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 73. Moving right along here in 2023. My name is Brian Anderson, founder and creator of annuity straight talk.com and the provider of all the information that's out there for anybody new, it can be kind of overwhelming. I think I explained it to someone else, you know when I did the first podcasts were specific information and we kind of try to start with the basics, but I couldn't help but jump into more advanced stuff. So it's not perfect for everybody who's just starting out. I think this might hit some people, uh, but it's gonna relate to a lot of other podcasts and newsletters. So when this goes out in the newsletter for anybody who signed up on my email list, you'll kind of get an indication of what it relates to. If you want to do a little bit, uh, further back study on the deal safety, growth and income, somebody made this for anybody who's made an appointment on my calendar, you get a little form, you put your name and your phone number and email address in and then there's a section that says what do you want to talk about during this appointment?
Speaker 2 00:01:46 And I've had some people write several paragraphs and some people write just a few words. You know, they might write annuity information. So this guy made an appointment, it said all he wanted was safety, growth and income. And that kind was like, Hey, you know what? That's a really good idea cause I can talk about a lot of stuff related to that. And so I thought I'd do a little bit of a product review today cuz sometimes people like that. And I'm not gonna go into a mass amount of detail just because when I wrote the newsletter. So you can go check out the newsletter for links to the other podcast or newsletters related to this. I think I'll put it at the bottom for anybody listening to this wants to go look at that and I'll just have related posts think it's really important on this one.
Speaker 2 00:02:28 But you know, the idea is that you want safety, growth and income and some of the most popular annuities are sold by agents who will claim that these guys do everything. This product will do everything for you in retirement. Now for anybody who has a reminder for people who have been around and an indication for anybody who's new, five keys to retirement income, market volatility, inflation control of your money and legacy, it takes a strategy to do all of those things and I've got that outlined elsewhere on the podcast. If you need help finding that then let me know and I'd be happy to send you a couple of links. But you gotta a strategy does that not one single product, there's no financial vehicle in existence that will do all that for you, right? You could buy ETFs or mutual funds and if you have good performance then it's all taken care of.
Speaker 2 00:03:22 But it does not eliminate market volatility cuz you got the ups and downs in the market. So little things like that and you can go through each product. Okay, so this kind of relates to how products are sold in ways that I don't necessarily agree with and I've talked a lot about a lot Allons, they kind of take the cake with the majority of sales. Athens, another really big one relates to like hey big bonus and the promises, the list of benefits is, or I call 'em features, they're not benefits features in a contractor. Like give you everything you've ever dreamed of. And I actually have said this a lot, I think the companies do a really good job of explaining products, but the distribution being working the way it does, agents or advisors kind of make up their own sales pitch to go around the features of a contract.
Speaker 2 00:04:08 And in more times than I can possibly count, I hear from someone who got pitched a product that wasn't explained properly. Okay, so, oh the bonus is free money. Oh I can keep it for 10 years and walk away and I get the full bonus. You don't. Things like that. It's funny, people will argue with me <laugh>, they'll say Well that's not what this guy said. I don't care what he said. Or we can pull up the ion's website or Ethan's website, grab a brochure and say this is how it's explained by the company and that's what you really need to go on. So you really gotta find somebody who's gonna explain a product to you exactly as the insurance company has it presented and has it approved in your state. So I can look at annual sales figures for some of these contracts and it kind of proves that based on the number of people I met, I put two and two together.
Speaker 2 00:04:58 It's an educated assumption. These are used far more often than they should and a lot of people, you know when you get the bonuses and all these things, it comes with uh, you're misled on the what you can do with it and then also maybe not uh, all of the restrictions the contractor disclosed. So both those two companies, uh, offer an enormous bonus that many in the past have been told is just free money. It's not true. That's at no point do you get to put that bonus in your pocket. Allianz has got the 2 22 that requires a 10-year deferral. I know a lot of people have it. I've seen people that have it that work well with it. I've seen people that bought it for the right reasons with a full understanding of what it exactly what it does. In that case, I have no problem with it.
Speaker 2 00:05:36 And the athe has the agility series. They've got a seven or a 10. So theme kind of gets an edge there. They've got one product, you only have to wait seven years. One who wait 10. So the bonus, and I've explained this in fast, only enhances lifetime income after the deferral period. So it translates to a better cash flow. But you can't just cancel it a contract walk away with the extra cash. Another way you use the death benefit, a lot of you know this, you can take that bonus value and if paid over a five year period, the premium plus the growth plus the bonus can be paid out as a five paid death benefit. It's not always the best tax situation for your heirs. And typically if you look at over a 15, 20 year deferral period, it's a little extra boost but it's not be all end all of annuities <laugh>, I don't focus on selling either of these.
Speaker 2 00:06:26 I expect the long-term rate of return for most of 'em including the bonus be the neighborhood of 4% and maybe as high as 5%. You can likely do better elsewhere with something simpler. But go ahead and do that if the phantom bonus makes you feel warm and fuzzy. So the title of the news letter, safety, growth and Income, you can do that with these contracts because one major benefit is that neither one of them has a fee. What you need to remember is that if you want all the benefits wrapped into a single product, then you have to accept the fact that it's kind of good at several things but not really good at any one thing. The jack of all trades is the master of none. Safety is covered by any annuity from a good company. Growth is typically better when fees haven't been deducted and income is a free addition to the contract.
Speaker 2 00:07:06 But neither growth nor income is as high as it would be if you went with a contract that focuses on one of those benefits individually. What I'm saying is there are always products that have a better guarantee. You might pay a fee for it but it's guaranteed income. So if you want maximum income, you buy the highest guarantee. If you simply wanna defer the money and grow it, you're probably gonna do a whole lot better by picking a a contract that's built for maximum growth. It's especially important in the case of maybe require minimum distributions where you have to take the money but you don't need it. If you take it before the 10 year periods up, then you lose the bonus associated with the money you pulled out. So it defeats the purpose of having a contract in the first place and then you're left with an underlying growth factor that is not as high as it would've been otherwise.
Speaker 2 00:07:48 It's plain and simple. It's so easy. It's always interesting to me and I talked to another guy a couple weeks ago, he's got two of them and he wants to buy another one. The two of 'em represent 25% of his assets. He wants to put another big chunk goes back to the guy, his advisor, you know the contracts I think have done okay, I mean he's in his seventies so he is gotta take distributions and after buying two of them, the advisor guy he likes and respects whatever, I'm not saying he's a bad guy, just like not a very good imagination. The guy says well this is really the only one I sell cuz it's the best one out there. Yeah, the best for what 10-year deferral period and it's IRA money so he is gotta take distributions out of it and negates the bonus and then he puts another chunk in.
Speaker 2 00:08:27 Maybe he's got half of his money into an annuities and then his kids in order to maximize that bonus, they've gotta take it out in five years ira, otherwise 10 years. So I said even if you have two of 'em that have to be paid out over five years, you should buy one that's different so that you can do year six through 10 distribution, put your kids in a better tax situation. Yeah, maximum income in one contract, maximum growth potential and a completely different one. Blended benefits lead to the reductions all the way around. One person sitting in a rowboat is gonna ride higher in the water than three people in the same size boat. Okay? Index and variable annuities with guaranteed lifetime income rider have always been sold as the product with guaranteed income and a residual value that can be left to heirs.
Speaker 2 00:09:09 It's mostly true but fees reduce the growth potential and make residual value very unlikely. After about 18 to 20 years average 65 year olds lives to 85. There's not a whole lot left variable annuities are the worst, they have the highest risk but their fees go right now they're probably three and a half 4% for all the stuff you deduct fees annually from either of these contracts. Then you've got the income drawing your account value down plus the fees bleeding that out as well. You're not guaranteed to get all your money back. You could collect for 20 years and if you have poor market performance, high fees or if the index annuity doesn't really grow a whole lot, there's not a whole lot left. So it depends on how long you collect income and the performance of the underlying account. It might happen but it's not guaranteed.
Speaker 2 00:09:57 So I don't want anybody to misunderstand that point. Are you gonna die when it's zero? I don't know but it's not guaranteed. Okay, so for all I've said about all ends and a theme contracts, the main redeeming quality of either is that you are essentially guaranteed to at least get your money back. Assuming you don't live long enough to collect income equal to your initial investment, it only takes a minimal yield to return the balance of payments plus some yield to your beneficiaries. What if the contract only goes 2%? Well you're not paying a fee so you get the 2% growth minus your income payments. What's left is what you haven't taken, okay? So that part of the contract is not, not ideal, but the 10 year deferral requirement is what held me back and it just didn't fit with what people they have. RMDs or a lot of guys sold.
Speaker 2 00:10:44 Oh just take your free withdrawal and if the performance is good then you're gonna still get a big income benefit on the back end. It requires performance that is not guaranteed. So what do you want? You want the guarantee or do you want some hypothetical? I've never sold the ions but I've used the ATHE a few times and it's funny like everybody that's like oh allons is the only one Athen illustrates better. Anybody who's curious like you look at that. I mean if you're going based on an illustration then take the best one. Okay? So 10 year deferral is the kicker for me and it's worked great for people that are mid fifties. They can wait till 65. You look at something maybe the people I've sold it to, you're looking at 10 to 15% of their total assets and they're a little bit younger when they start non-qualified money for the enhanced death benefit past 65 and 70.
Speaker 2 00:11:32 It's possible, but again it doesn't necessarily put your beneficiaries in the best tax situation. That is the downside of that. If you have highly appreciated, they gotta take out in five years non-qualified annuities, they might rather stretch those. So there's a podcast inherited annuities and all of these product can be covered under a podcast I did probably, probably near the beginning and I'll have that link, but it's called performance based income annuity. So the performance relates to the money you get out of it. So ion solved the problem a few years ago, two and a half maybe, maybe early, I don't know. They introduced the ion's benefit control, the a b abc. It works like the 2 2 22 guys a little bit smaller bonus. But it allows a person to take income in any year. The 10 year requirement doesn't get in the way. So they can take year income immediately, they can take it and the bonus factors into enhancing that income.
Speaker 2 00:12:24 It starts by way of lower payout rate. So it's usually runs about similar to everything else you need to let it compound and hopefully you know shoot for performance it's gonna extend your income benefit, right? But even still, so lots of agents, there are a lot of guys where even the A, b, C for someone who needed income in two, three years, there are a lot of guys still selling the 2 22. Oh no this is the best one. That's the only thing I sell. I've heard that so many times. We only sell this on a side note, I sold annuities from nine different companies. I certainly have my favorites. What I like best. I would say my favorite group of annuities from one company account for maybe 25% of my sales in a year. <laugh> I will find what's right for your situation. I'll tell you what I prefer, why I prefer it, but also let you know there are other options if you wanna look at it.
Speaker 2 00:13:14 And that's what we're supposed to do. We're supposed to give everyone the options. When Allian came out with abc, I wasn't swayed by the new product because I already had one. There was already one out there that did it and it works a fair bit better in all areas. It's got safety from a really good company growth potential that beats Allons are Athen guaranteed income in any year and no feast to deplete the account value. It's called the Income Vantage Pro for Midland National Life. They just raised their payout rates and I noticed a couple other people who also sell this. I'm on email list to see what everybody else is doing and a couple people jumped right out. Oh yeah this is the best thing ever. So anybody who's saying there's nothing else, like you know allons a thing like they have not done their homework, but I don't wanna beat up those products cuz I don't have a problem with them specifically.
Speaker 2 00:13:58 They have a purpose and you make sure you buy it for the right reasons. And then some people say, well we don't wanna know what doesn't work, why don't you tell us what does work? So we're actually required by law to give you options. There's plenty of agents unfortunately who don't. So if you want safety, growth and income from one product, you have to accept less income and it's a lower guarantee. Sure these products might have performance that gets you up there or exceeds that, but none of them have the highest guaranteed payout. It's not a bad thing because it's a smaller guarantee that leaves a remaining balance for your errors. You have a better chance. Not everybody needs to maximize income. Some people just like to protect assets. Oh I'll protect assets. But then I do have a guarantee if I want to use it and there's an enhanced death benefit.
Speaker 2 00:14:42 It's not a bad deal but you have to have the right perspective. It's not about maximizing income, pulling less money out leaves a higher remainder, no fees, ensures that your money's not bled down by the insurance company. Each of 'em has performance that will give you the potential for higher guaranteed income if you want. But because it's only potential, I typically, that's why recommend it for a small part of a portfolio. Midland's got the highest growth potential, I would say it's roughly 25, 30% better than the other two. Take your pick but look at all the options before you commit to a lifetime deal. So I'm gonna explain a little bit more about the Midland contract. One thing they do is they ca you got income in a year immediate or deferred, okay, you can defer it up to 20 years. What they do is instead of giving you a big bonus upfront, they give you 2% for every single year you wait to take income.
Speaker 2 00:15:31 So you get 2% plus 150% of the index growth. So if the index growth goes 4%, that's six plus the two, you get an 8% increase for the year. Right now joint life couple age 65, let me look at it. It's actually because rates are up a little bit right now you've got joint annuitants are over 5% at age 65, again you go a spia, you're gonna get you know six and a half percent. Some of the other index annuities are gonna pay higher as well. It's a difference between the guarantee, but safety, growth and income. This is gonna grow. It's safe and you got the income, it's not the highest but it leaves a bigger remainder. All right? And also just like the others, that bonus and the extra interest credit go only to the income value, which can be paid out for five.
Speaker 2 00:16:23 Pay death benefit. You don't have to but you can. I just like, I like it because it's got a lot more flexibility and it doesn't have the 10 year restriction plus, you know, the ABC doesn't have that but I would never say it's the best. They had an allocation fee so they did have some fees on that one, which they have since taken off. They've got enough rate to not charge that anyway. You just get more growth outta the other one. And the payouts are roughly similar. Midland also offers, you can take a level payment for the highest amount or taking an increasing payment when you take your income you get a little bit lower amount, but the index performance on the underlying account value can boost that income, give you an inflation adjusted income, whether or not it's the best deal. Again, have both options.
Speaker 2 00:17:03 I would personally take the level income payment cuz it's high enough and then again you're just getting the best guarantee. Well that's, that's up to you. Some people like the increasing income, again, that's just something some people sell. That's the only option. Oh like this one up 12% per year and I don't necessarily believe it. So the way I sell these to people is to plan for the minimum guarantee. So if you're gonna defer two years, five years, 10 years, look at the minimum guarantee base your planning on that. The ones I've sold plus the other ones, I say work well people looked at the minimum guarantee it's gonna be way lower than what that high projection is, but it's what the company guarantees. If that works for you, then the rest of it's gravy. If it goes higher, it's even better. A lot of people who buy 'em, I've seen this a ton of times where you know, hey can I send you the illustration?
Speaker 2 00:17:50 Tell me what you think. And the agents gives them the one page that has the hypothetical with just crazy numbers on it. Am I talk a little bit more about that in performance-based income I am gonna do a three-part series. I've been talking about it for a month now, but there's a, you know I'm gonna do one on annuity illustrations, kind of explain more of that anyway. So buy for the right reasons and understand the entire product and get one that gives you the most flexibility. So I say Midlands on the top, their top end, all of these are gonna look ridiculously high at the top end. Like take the one that gives you the most flexibility and that's why I like the income Vantage Pro. So I did explain a little bit more about the Midland contract. Uh, there's more to it. But again, for people who are just curious about general information, I'm not gonna bog you down with a ton of specifics.
Speaker 2 00:18:36 For anyone who wants to take deep dive, don't email me and say, Hey, gimme an illustration. I'm never gonna do that again. People say gimme an illustration for a 65 year old, five year deferral, a hundred thousand dollars. You know why? Cuz I spend time running the illustration writing a big long explanation about how it works and I've done zero of those. So that's called a tire kicker. You wanna have serious discussions about how this works for you, then make an appointment. Okay, happy to give you time. But usually those people that just want someone throwing numbers at 'em, they're asking 12 different people and it's not worth my time and I'm not gonna do that anymore Anyway. So, but if you wanna dig into it, we certainly can. This has been episode 73, safety, growth and Income, A Product Review, Midland National Income Vantage Pro.
Speaker 2 00:19:19 My name is Brian Anderson. I certainly appreciate you guys stopping by coming at you next week with another good topic that was spurred by some other conversations I had in the last couple weeks. Thanks can be nice. We're looking at some index annuity performance and kind of talk about how to rationalize that and compare it to what we've seen in the overall market and fixed rates and all that stuff. So anyway, make an appointment by hitting the schedule a call button top right corner of any page on annuity straight talk.com or call me (800) 438-5121. I'm around, I'm in the office and I'm ready to go. So thank you again for stopping by. Have a great day. Okay, bye.
Speaker 1 00:20:06 You have been listening to annuity. The proceeding information is for informational and educational purposes only and does not represent tax, legal or investment advice. The views expressed by guests on program are their own and do not necessarily reflect the views partners. No information presented to me should be acted upon without meeting with the qualified and licensed professional. It's important that you all insurance contract disclosures before making a purchase decision guarantees.
