Episode Transcript
[00:00:00] Hello and welcome to the Annuity Straight Talk podcast, episode number 189. I am your host, Brian Anderson, founder and creator of annuitystraighttalk.com here in Western Montana on a calm, mild August day, we'd have a very nice summer. A lot of rain and pretty good even temperatures. I know not everybody's experienced the same thing because California has been kind of cold. A lot of the country's been really hot. But it's not too bad here. Usually this is the best time of the year being in Montana. So please like subscribe or comment on any of your favorite podcast platforms or on YouTube.
[00:00:32] Schedule a call with me Top right corner of Any page on annuitystraighttalk.com Button says Schedule A call Today I'm going to talk about something that just popped in my head after I had a meeting with someone yesterday. I think I'll probably talk about him in a bit. Just briefly. Let me share my screen because I'm going to show you guys a couple of statements. And then I got my visual aid, the podcast I wrote just to make sure that's the newsletter talking about performance of index annuities because I mean obviously the opinions around it have been either side of it for years. You guys know that I'm not into getting things overblown.
[00:01:05] I don't go chase for the big numbers. I criticize people who really, you know, throw out the called pie in the sky numbers. 15% average, look how crazy this thing is. Now they're good products, but everybody's curious and hindsight is 20 20. In the past couple of years we've had really good rates and we've been seeing really good interest credits for those people that are rolling the dice to get into a product that's got a little more upside than a fixed product. So. And I was talking to a guy yesterday, he was very happy with what he got out of it. He's also got a myga said, hey, this is pretty good. I'm very satisfied with how this is going. Figured I'd grab a couple and share them with you guys. So anybody considering it realizes there is nothing to be scared of. Now MyGas multi year guaranteed fixed annuities are just fine for anyone who wants a pure guarantee. Indexed annuities are there for anybody who wants to take a shot at more interesting.
[00:01:56] Gotta look at both to decide which one you prefer. With healthy market we've got good interest rates means index annuity owners had the opportunity to enjoy some really nice yields attached to the market without risks of Losing on the downside. So I'm not trying to sell anybody anything, just educate, calm some fears, dispel myths if there are any. I'm just explaining what actually happened. For a couple of contract holders, this is not a hypothetical. This is what we got. The statements show it. Each of the ones I'm going to share have in this podcast, there's two of them. They've got blended allocations with some of the money sitting in the fixed rate account of each contract. So that brings down the total yield a little bit because it's just a fixed rate. But that needs to be considered as far, you know, if you're really looking at what the upside potential of these contracts would be. So the individual indexes did much better. But this just shows you how a diversified contract can produce suitable and even exceptional returns. Allocation is very important.
[00:02:50] I have found that being aggressive with an index annuity will usually pay off in the long run. That's where you might, you know, a fixed account, if you put money in the fixed account, you're sure to get more than zero because you're always going to get some interest on it.
[00:03:03] And the index account, that's what everybody worries about. Oh, what if I make it through a whole year and I get 0%?
[00:03:10] So I've seen a lot of people that have the contracts will stay conservative and keep a lot of the money, a big chunk of it in the fixed account and then maybe, you know, things go well and say, oh man, I should have gone for what in the index and made Instead I've made 4%. I could have made 10 or 12, whatever it is. So I call these redacted statements. But the documents are protected, you can't edit them. I don't understand why redaction is not possible with those. But maybe I'll put in requests at the companies because I'd like to share some of these things. I just had to scroll to a point where you can't see the contract number or the person or any personal information.
[00:03:45] A few weeks ago, like earlier this summer, I did one that I called my favorite fixed index Annuities for Growth because they're right up there at the top.
[00:03:53] And any difference between that and something else you might like is just a matter of opinion. This is just what I think, my experience of doing it.
[00:04:01] And we're going to talk about the blended performance of each contract as well as a couple the individual indexes.
[00:04:07] So tons of potential with the cap rates and participation rates as high as they are now. So I don't have a problem recommending this to anyone who wants a stable baseline with solid upside potential. Maybe you don't want to risk the downside, but you still want to, you know.
[00:04:22] Okay, so the first one is a mass mutual contract issued in November 2022.
[00:04:28] So that's the first one I'm going to look at. I could scroll through the whole document and show you more. I'm going to show you the important stuff. So the purchase payment initially was 285,393. As of November last year it was at 342. 074. So it's made almost $57,000 in interest in two years. Now, obviously close to three years on that. But this is the statement that was available after the second year credit. If the market holds for a few more months, these guys are going to get another 10 yield on top of it.
[00:05:00] And MassMutual Ascend, formerly Great American, they're kind enough to actually calculate the annualized return and they give it to us 9.412 years into it. That's what it's averaging. That's going to bump up just a touch if the market holds and these guys get another really solid interest credit.
[00:05:15] So it's a seven year contract. They go five more years without making anything.
[00:05:19] They still would have made about three and a half percent on the deal if they make zero for the rest of the time. So one or two more credits, you know, four years in, they're as good as a seven year migra rate. Everything's gravy from here for these guys. When we started the contract, it was the one year declared rate. That's the fixed rate. Or as of the anniversary, they've got 27% in the fixed rate, 37% in the gold index and 36% in the S&P 500. I like this contract because it's pretty simple. It's just a couple of indexes and a cap rate. They do have participation rates on some of them as well. But it's easy to calculate, easy to see.
[00:05:54] All right. And as those contracts grew, so these guys set it in place at the beginning, decided to hold it. Hey, it did well, let's just keep it going, no big deal.
[00:06:01] So obviously when you know, the gold and the S&P 500 grow higher, it's going to become a larger percentage of the allocation.
[00:06:10] But you can see down here, if you're looking at the video on my cursor, it's 4.5% was the fixed rate.
[00:06:16] They had a 12% cap on gold, which has been going nuts. And they had 11% cap on the S&P 500. This is right in the neighborhood of what you can expect to get if you bought a new contract today. Really good potential.
[00:06:29] So I like this deal.
[00:06:33] One of my favorite deals has been selling it for a long time now. If they hadn't had the fixed rate, I figured that it probably would be 10 or $12,000 more they would have made. That would have been nice. But you can't be upset with this. And that just kind of shows you if you want to go conservative, it's going to take off a little bit of the yield. And that's all right. But they did really well. So the Midland contract is a little bit different. I'm going to explain to you why that's the case. But that was started in June 23rd and it was 253,000 started.
[00:07:02] And you can see right here on the bottom, it's kind of small.
[00:07:06] It's 287,930. So he's up about $34,000 in two years on this contract. What's different about this? It's a lower yield. They don't post the annualized yield. It's up to about 13.8 or so percent from the beginning. So that's about annualized yield of six and three quarters.
[00:07:25] Still well above a migrate. I'm talking a plus, a plus plus companies here, right? I'm not talking about the private equity consumer direct, you know, taking risks, shadow investments, bs. This is good, solid standard traditional insurance companies, okay? You can't find that kind of rate or that yield with that quality of paper in the market. You can go A minus, you can go B plus. You can go, hey, my neighbor said this is good.
[00:07:51] Cool. Don't call me if it goes the other way because I don't put people into that stuff anyhow. Again, fixed account was a portion of it. What they did at the beginning is they put some of it in a two year option. So it had its first opportunity to credit this year and that came through.
[00:08:08] If you look down a touch, it was 12.6%. So last year they had the fixed account in the s and P500. They bumped up good because the S and P did well on about 40% of the money. They didn't get an interest credit.
[00:08:24] So that would hold it back at the beginning. If that trend continues, which it will, it'll look better and catch up in the long run. So if you say six and three quarters isn't that great, that's what you do. Wait that time period and those will tend to average out. So this year was a bigger year because they got 4.4 on the fixed rate and 10 and a half on the S&P 500 cap.
[00:08:47] Really good, easy, straightforward. All right, 10 and a half percent on 111,000. So yeah, nice solid yield. And again, they've only had one and a half essentially index credits in two years because of that two year option. Now we did change that to go back to mostly one year. I think it went really aggressive on the S&P 500 cap. It reset at a real point. I mean, it's already up. This contract came up end of June. S and P is already up a few percentage points. So it's trending in the right direction for them. Even though this was light in the first year, that's going to blend out. The one and two year options will typically even out over time. And a lot of times you use the two year options options, if you hit it just right and we caught that on a good trend, you can actually see a little bit better performance as you should.
[00:09:27] So I expect both of these contracts to average around 7% over time.
[00:09:33] And that's just what I said as an expectation. Even though we've got one that's right at it, I think that'll catch up and go higher based on what we've done with it. And we've got the other one that would be a bit lower. Obviously it could go higher. If it hits that cap a couple more times or comes close, then it could exceed that 7%. But I sell reasonable expectations.
[00:09:53] We've had good markets, but timing will not always be perfect. And at least this is well ahead of a migrate. I always say, like, if you buy the index annuity, you better hope that you do better than a myga. It's not to say anything bad about a myga. And then the other thing that's interesting is that November contract really hit the market just perfectly. And there will be a time in the next five or six years where the June timing was better than November timing. Those things seem to even out. Everybody says, what's the best time? Well, in the last two years, buying one in November I guess is pretty good.
[00:10:23] That's assuming you took the risk and put it all on the upside. So again, I'm not saying nobody should consider a myga. You know, fixed annuities are not consistent. If you're using it for, say, systematic distributions, you need to be able to wait a period of time to get an interest credit.
[00:10:40] Some people that buy mygas like to start taking, you know, interest payments right away. They set it up as a systematic distribution for an income plan, RMDs, whatever it might be.
[00:10:50] So, you know, it pays. Both of these people that own these contracts also own some myga, so it's not an all or nothing either.
[00:10:58] That's exactly why they decided to do it that way. Well, let's get a really good guarantee on this, and let's. Let's roll the dice and shoot for more. And they're doing well with it, and that's why I'm happy to show it to you. So let's see.
[00:11:11] Yeah, both of these guys, and the thing is that they both have no immediate need for withdrawals. I think one couple, when they bought it, was three, four years away from retirement. The other couple's well into retirement. They're just managing safe money and happy to have it.
[00:11:26] So doesn't matter. Whatever you're doing, you get what works for you. I'm not trying to push in one direction or other, but I'm past the point of arguing with people who say index annuity contracts are not worthwhile. So, quick sample of contracts I seen. I got the idea yesterday. I talked to Warren. Hey, Warren, how you doing? He was quite happy. It was also kind of conservative in the first year. Decided to shoot for it in a second. Got eight and a half percent yield. That's a blend between S and P, plus some safety. And he said, I'm very happy with this. So I'm happy for him because he's a great guy, and I just want to see everybody do well. You guys, you know, support me and my business and keep me relevant here. So I'm happy to see you guys be profitable. So it is safe money without fees. What in the world else do you expect?
[00:12:06] As you guys could see, which I showed you, both of these contracts had the potential to earn even more interest.
[00:12:12] Now, some people will stress about choosing the right indexes at the beginning and every year. It's not necessary, but you're welcome to if you own it. That's what I'm here for, to help talk you through it. To be honest, some of the most consistent performers I've seen were blended among options.
[00:12:28] So say four options at 25% a piece from the beginning and never changed or changed very little.
[00:12:35] The point is, whether you do a blend of options or if you stick it in one, you're gonna have good years and bad that are supposed to average out that's the point. It's the same with the stock market. One thing that I missed even when I was writing this, and now that I'm talking about it, is what's really important is these contracts going into their third year, the rates are the same as when they bought them. So they still hold the exact same potential as when they were purchased. That's a really big deal because a lot of people look and say, oh, they're just going to screw me on the rates. They're going to drop the caps and do this.
[00:13:07] There are some that do. There are some that put out that big rate at the beginning. Oh, look, our cap rate's way higher. What's typically going to happen is you might get one shot at it that one year and then they're going to bring that back down to what everybody else is. You better hit it that first year. So hopefully they just take it to where everybody else did. Or maybe they got to cover the cost of doing that if you hit it and they'll bring it back lower. So that's why, I mean, you do what you want with your money, but I sell the ones that are consistent. So I don't have to apologize for something four or five years down the road. Last week I talked about I don't chase migrates. I don't chase cap rates either.
[00:13:41] We're talking about solid companies, good track record, reputable organizations. So stick with those guys.
[00:13:50] Then you can expect to do well over time. If you want to talk about and run through some numbers, get on my calendar, talked about these products or compare them to anything else that you want to look at.
[00:14:00] You want to run through some scenarios. Top right corner of any page on annuitiestraytalk.com thanks again for joining me. Episode 189 Real Index Annuity Performance.
[00:14:09] Like subscribe or comment on any of your favorite podcast platforms are on YouTube. I will be back with episode number 190 next week. Thank you so much for joining me and have a great day. Okay, bye.
