Episode Transcript
[00:00:00] Speaker A: Hello and welcome to the Annuity Straight Talk podcast, episode number 131. Brian Anderson, founder and creator of annuitystraighttalk.com here in Tucson, Arizona. Still haven't left yet, finishing up a three part series. We're going to talk about rates for a little while. Got something else coming back next week and appreciate you guys sticking with me this far. Please like subscribe or comment on YouTube to schedule a call with me. Top right corner of any page on annuitystraighttalk.com dot remind you again at the end. That's how you get a hold of me. Best way to do it, you can call. I don't put the number out there anymore because I want to make sure that the people who are serious get my time and attention. Anyhow, so two weeks ago we talked about guaranteed cap rates and some participation rates on indexed annuities. Then last week I talked about what a lot of people don't like. I got several comments, hey, I think the comment is if they change the terms, I should be able to get out of the deal. Well, you don't get out of the deal because that's the deal. And I explained why that's the case. And if anybody had a crystal ball and could predict rates and options pricing a year from now, they sure as hell wouldn't be selling annuities. So we got to understand what the deal is. And if you don't like that deal, then don't take it.
I don't want you to complain to me five times, five years in a row. So, so we talked about the fundamentals behind that. There's certain ways that interest rate adjustments do work and go back to the last episode. Not going to go into too much of it right now, but no matter what everybody thinks, oh, well, some executive of the insurance company is going to have a bad day, wake up and decide to slash rates or he's going to try to pat his pocket with more profit to the company. It's not really how it works. Mutual companies, private companies, really solid places like that, they don't, profit doesn't go into the executive's pocket, it goes to the policyholders. But a lot of the fixed annuities, indexed annuities are offered by stock companies. So I guess you could make that claim, although that's why they're audited and regulated and all that stuff. So there isn't any self dealing. I do, I totally understand why people feel this way because I did feel for exactly the same reason. I met, met with a guy this morning who was saying, hey, I've been looking at these things for a long time, and I just thought, oh, there's so much to him. And now I'm kind of thinking that maybe I want to look at him. And his comments were, well, I've got all this money. I just like the idea of no risk and thought, what the heck, I'll just take a shot and I'll play with him one and see how it goes.
Now he's a ways out for making a decision, so we're just starting the conversation. But that's kind of how I got into it. I said, the first indexed annuity I sold was for guaranteed income. It was the best payout of any income product on the market. That's why we did it. Second one was a client who done some other business with me and said, let's give it a shot. That experience where I was hesitant to do it, but the client, no, serious, I'm okay with it, do it. I saw it go through. The first year rates were steady. Second year rates were steady. Nice yields. At the time, this is back in 20, 12, 13, interest rates were in the toilet. And this guy was getting five, five and a half percent a year was, hey, this isn't so bad. We talked about the contracts that have rates that will never drop. There aren't a whole lot of them, but they usually come from pretty good companies. And if you want the added assurance or the simplicity of that, I totally understand. Rates are good enough. Now, if you set in one of those forever, then you don't have to make a decision every year. You just, you're just playing the averages, and the chances are you will do just fine and in a good scenario, maybe do really well. So I did initially write this again three years ago, and I, back then, there were just a couple on the market that were available. And I thought, hey, on a few years, I'll bet there's more of these. And there are. Turns out I was right. Okay, so all the factors at play that we discussed last week got a lot of feedback on it. A lot of people appreciate the additional information. I'm trying to pass along everything I know so that you guys can have a shot and making a good decision. Nobody else goes into this depth of analysis to explain contracts, and I would expect the benefit of the doubt for my efforts. I'm very honest about this situation. So my objective, obviously, is to give you the most information possible. You're welcome to take somebody else's word for it if you'd like to do that. I hear from so many people, I listen to this guy do that. Whatever. Not my problem. Trying to help. Take it for what it's worth. Okay, so again, from a little bit of last week, bond funds change day to day. Stocks and dividends, the rates they pay out change constantly as well. You can sell a stock or bond at a current price. At the moment, you decide the terms don't work. But then what do you buy?
Dividend rates go down, interest rates go down, and you pull out of a dividend stock, and then you get something else. It's the same thing. Maybe the bond yields less stock at higher price creates a lower effective dividend. So it's not always the best, no matter what asset you have to get out of a deal just because the rates are a little bit different.
So you can poke holes in my argument based on bond yields and stock dividends. That's not the whole story, and this is not a debate by any means.
Those assets have their place, and I certainly think they're valuable in certain situations. If you're going to throw that at me, I'll talk about volatility, price volatility, with either one. And that's why people are looking at annuities. Because of the guarantees, the value of the contract does not fluctuate. It only goes up. Although a lot of different advisors will take a different approach. The solutions I offer are good for those people who want to justify taking the path of true stability. For some assets, that's what an annuity does. So this. The guy that started this several years ago, he decided not to buy specifically because I don't like the insurance company being able to change rates. Explain the fundamentals. Makes no difference. Didn't matter to him. Still wanted to go with it. And I had sold several similar contracts since then. And around that time, and I remember thinking about. I looked up the. I was just simply trying to prove in this first example, we got three examples here. Okay, I'm going to show you one where rates went up. I'm going to show you one where rates went steady. And I'm going to show you one that had a really nice yield in the final year of the surrender term. So when I was trying to prove that the rates don't drop, I looked up the contract that the guy passed on. It was great. American Life, which is now massmutual end. I proposed it in September 2017. And if you're looking at the screen, you can see right now, these aren't going to look like great rates compared to what's available now. But this was pretty dang good for growth potential. Back in 2017, treasuries were below 2%, less than half of what they are now. So this started this. The first graphic is from the initial illustration, so I usually keep those. I go back and look at it and this is the same time the one guy decided not to buy. And that's fine. My business does fine. If one person doesn't buy, it doesn't matter to me. But when you take my information and make it easy for somebody else, that bothers me. A lot of people do that. And if you do it, don't admit it to me. Just don't ever come back. So s and P 500 annual point to point cap on the top is 5.15%.
All the other rates are there as well. And on the bottom, the declared interest rate, that's the fixed account rate, was 2%. So fast forward a few years, when I'm writing this renewal letter, I think, wait a second, let me go look at one of the contracts that somebody bought and it was the same. The contract was. This was an illustration from September 2017. And I have somebody who bought the same contract in October 2017. And the 2020 renewal letter has these rates. Identical contract, exact same thing. This was my favorite one at the time. It's still a very good one. And on the renewal form, the one year declared rate, 2.25. Not a huge increase, but it's higher than it was when it started. At 2% s and P 501 year, point to point, they're in a little bit different order on the renewal statement, 5.40% cap up from 5.15. There you have it. They can go both directions. That is proof to exactly what I have been saying.
They can in fact rise as well as drop so long as certain conditions are met. It's an adjustable rate that works in your favor just as easily as it can work against you. And same exact contract illustrated two weeks apart. So they were the same deal. My goal for each person that did this was to find a solid growth contract, give them lots of upside potential. I think I did a pretty good job. So it's potential. That's what you're buying. Whether a contract increases rates will depend partly on how the bond portfolio that backs the annuity is structured. Midland national is another company. You guys know. I like it. I've had people inside the company tell me that they take a long term pricing approach that gives them confidence that rates will remain steady throughout the surrender term. But before I sell anything from a particular company, I have to do my best to figure out whether I can rely on information like that. And I knew Midland was a good private company, and ESOP not paying taxes, lots of cash, very solid financial strength. I took the leap with them almost six years ago, and here's a good example of rates remaining steady until now. This contract is almost five years old, and this first shot is from the contract data page at the front of the contract, issued with a fixed rate of 2.7% and an S P 500 cap rate of 5.152 years after the other, the first contract I talked about.
So I didn't share the whole thing. You're going to have to take my word for it to some extent. But I say that fixed rate is kind of the barometer in that contract. If the fixed rate stays the same, the rest of them are steady. So going into the fifth contract anniversary, four years in, we've got an anniversary coming up in early June on this contract. This guy's really happy about it. And you'll see the second graphic here. And when I put this out, I might do it a little bit differently, but I'd redacted the contract number in the name of the owner.
Statement period, 6 June 3 of 22 to June 2 of 23. And the top rate on their fixed 2.70%. It has remained steady going into the fifth year of the contract. So there's your example of a company that says they're going to keep rates steady, and they do exactly that. Now, you got fixed rates approaching 4% right now, in this case, 25, 30% more growth potential. I'll tell you, this contract is one of the best performing I've seen.
Guy made almost 15% his first year. That was pretty incredible. You can't tell him it's not a good deal. And then I'm going to go back to massmutual Ascend, because here's another couple who bought one in 2017, early 2017, and this nice young lady just got her a seven year contract, just came through, her 7th year. Her contract is surrender free now. I knew that where she was allocated and the market had done really well. Approaching the anniversary, I kind of crossed my fingers that nothing would fall in the way of it. I said, hey, hold tight, because right now we're moving the money and just they're going to go back to massmutual ascend, because why not? Now they got higher rates, they can lock into a better contract, and it's worked really well for them. But I crossed my fingers approaching it. Let's just get through that day, and they'll bank a nice return. This is one of three contracts they have.
So they made some good money this year. Starting value last year on this contract was 212,667 and $0.21. You can see that I took a screenshot of that part of the contract. These are protected documents, so I couldn't show you the whole thing. They wouldn't let me redact the information. And I'm sure you guys understand you'd want me to protect your information as well. So I'm not going to share that publicly on YouTube.
But they made 15,877 protected asset from an a plus company.
It comes out to 7.47% annual rate of turn in the final year of surrender.
Now, what are my guests paying? Five and a half.
Five if you want a really flexible contract.
And everybody says, oh, they're not going to grow 7.47 in the last year. They had plenty of good growth before that as well. So I'd say these guys did well. Again, you're not going to be able to convince her if you don't like it now, hey, they took the leap in 2017. This is obviously earlier than the other ones, but there is objective proof. We got rates that rise, rates that stay steady, and contracts that continue to perform all the way through the surrender term.
I feel like I've chosen some really good companies. I don't feel like as far as accumulation goes, I don't need to go too far outside of this unless there's a material reason to do so. Like I said before, the locked rates, locked cap rates typically from really solid companies.
Midlands got one contract that's got some guaranteed participation rates and massmutual sends got the s and P 500 cap rate. So you got the choice, get guaranteed rates or go with more options and adjustable rates. Again with the guaranteed rates. You got to stay in that option for the extended term. People like the simplicity of that, but it's not for everyone. Talked to a guy this morning, the guy that wants to give it a shot and play with one, he's going to have to decide. He wanted to kind of choose back and forth, but there's some stress that goes along with that and I'm going to cover. How do you choose the best options and what we do with as far as that goes every year that's going to come down in the next few episodes. I just think it's been long overdue that I talk about that. But here it is, as objective as I can make it. This is episode 131, part two of adjustable index annuity rates.
I appreciate you guys joining me for this episode, please like subscribe or comment on YouTube hit the little bell in the top right corner of YouTube. You get notified when the video is released there or you can subscribe to the newsletter on annuitystraighttalk.com. You'll get it delivered to your email every Saturday morning or right now. I'm track on track for about 50, 48 to 50 weeks per year. So I think I hit one every year. Every week this year so far. Got a lot of topics and a lot of things to cover with you guys. The skyline behind me is beautiful. Look forward to meeting with you. Make an appointment top right corner of annuitystraighttalk.com dot schedule a call pretty simple process, so you guys have a great week. I will be back with you next week for episode 132.
[00:14:28] Speaker B: You have been listening to annuity straight talk.
The preceding information is for information, educational and educational purposes only and does not represent tax, legal or investment advice.
The views expressed by guests on this program are their own and do not necessarily reflect the views of annuity straight talk or its partners.
No information presented today should be acted upon without meeting with a qualified and licensed professional.
It is important that you read all insurance contract disclosures carefully before making a purchase decision.
Guarantees are based on the financial strength and claims paying ability of the insurance company.
