Episode Transcript
[00:00:00] Hello and welcome everybody to the Annuity Straight Talk podcast. Episode number 230. My name is Brian Anderson, your host, founder and creator of annuitystraighttalk.com here to talk about more big changes that we're doing. Doing a heavy investment in technology to make it easier for you to analyze your options, make good retirement decisions. But that's what this page is all about. Tons of content, tons of videos. We can answer all your questions.
[00:00:26] If you have a hard time finding it, get a hold of me to make an appointment. Top right corner of any page on annuitystraighttalk.com like subscribe or comment on any of your favorite podcast platforms or on YouTube. Share it with your friends. Other advisors poke holes in it like let's make this better for everybody out there. Happy to have constructive criticism or positive feedback. You guys let me know.
[00:00:49] So we are going to talk about the latest addition to Annuity Straight Talk and that is the fixed indexed annuity calculator. A lot of people have asked about this over the time, over time and I've even had some guys suggest, you know, some, you know, marketing type programming guys suggest, hey, you should get one of these up there. And it's not necessarily the easiest or the most accurate thing to do, but we kind of figured out how to do it.
[00:01:15] And I am not going to say that this is the only one out there except but I will say that I did, you know, a decent search and I cannot find one. There's guys that advertise for it but don't have one that just redirects you to somewhere else on their page. So here you go. This is a great tool if you've ever wanted to look at just the numbers for an index annuity without the sales pressure. This is free for everyone on the Internet. That's what I like about the income quotes that I have. We got a lot of advisors that are using it as well. So this is not going to show you overblown projections.
[00:01:47] It's going to be a realistic look at what you can expect in relation to the stock market or even fixed rate investments. Again, we're going to talk about e, reasonable expectations, different time periods. So I want to explain it all so you understand what this is and what it is not. It's not a way to overblow expectations so that you're upset with something you did down the road. But we're also going to answer a couple of big questions by comparing the difference between bonus products and non bonus products.
[00:02:12] Awesome way to analyze the options to My knowledge, the first of its kind. Now I've had a couple people on the other calculator say, oh no, no, no, so and so has this and so on. There's that. But in short order, this will be the most all encompassing annuity website on the Internet, period. Okay, so we're only going to use the S and P. In reality, it's really about the only index available that has a significant track record. What's unique about this new thing on the website is we can look at any period for the past hundred years. About many of the other indexes that you see in indexed annuities were created recently and use back testing to produce historical data. So it'd be a shot in the dark to add those to it. Okay, I want real data and not something that was created to make the product look good. And now there are times when those new indexes will perform well and produce good yields. So if that's available in the annuity you actually buy, then your experience or your results could be better or worse than the data you see here. But I caution you not to get carried away with your expectations. We're not trying to beat the stock market in years of, in times of great volatility, which is what we'll look at today, you will see that, that it will beat the market, but hopefully the market rises. We want everybody to make money. I think it's a better comparison obviously to bonds and directly comparable to my guess. Some people like the guaranteed rate, some people like the opportunity to make a little bit more. And that's what an index annuities for.
[00:03:38] It's not complicated and don't sell these aggressively.
[00:03:41] I just realize that some people want them and I want to make sure they get the one that they understand and the one they like the best. Okay, so I'm going to share my screen and show you this page on the website, the links in the newsletter. You can get it on the homepage of annuitiestraighttalk.com and pretty easy to find on the calculator tab. Okay, so, all right, here's your fixed index annuity calculator. Now what I'm going to do is show you over here.
[00:04:14] So calculate your growth. All right? All you got to do is enter the amount you want to invest. We'll do a sample size of a hundred thousand. We won't use a premium bonus, but you can add that in there as well.
[00:04:24] We're going to have a new feature on this. It's really awesome. We're going to have product Lists of available products that you can click on and directly plug those numbers into the calculator, which is really cool.
[00:04:35] Not quite there yet, but it's real close.
[00:04:38] Now you can. Management fee will come in later. You can choose a duration. I'll just say 10, doesn't matter. And the simulation start year. This is unique. So a lot of the comp or well, all the illustrations you get from the company are going to go back 10 years, maybe 15. Maybe I'm doing something wrong by giving you the opportunity to do this, but I'm not trying to sell stuff. I'm just trying to educate you and give you an opportunity to test these things like I did. Okay.
[00:05:04] So for the products I recommend, the highest S and p cap over 10 years is 10.6% currently.
[00:05:11] And we can use a participation rate as well. And we just choose the allocations. 50, 50. I'm going to do 100%. So it's plugged in. So you can't do more than 100% and boom, we calculate it so that 2001 is what a lot of people ask about. That's the lost decade. Right.
[00:05:30] So here's the results at the top. You can see right up here, the fixed index annuity with those cap rates grew to 173,000 over that 10 year period.
[00:05:40] And the market only investment 95. I know that's, I'm not cherry picking. It's just illustrates the point really well because a lot of people ask, what if we go through the lost decade again? Well, here's what happens, right?
[00:05:58] The term period and the effective rate of turn of 5.69 and the S&P was negative 0.49. Change those numbers a little bit, it'll make, make a big difference. Okay, so you can see the returns. Okay. And this is the value of the index annuity account value 86 after a 13.04 drop. That's the S&P 500. The account value of the annuity is still 100. So it stays flat. Stays flat. Okay.
[00:06:24] This is actually one year into the lost decade. So this is better than it would be if I took 2000 to 20 2009. Right.
[00:06:34] Okay.
[00:06:35] So you can see how they would accumulate. Okay. And you can quickly run a different scenario by at the top it says run another calculation. It's just going to back you up. And here you go. Okay. Now in volatile time periods, the annuity outpaces the market. But in periods with extended market performance, the annuity doesn't keep up. This shows you that a fixed Index annuity isn't necessarily a market market alternative, but it's a great way to diversify and replace bonds in a portfolio. It's how we started using them. Okay, so bonuses have always been a hot topic and an easy sales pitch. In the dinner seminars, the person presenting almost never shows you an alternative without the bonus. They just say, look, here's free money. Isn't this a great deal? You don't ever have to worry about the market. It's all true. But you know, careful. And I'm not talking about the income products and all that stuff. But if you want to talk about the difference between annuity bonuses, there's an episode on that. You can ask me where it is. I'll show it to you. Okay. Now I've explained before the what you have to give up to get a bonus. And now you can see the effect and play with the numbers. All right, so what do we have? 173 before and a bonus. A bonus annuity gives you lower growth potential. The money has to come from somewhere. We all know there's nothing free. What's the catch? Okay. A fixed index annuity without a bonus has a higher growth potential. So which is better in the long run?
[00:08:00] And you'll see. I'm not saying it's not going to say that. Always do a bonus or never do a bonus. Honestly, there's situations where it makes sense. If you're doing withdrawals early, then you want that free money because then you're going to be more insulated from maybe low performance in the first years of the market's down or if you're a little bit older and you say, hey, who knows what's going to happen? Those bonuses are paid its death benefits.
[00:08:25] Yeah, they can work. There's a couple of specific situations where people choose them and it's a, it's a, it's a good choice. Right.
[00:08:31] So the highest bonus on within the same company right now is 17% premium bonus, free and clear. But what you give up is the cap rate drops to 6.25 state dependent on this, all these numbers.
[00:08:49] That's why individually again you can just pick what you, what you want. But you really need some consultation and the actual illustration of the company. But this allows you to test it without really, you know, worrying about what, who's going to try to pitch you something. Right. So that's all we got to change. Give you a bonus. Boom. And our final account value using the index annuities 168 5.38. We're at 5.69 before. Okay. And it's the same thing right here.
[00:09:18] So Obviously in the 2001 the market was down. The annuity is 117, but the higher cap rate would catch it eventually. And that's that period.
[00:09:29] Again, not to say which one is better, but the one without the bonus returned better.
[00:09:35] And there's another kind of bonus that people hear about a lot and that is the really big ones that come with a fee.
[00:09:44] The highest for that same product, if you decide to go with a fee is 24% but it comes along with a fee of 0.95.
[00:09:57] I always said if you know, you don't want to give, you know, why get extra money if you're just going to give it back by way of fees? But that 0.95 comes with a return of premium after four years.
[00:10:08] After four years you can cancel it with no penalty if you don't like it.
[00:10:13] And you got cumulative free withdrawals. If you don't take 10 one year, you get 20 the next year. So there are a couple little extra benefits that go with it.
[00:10:20] But you have to decide and one way. So that's going to have the same growth rate. All we got to do is change the bonus amount and add the management fee. Submit that.
[00:10:29] Where were we at 168. Is the extra bonus worth it in the same period? It's 164, 309, man, these are so close. You can do whatever you want. So that would be the same growth but what it takes or what it takes out of your cash value, long run cash, you know, $4,000 left, not a huge difference, but there it is.
[00:10:52] This is what you can do. Okay. If somebody's trying to sell you a big bonus annuity, hey, show me one without a bonus. Not the same product. Maybe it's a different product. I know a company in particular, I'm not picking on anyone where the bonus is. What gives it all the good stuff in the contract. It's a different term contract that is actually the better growth one. If you're going to evaluate that that time period now and same thing with the growth expectation. Starts with a bigger bonus but you have a fee that's being subtracted every year. Okay.
[00:11:23] Now this is just a 10 year option and I'm not going to run another calculation but explain to you on the duration you can use 5, 7 or 10. That's what we started with. We could add more but that's gonna, that's a general rule. Okay.
[00:11:36] And if you're Worried about, hey, the insurance company's gonna ding the rates. Well, you know, there are guaranteed cap rates 8 and a half, maybe 9% right now on products as short as five years. Say, hey, I, I don't want them to move the product on me. Now, working with the right company, they don't tend to do that a whole lot, if at all, and just depends on market conditions. There's also a podcast on that.
[00:12:01] Raise your hand, ask me if you want to know where that one is. Okay, so yeah, most people aren't going to know what rates to use, so take a guess. I don't want anybody to come to me and say, oh, 20% cap rate looks really good, I'll buy it if it has that.
[00:12:16] And sorry, you don't get to dictate terms with the insurance company. They tell you what you've got out there. That's why we're going to add the link from the actual list so you can run those specific numbers. Okay. But it's cool because you can go back 100 years in the market and have fun with comparisons. You can look at the dot com run up in the 90s, you can look at the lost decade, you can straddle those two, right? And you can look at all the way up to 2020 through 2025. And that's just how it is. So this is just a tool to think about what's best for you. It is not a quote, it is not guaranteed.
[00:12:48] So are you tired of market risk? Returns have been exceptional, exceptional in the past few years. Will it last forever? That's a big question.
[00:12:55] I haven't looked in the market today, but you know, some of the tech companies are taking a little hit. So that's normal, normal process.
[00:13:03] Do you want a more versatile option than bonds or mygas in your portfolio with higher growth potential?
[00:13:09] More liquidity perhaps?
[00:13:11] So fixed index annuities have a protected downside and double digit gains are possible. If you want to cut fees in your portfolio, you can do them without fees.
[00:13:21] So then the broker can't charge you for whatever's in the annuity. So there's a lot of ways to use the product. Play with the calculator a little, get on my calendar if you want to talk about real products and how the rest of the indexes look. But this is a great tool and a great toy. I hope you guys all check it out and send the link to whoever you have. So check out the newsletter for the link if you want to do that. And top right corner of any page on annuitystraighttalk.com if you have any questions. All right. Thank you so much for joining me, guys, and have a great day. I will be back next week with episode number 231. Okay, thanks again. Bye.
