirement. It is about risk management.
Speaker 2 00:14:36 There's a lot of calamity out there. And so either way you go, I think it's important to look at the opportunity. So I wanted to read something to you. A guy I've been talking to pretty sharp guy. He used to be an investment advisor. He's retired now and he's got some annuities. He's thinking about buying one for me. And this just kind of tells you about the times we're in. So I see that fixed annuities are now paying well over 4% for five years. What is your gut feeling for the annuity going higher? The stock market going lower? I think it will not bottom out until later this year, maybe 20, 23. I have seen it worse, but never with so much going against it. War inflation, incompetent politicians, BLM andt for anti-gun people, politicians of possible recession and incompetent fed, which was much better when my former economics professor Allen Greenspan ran the fed.
Speaker 2 00:15:23 So apparently he knows Alan Greenspan, which is cool, but I just, that's a pretty good synopsis. We got all this social unrest and political issues and political fighting. And again, I'll re remind you of, uh, I think it was episode 37 wars, Iraq. I think they're all just distractions to keep you occupied with something else. While bigger things are happening. When it comes to your finances, you wanna be locked in. So these short term changes do not affect you, but anyway, whether it be fixed annuities or index annuities, if you wanna talk about variable annuities, a registered index link annuities, I should do a podcast on that big question. I don't sell 'em. I don't necessarily believe in them, but we'll do that. And I've got a couple of good ideas for other other clients have requested some information on different topics that I think would be beneficial to you guys anyway.
Speaker 2 00:16:06 So whatever the topic would be, I'm here to help. I'm here to answer questions here to draw comparisons, show you how to evaluate opportunities. Index annuities are usually better than fixed annuities and they're definitely better than bonds. So this has been episode number 47. Index annuities are better than.dot.you tell me what, they're not better than we'll talk about it. If you wanna chat, if you want to, uh, argue with me or object to anything I say, go ahead and do it through the email or give me a call. My number is 804 3 8 5 1 2 1. And I do know some guys out there who are strongly into fixed annuities. There's nothing wrong with them. I think they're great. If that's what you want. I'm gonna talk to you always about a better upside. If you wanna make an appointment, go to the annuity straight talk homepage, any page on the site top right corner, schedule a call. Get on my calendar. It's simple and easy. I'm here to help here in Montana. So again, 804 3 8 5 1 2 1. I appreciate you guys stopping by for my talk on fixed index annuities and how they compare. So you guys have a great day and I will see you next week for episode 48. Okay. Thanks. Bye.
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