Episode Transcript
[00:00:00] Speaker A: Hello and welcome to the Annuity Straight Talk podcast, episode number 123.
My name is Brian Anderson, founder and creator of Annuitystraight Talk.com, and your host for this episode. Gonna be a really good one and got kind of a series of these stacked up. Everybody likes case studies. It's something that people can identify with, and typically, and maybe this has nothing to do with your situation, they're all going to be as general as I could possibly make them, but this is really good. Sleep at night annuity came from a comment from the lady I was talking to, and it just hit home the way she said it and what it meant to her. I'm recording at night. I've been really busy lately, and I thought, what the hell? The weather is awful right now, and so what's the difference if I do it in the dark? You guys don't want to see what's out there. Anyway, feel sorry for me. I like the people from Florida to brag about it in the wintertime. Oh, it's so nice here. And then they cry about it in the summertime. Texas too, so I can deal with it. Anyway, so sharing my newsletter here, this is written out sleep at night annuities. So annuities are not just for people who need them. And I tell everybody, in fact, that probably 90% of the people I work with don't need them at all. It's just what they want. They just want the security that annuities can provide. Safe place to park money. A guaranteed paycheck every month makes life easy. I got a recent case come across my desk from a referral from a past client that's been happening more and more. I really appreciate meeting everyone, and when someone trusts me to speak with a close friend or family member, I promise I'll always do the best I can for them because I don't want to come back on you. But these two couples enjoyed living in the same retirement community. I've been working with one of them for the past five years. The couple I didn't know was interested in learning more about why the couple I did know were so happy with their retirement and were really set and settled in their long term financial security.
So I've worked with a guy named Brian. He spells his name the wrong way since about 2018 for a little over five years. Actually, we're going to. It's about six years right now.
He was an early adopter of the flex strategy, and it kept him flexible enough to stay on top of market changes. To this point in his retirement, one of the best. The greatest benefits of my job is I get to meet people who have made a living by specializing in several different areas. I got probably, on average, the smartest clients of any advisor out there. I feel very. It makes me smarter.
I grow along with that. And this guy Brian, by all accounts, is an intelligent person of a very technical.
I say it like that, it's like I'm talking about myself. But he does spell his name the wrong way. So at the very least, his parents lack imagination. You could tell how we get along with each other. We like to give each other a hard time. So, as with everybody else, it's been a blessing for me to be in this position. But I thoroughly enjoyed working through the process with him. And the result of that being he could choose what he thought was best for himself rather than me, just try to sell him something. And it was me versus a couple of other people that were really pushing him in one direction or the other. I'm sitting back saying, hey, wait, let's look at all of them. And the beauty of the flex strategy is he's at a point in time where he made some changes. It worked out really well for him. Previous best timing rates was in 2018. That's about when he got started.
And so he got some really good contracts back then, but it was time for him to shift and move and gets to capitalize on one of the best interest rate periods I've seen in my career. So, wow, that sure worked out for everyone. So he seems happy about it. And so he was telling his friends, right? Well, they said, well, we want to talk to this guy. And they first wanted to talk to me about a couple of annuities they already had. They were set up for retirement as well. But I guess this other Brian, there's a Brian down there that's very good salesman as well. Just like they wanted. They said, hey, can you tell us what you think we should do with these annuities? And I want everybody to know, I love that opportunity. I will always do it. It's one of the ways I've learned so much about this business. I've heard and looked at and analyzed hundreds and hundreds of different contracts, different types, income annuities, of all the different flavors of that variable, annuities, indexed annuities, mygas, short term, long term, all sorts of stuff.
But both of their contracts were surrender free, and it made sense to find a new home for only one of them. So they'd been out of them for a while.
The one that didn't make sense. It had a sizable death benefit, relatively small part of their assets, and the death benefit was kind of a nice double of what the cash value was. And I thought maybe just leave that right there. It's kind of doing what it's supposed to do. And I thought that was just the best thing to do. So we're talking about options with the other one as well. But threw me a bit of a curveball because it turned out that I think they were trying to solve a larger problem, and I wouldn't call it a problem, but they wanted to look at making a bigger move to really shore up their retirement and everything they were worried about, or so they wouldn't have to worry about anything. A fairly sizable percentage of their income needs were discretionary spending. That's money you don't have to have. It's what you choose to use or what comes up from time to time.
Home improvements, new car, vacations. Right. Dinner out. Not something that has to happen, but something that you like to happen.
So it fluctuates. It's different all the time. And they thought about, like, you know what? Maybe we should secure some guaranteed income to make sure that's always there, and then the rest of the stuff can just roll. That's what annuities do best. The comment stuck with me with the wife said, and just the way she said it, she's like, I just want to be able to sleep at night.
And, you guys know, I say this all the time, but I don't have an agenda. And when she says that to me, I'm thinking, here's all the different ways of doing that pop into my head. There's lots of different ways to do it, but it wasn't for me to say, hey, go buy this product. Right. Also a very intelligent couple, very analytical, good at digesting or absorbing and digesting lots of information. So it's funny, we took a pivot in that conversation, and I walked through a bunch of different options and kind of deep breath. Okay, I get it, but we need some time to think about it. Fair enough. Right?
And there's basically a podcast or two for each of the options, but I'm going to wrap it all into one so that anybody can see when it's not necessary to do this planning, but you want the security.
There's different levels of benefits, and everybody's going to find one option that appeals to them more than others. So I've talked about a lot of the other things a person can do besides annuities, but they had those elements taken care of. Like I said, analytical. Some experience in the financial business as well. I got a few of those. I love them because we just have great high level conversations and there's no bs in people like that, which is great because I don't anyway. But they knew about the other stuff. They're like, let's look at what annuities can do. It's not a home run. I don't know. I'm going to do business with them. I like them no matter what and appreciate the opportunity because, hey, I get a chance to explain this to everybody else. So whether it does anything, if I receive any compensation for it, does not matter to me because I know it's going to help somebody else and it will come back to benefit me somehow. There was no need for an annuity, but it would take less than a quarter of their assets to guarantee what they wanted in one form or another. Annuities are the only asset that can do it in a way that guarantees you will be able to sleep at night. This is also the type of case where a lot of advisors would get tunnel vision and pitch hard his or her favorite product.
Just kind of like, oh, look, they have money and they want security.
Let's try to. It's like the Schune horn approach. Let's force this one into their situation. I don't do that. It's like, look at all of the options.
Which one do you like? And a lot of people. I do that with people. And then somebody comes in from somewhere, throws an index or a bonus or whatever at them and whatever.
Those aren't my type of people anyway. My goal is to make sure that we don't end up having a difficult conversation three or four years down the road. Let's do that now. Ask all your questions. Do your due diligence. Put pressure on me. That's what Brian with, and I did. I challenged him to learn some things that no one else was going to teach him. And he challenged me to verify the information I provided. And the result was we had no reason but to have productive, proactive conversations as we dealt with that over the years. And it will continue like that. If you buy something from me, I'm going to make damn sure you know exactly what you're getting and why you're doing it instead of something else.
Okay, so the newsletter isn't finished, but I kind of jumped into this. So they got four different ways they can get their sleep at night. Annuity.
They're covering discretionary income. It doesn't have to be there.
And the first one is a guaranteed income annuity with a fee. Now, this is general, and I'm going to talk about the products.
I don't do numbers because your numbers are not like theirs, theirs are not like yours. It's not going to mean anything if I put the number up there. And this is a problem that a lot of people have, is they talk only about product rather than strategy. I met with a gentleman this week. This is a side story, and this is something that I found a couple of months ago. I thought it was really cool. I don't know if anybody knows what Kidland's law is. K-I-D-L-I-N apostrophe s. Kidlin's law says that if you write down the problem, you're already halfway to a solution. What happens with a lot of people is someone shows an annuity in front of them and that annuity becomes the problem and they lose sight of what they were trying to solve in the first place. We're going to do it different here, and we're going to step back and look at a philosophical approach. If somebody else wants to do that and you want to bite on it, go ahead.
Chances are it's not going to work out. So the first way we look at, and I'm not giving ranking these in order, but guaranteed income annuity with a fee.
This is going to produce the highest amount of guaranteed income. For the amount of money invested. The insurance company will charge a fee to set enough money aside in reserves to ensure the pool of people taking payments remain solvent.
So that goes into reserves. The ones who live longer collect big. If you die a little too soon, you might come up short a bit, but you've got to guarantee as long as you live, and it's the highest you can get as of today, with the index, annuities are typically the highest payouts, so there is a remainder cash value that can be passed on to heirs. But the contracts are not built to grow much. The insurance company puts value on one part of the contract.
In an income contract, they put all the value into that side of it. That's how they underwrite it. That's how the actuaries figure out what they can pay based on the number of people that are going to be in the pool. They got the fee to set up their reserves so they don't leave a ton. And it's still okay. It grows okay, but they don't put a lot of value in the growth component of those contracts. Plus, there's a fee coming out of it. So if the highest income and a fee are coming out of it, obviously that residual value is going to drain more quickly. Great option for people. Absolutely have to have the money now. It needs to be mentioned that single premium immediate annuities will pay higher. In many cases.
Those are income within the first year. You got to do something different if you're going to defer for more than a year or two or three. I didn't cover it with these guys because it creates a problem with required minimum distributions where the single premium immediate annuity does not have an RMD requirement. So that high income doesn't offset what's required from another account, so that becomes fully taxable. Plus you still got to take an RMD from the remaining assets. With the cash value available in an index annuity or a variable annuity, there's a fair market value that's compared to that income payment. The income payment is more than what is required to be withdrawn from that account. So the extra can offset what you have to draw from a different one.
It's a topic worthy of its own podcast, the difference between those two income streams. So I'm probably going to hit that in a few weeks. But if guaranteed income is the singular goal, then these guys could get by with the lowest investment amount here to provide their guaranteed sleep at night money. Option number two, no fee guaranteed income. So there's a podcast that directly compares this product to the one above. It's guaranteed income with or without a fee. It was episode 78. I did it last year.
Dang near right about a year ago. You're not paying a fee for the guaranteed income rider, so the income you can expect to receive is lower every year. You defer it. The income increases are based on the performance of the index accounts. This is where you're going to see a lot of wild illustrations where we're not going to talk about this. These guys are going to take income either now or within a year or two, right? So if the index is up 5%, your income increases 5%, sometimes more, depending on the contract you have.
And so some people like to roll the dice and defer for five or six years and say, hey, I hope I have good performance. My income is going to be really high because of the lower income guarantee. The insurance company puts more value on the growth side of the contract.
They're not paying out as much, you're not paying fees, and you get higher growth.
There's a good chance of having a very high remainder now, even if legacy is not your goal. The improved growth, along with not being drained by a fee along with a lower income amount, can open up plenty of flexibility for future planning opportunities. Get to the end of the surrender schedule. You might have a bunch of money left, and maybe rates have changed, maybe your goals have changed, maybe things are different in some way. You got a lot more money left over that you can move somewhere else.
With a fee based guaranteed income, it's not going to make sense to do it because you're giving up so much income. This is actually a really good option for this couple because they had planned to protect more money than is needed to secure the guaranteed income. Not saying that that's what they should do, but they can afford they got the guaranteed income backstop, plus they got some pretty good growth potential and no fees in the account. They can enjoy a solid level of sleep at night money while also keeping their options open. It's like a growth annuity with a backstop of guaranteed income offering something of value even in a worst case scenario. So there's the link, if anybody's watching the screencast. Guaranteed income with or without fees. Direct comparison to those two types of products and when they're useful.
Option three, flexible withdrawals using an accumulation annuity when I don't go into the big fancy spreadsheet and the technical planning, which is appropriate for some cases, but not all the basics of the flex strategy were instead of paying the rider fee, just get an accumulation contract, fixed annuity, a mIGA or an indexed annuity, grow it and take the money out as you need it. It works really well for discretionary income. This is not a strategy to maximize income. So migas can produce guaranteed results for a set period of years, but are not always ideal for long term planning. You do a five or a seven or a ten year and you're trying to plan for 20 or 25.
What if rates hit the tank after that guarantee period? You're going to be sitting there not knowing what to do and you don't have enough money to go then buy guaranteed income. So it's not always the best. Fixed index annuities are the same because cap and participation rates are adjustable annually. That means that things can work out quite a bit differently than what was initially projected. It would be a great strategy for the couple in this example because their income needs 4% of what they were planning to put into this, so the basis will last 20 years.
Even worse, worst case scenario, and the investment was 20%, maybe 25% of their total assets.
So we're not talking about a whole pile of money. It's just in relation to what they need right now. You got to be careful to avoid advisors who get carried away trying to win an illustration battle. I do not get into illustration battles. This index is better, or I like this or I like that. And he showed me that and it's ridiculous. Episode 81 bs Annuity Illustrations this really only works for discretionary income and for those who can risk an unknown outcome. The principle is never at risk. There's no fees on it, but the outcome is I'm a big fan of this strategy and not at all afraid to say that I was the one who invented it. But with rich payouts elsewhere and other forms of income contracts, I recommend this in fewer and fewer situations. In this case, it'd be a good option for them. I think it'll work out fairly well. This is one case where it would definitely work out for some sleep at night money.
You can't maximize income with it.
You set the guaranteed income as a benchmark. But that's not what this case is all about, right? And the fourth option is to mix and match. A lot of people will look at this like, hey, I like the fact that we can be real efficient paying a fee for income, but I don't want to let go of all of it. And you got to decide how important legacy is. And then risk is involved as well, depending on what percentage your assets is required to secure it. But choosing to use two of the above options and splitting the annuity purchase is always a good idea, especially if husband and wife, maybe one says, I like the guaranteed income. Well, I like the flexibility. Okay, how about you each get your own annuity? That's so cute. Couples annuities, right? Pay a fee and maximize income with half the money and keep the rest more flexible with greater growth potential. Because our example couple in this case is in just the right financial position. This is a good compromise if one of the others isn't everything they are looking for. So if I had to stack it up, I don't even know what to tell them to do. I want them to understand all of these and what they're getting out of it.
So I put this together for them and I appreciate their input and give me the opportunity to share this with everybody else. Not a lot of people out there doing it like this. I don't know of anyone I know they're good guys. They're good guys that only sell one or two products. Doesn't mean they're bad. There's a lot of stupid people too, trying to be the no bs spot. Finding your annuity options remember, strategy first, then products. Kidlin's law. Write down the problem. You're halfway to the solution. Do not start with product first. Do not tunnel vision on one little aspect of it that may or may not be guaranteed. Spend your time on the strategy of the products. Easy so this has been episode 123 sleep at night annuities my name is Brian Anderson. If you want to make an appointment and talk about your sleep at night annuities, top right corner of any page on annuitiestraighttalk.com schedule a call.
Would appreciate if you guys share this with your friends, anybody you think might be able to use it, and go ahead, hit the thumbs up on YouTube or your favorite podcast platform. Leave a comment on the website. Tell me how I can improve. Tell me how I can communicate better. Let me know what you need more clarification on. I got two or three more podcasts where I can pick apart any detail out of this and run with it for another 15 20 minutes. So you let me know if something in here is important to you. Thank you so much for joining me. I look forward to seeing you next week for episode 124. You guys have a great day. Okay, bye.
[00:20:57] Speaker B: You have been listening to annuity straight talk.
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 this program are their own and do not necessarily reflect the views of annoyed 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.
