Episode Transcript
[00:00:00] Hello and welcome everybody to the Annuity Straight Talk podcast, episode number 187.
[00:00:07] My name is Brian Anderson, founder and creator of AnnuityStraightTalk.com here in Northwest Montana. A couple days of rain and now we got some warm sunny weather. I'm dressed for the lake because that's where I'm going when this is done.
[00:00:21] Please, like subscribe or comment on any of your favorite podcast platforms or on YouTube.
[00:00:26] Top right corner of any page on annuitystraighttalk.com if you want to schedule an appointment with me, share it with your friends. Anybody that you think might benefit from this. Today I'm going to a simple topic.
[00:00:40] I get the questions all the time. I understand that it's hard to go back through all of the episodes and in this one it's like I'm going to consolidate a couple and just go real basic stuff, just so everybody remembers. Because I have to remind myself of this at times. Hey, don't always go technical.
[00:00:57] And so I'm going to probably try to take it easy and then just kind of going to give everybody a refresher, call it a week off and just re education for all of us because it was a bit therapeutic and cleared my head just writing it out.
[00:01:10] Going to share my screen for a visual aid and we'll get rolling. If you guys have any questions or comments, let me know. You can respond to the email that goes to this that sends us out via the newsletter every Saturday or go find the website. If you're just a YouTube subscriber, that's fine.
[00:01:29] Okay, so the Annuity advantage, where do they have the advantage? Is there an advantage? The fact of the matter is they would not exist if they didn't provide a strategic advantage at times.
[00:01:40] And nobody likes to buy a bad deal. You don't buy if it doesn't make sense. You buy it if it does make sense.
[00:01:45] One of the most frequent comments I get when someone makes a first appointment, having that call.
[00:01:50] And I'd say probably about a third of the time a person says, oh, I never really liked annuities, then something changed their mind, they thought of it, they start hearing about it. There's more publicity behind it right now. And oftentimes someone tries to sell them something and they don't necessarily bite on the pitch, but they get curious, they start doing some research. Everybody says, ah, showed me this, I started doing some research, I found you, I followed you for a while. That's pretty good deal.
[00:02:19] That's why I try to keep it interesting for everybody.
[00:02:23] So Most people will end up getting a different perspective here. That's why they make the appointment. If you're watching this for the first time, or if you've only seen a few, go ahead and take your time digesting the info. If you feel like there's something that I can help you with, then you get a hold of me.
[00:02:39] So last week someone questioned how I know what the majority of advisors are doing. Is there a way you keep track of it? My experience, meeting with thousands of people, marketing organizations, understanding sales tactics, the pressure I get as a salesperson to put my business one place over the other and top selling products in the country, definitely. It's easy to notice trends if you spend your time looking at this is what I do. Okay, so that almost 23 years of experience, go meet with a dozen other people, prove the point. You'll find out pretty quickly that many take about the same approach but with just a different opinion. So out of 10 or 12 guys without knowing a ton about your goals or situation, there's about eight or nine of them are going to just try to sell you something. So in most cases, you're going to get something different here. Really all I'm doing is trying to educate people.
[00:03:32] Those who do business with me will find an advantage for themselves in doing so, and those who don't will have every reason to keep things the same or choose a different path. I don't work for everyone and I'm not trying to change what everyone does. Case in point of call that I had today with a guy who has a solid plan and based on everything he told me, just understanding a little bit about what his perspective was, I think he should keep the things the same as they are right now. I don't think he should really make any changes. He's comfortable with where he's at.
[00:04:03] He's actively involved in his plan. He's got an adequate amount of money protected, but wants to remain flexible if market opportunities arise or any other investments.
[00:04:14] So someone else pitched him an annuity. He didn't bite. And I could have done the same thing. Hey, you got a bunch of money and you're retiring.
[00:04:23] Try this annuity. That's not really how I do it. Yes, it would work for a lot of people, and this guy in particular. It would give him an advantage, but that advantage doesn't align with his current path.
[00:04:37] And so the timing isn't right for him.
[00:04:40] And I told him that here's where it might work and here's where it wouldn't work.
[00:04:44] And he said Maybe in a couple of years or maybe down the road, something will happen and I'll want something a little more automatic, want something more stable, more locked in. And I'll be happy with that because for the time being, he's going to stay active in the management of his portfolio with an investment guy he's got doing part of it, and that's pretty good. So I support him in sticking with what he has going on. And down the road, what I offer may become more appealing to him.
[00:05:10] And I said, and this is very important, I said, there's a lot of different ways where an annuity could benefit him, but that might be two years from now, five years, 10 years, never.
[00:05:22] And even then, I'd still have to lay out a ton of different options for him. Three, four, you got one or two different strategies, two or three options among those strategies.
[00:05:33] So who knows what's going to change by then. But we're not. I'm not going to waste his time and I'm not going to spend the time doing it. We see eye to eye on that and I wish him the best. He's listening right now. So thank you for getting a hold of me. And I hope that he could echo the same thing I'm saying. It's that I didn't put any pressure on him. I just tried to help him make sense of it so now he doesn't have to worry about all those other pitches. So if somebody tries to sell him an annuity, he's already made up his mind and had someone who sells annuities say, no, you're right. At this point in your life, you don't need is widely accepted that safe assets should be a larger part of one's portfolio coming into retirement and during retirement.
[00:06:12] But there are several ways to protect assets, and annuities are just one of the options. Depending on what you want to do, an annuity could be the perfect strategy for you, but only if it's a better option than something else.
[00:06:24] If it's not better, why do it?
[00:06:26] I often get pretty technical in these podcasts, so this is going to be bring it back to the very basics.
[00:06:32] It's good to show you all the safe money options you have in retirement so you can see where annuities hold the advantage in each case.
[00:06:38] Doesn't mean you got to get one. Just so you know, be an educated consumer.
[00:06:44] I say this all the time. The spectrum of available investments for safe money is not as broad as people think. I think a lot of people that aren't really well versed in all the different types of assets, seem overwhelmed. It's a. You don't know what you don't know.
[00:06:59] And they're always thinking, oh, maybe there's something else. There's not really.
[00:07:04] Start with the most liquid, lowest yield and move toward the least liquid and highest yield. So cash accounts and money markets.
[00:07:10] Money in the bank is nice and everybody should have some in there. Obviously takes a trip to town to get some out. Maybe you're in town already, I'm not. So if I want to go to the bank, I got to go to town. It's fully liquid for emergencies or alternative investments. And an emergency fund is a little bit, three to six months, maybe a year of expenses. Alternative investments where you might hold larger, larger portions of cash in there. And you can get a pretty decent rate right now just some passbook Savings accounts over 4% money markets at a bunch of investment institutions. Those are around 4% and higher right now. So that's pretty, that's pretty good for short term liquid money. The question is how long the rate is guaranteed. It's not guaranteed to be there tomorrow. It could change. And if you want a guaranteed interest rate that's going to last, then a fixed annuity will ensure your rate doesn't drop for a longer period of time. You play the game. If you think rates might drop, lock into a longer term deal, the annuity has an advantage. Plus it's a little bit higher interest as well.
[00:08:09] Good annuities are ranging five to five and a half percent right now, as opposed to four or so in the cash markets. So now an annuity is no place for emergency funds. But for those who have a significant amount of money just sitting in the bank, a fixed annuity or an indexed annuity, if you want to take the shot at the top, we'll give you a longer term guarantee. There's your advantage if that is what you want.
[00:08:33] So certificates of deposit. So there you are at a bank again.
[00:08:38] Easy for a lot of people. Walk into a local bank, tie the money up for a guaranteed interest rate that lasts a bit longer. So it's not going to change tomorrow. But some people like 9 month, 12 months, 16 months, 36 months, maybe up to 60 months.
[00:08:53] And then there's a lot of savvy people that don't mind do doing business online. Can also find some competitive. Some of the most competitive rates are going to come at national banks. I just go to bankrate.com if I want to see the highest. Tell me what you guys do.
[00:09:05] I think they're pretty good at spotting the highest like synchrony bank or something like that.
[00:09:10] Oh, there's a plug for the bank. CDs are good spots for parking money. But aside from the interest rates, they don't do anything else strategically for retirement. Good place to park, money safety, all that stuff. There's no liquidity during the term, there aren't huge penalties for getting out of it.
[00:09:26] And five years is about as long as you can get. You can go longer, but I know the rates get less and less competitive the longer you go. So you, if you want to be able to pull some money out every year or even set up systematic withdrawals, a fixed annuity index annuity. That also gives you the advantage of a longer term interest guarantee which is going to be a higher interest. It's very simple. Compare the interest rates. You got a five year CD at four and a quarter, four and three quarters versus a five year myga at five to five and a half. I don't know which one's higher.
[00:09:57] Bonds and US Treasuries, these aren't really one in the same, but I'm going to kind of lump them together and couple differences there. We're out of the banks now and the two are often combined. In traditional portfolio management, Treasuries are often held for the shorter term safe assets with bond ladders being used for longer term security.
[00:10:16] I've got some clients who have bond ladders that stretch out 15, 20 years. So much for short term.
[00:10:23] And these will both work for consistent cash flow to provide retirement income or reinvest in other parts of the plan. If you want to have activity, reinvest interest, dividends and stuff like that. Anything in addition to that interest means liquidating parts of the portfolio. And it could be good or bad depending on changes to the interest rate since you purchased it. So there's interest rate risks. If rates drop, you'll get a higher value for selling those bonds and most people don't because they sell the bond, they get a profit, but then they reinvest it in a bond that pays less. So it's a wash. Leave that to the professionals.
[00:11:00] But if rates go up a little bit, you're going to take a haircut, you're going to get a negative adjustment there on the value.
[00:11:06] If you don't know how that works, that's a good thing to look up. So fixed or indexed annuities will have similar to better yields, typically higher than what you can get on the market with a bond. If you're talking similar Credit quality a double.
[00:11:21] Now there are bonds that pay 7, 8%. Those are not.
[00:11:25] They're not.
[00:11:26] Nothing's guaranteed like an annuity is. You're going to get more safety with the annuity with a similar to better yield.
[00:11:32] And typically the fixed annuities are going to fall somewhere between the Treasuries and bonds of a similar maturity.
[00:11:40] Also, while Treasuries are backed by the federal government, bonds are not perfectly safe. You have to build a bond ladder with a significant number of individual holdings, which can be a pain to manage.
[00:11:50] So you can comfortably put a large amount of money into an annuity with a strong insurance company. For more simplicity, back to the liquidity thing, I skipped over that. You can have a full 10% without interest rate risk every year. And again, that's not a blanket recommendation to put your money in there. Just to say that when designed properly, based on what your liquidity needs are, the annuity is going to give you more liquidity than a bond or a Treasury. Very safe place to put it. I can't say it's safer than the US Treasuries, but it's definitely safer than the bonds because the insurance company owns the bonds and has reserves on top of it. So those are just a couple of reasons why the annuities have an advantage over bonds and Treasuries. In relation to all of these options, I left a few big things out.
[00:12:34] Annuities offer tax deferral for non qualified money, so you can have more control over taxes in retirement. It doesn't matter if you have a traditional IRA or a Roth or 401k, whatever.
[00:12:45] But for non qualified money it makes a big difference and the big one is guaranteed income. So if you have non qualified money, then you get tax deferral until you take a withdrawal. And that's again, you don't get that you already have tax deferral with an ira. The big benefit is the guaranteed income. If you're trying to produce cash flow, you're going to have cash flow that exceeds any of the above rates, CDs, money markets, bonds, Treasuries, all that stuff.
[00:13:13] Which means you gotta put less safe money. So people that are really trying to maximize growth will find the best deal with guaranteed lifetime income. That's pretty simple. I did a whole podcast on that not too long ago and I probably should link that in the newsletter for anybody who didn't see it. Once again, I want to remind everybody that there are options, but it's really not as complex as many people think.
[00:13:33] You got cash, you got CDs, you got bonds, you got treasuries or annuities.
[00:13:39] That's the game we're playing and it's easy to evaluate those. Anybody new to this? That boils it all down. If I missed something, I know there's a lot of like fixed assets, REITs and all those things, but those are not considered rock solid, safe assets. So not covering those. I meet with people every day who choose one or more of the above instead of annuities and that's just fine. It depends on your goals and whether it's an advantage for you. Doesn't just because there's an advantage.
[00:14:06] But here's the reason why people use them. You got better yield, more cash flow, more safety, all that stuff. Those are the advantages. When you're ready to make your retirement as easy as possible, don't overlook annuities as the way to get the most advantage. Hit the top right corner of this page or any other if you want to book an appointment. I appreciate you guys stopping by. This has been episode number 187. Please like subscribe or comment on any of your favorite podcast platforms or on YouTube. Share it with your friends or anybody else you think could benefit from it.
