Episode Transcript
Speaker 0 00:00:00 <silence>
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 00:00:48 Hello and welcome everyone to the Annuity Straight Talk podcast, episode number 105. My name is Brian Anderson, founder and creator of annuity straight talk.com. And encourage you guys to please subscribe or comment and honor all your favorite podcasts platforms or on YouTube. If you're watching the video, hit the like button, click the share button, send it to somebody you might know who would enjoy the information or get something valuable out of it. Uh, I'm gonna start, uh, recommending that. If you want to talk to me, you make an appointment, there's a button on the top right corner of any page on annuity rai talk.com. It says Schedule a call. I've always invited people to call me and they still can. There's some days where I just can't get to it. So it's easier if you set yourself some time. And that's for easy questions. Simple questions.
Speaker 2 00:01:40 It's a 30 minute initial con consultation. If you just got a quick question, put it on the calendar. We can probably solve it in five minutes or so and it just guarantees a time slot for you. That way I can organize my day a little bit better. Had a lot of questions about this week's topic, episode 1 0 5, the annuity Straight Talk Flex Strategy in 2023. And I'm gonna show you a bunch of stuff today. This is, in my opinion, an incredible episode because I like the strategy. I came up with it and a lot of people have seen the three-part, uh, webinar series and I did that several years ago and it's still applicable. It's a great way to look at how you use annuities in retirement. I am not a sales first go for one product, got one thing I'm gonna show you. Talk about that, uh, several episodes ago.
Speaker 2 00:02:29 What annuities do I have? It's not about what I have. I have access to just about everything in the market. Unless I don't believe in it, I don't sell it. And if that's perfect for you, I'll tell you where you can go get it. I wish a few people would raise their hands and say, yeah, he did that for me. 'cause I've, I have done it quite a bit. So a lot of people have asked about the A S T Flex strategy where I guess the beginning parts of it, I figured this out very early in my career. Two, three years in, when guaranteed income riders on variable annuities started becoming popular, they had 'em on indexed annuities. But my first exposure to them was variable annuities. And I thought about different ways of getting a better maximum income, but also retaining control of the assets and eliminating fees if at all possible over the years.
Speaker 2 00:03:19 That took different variations based on changes in interest rates, the type of products that would work for it. And so it's been, it has lived up to its name, the flexible strategy for retirement income. Now this is applicable to anybody who's trying to generate retirement income or manage RMDs. You can do it to plan for Roth conversions as well, except you flip it around a little bit. So a lot of people that I've worked with in the past year are just parking some safe money somewhere fixed or index annuities and that's okay. But this is more of a technical planning perspective and I found out when I had Kerry Ter on the show to introduce a second edition of Annuities for Dummies. He said he included a section in the book about the A s T Flex strategy. So now it's published. It's time to give everybody an update.
Speaker 2 00:04:10 'cause in the past webinar, a lot of people, we talk about low rates, we don't have low rates. We have probably historically average rates. They've been way higher in the past. They've been way lower in the past. Uh, a lot of times they've been, they're still pretty low in in terms of the historical averages, but a lot higher. We have a lot more options. So people will ask me how my recommendations have changed. I am selling more income annuities than ever before, but I use the flex strategy concept of verify the best approach and this is to let you know again, we're not coming at a product with everybody. I really sit and try to figure it out and say what's the best. And right now, because income annuities have really healthy payouts, they might be the best deal on paper, but some will still say, I don't really like the lockup period.
Speaker 2 00:04:59 Or maybe I want more flexibility, more control, stuff like that. So basically my VI advice hasn't changed. Seek the best E you can get that aligns with your expectations and retirement goals. Everybody in this business has better products. Uh, we all have great products at our disposal, whether income or accumulation, it just means you have more options that's gonna get the job done. Payouts are higher in income contracts and yields are higher on accumulation contracts for those who want more control over assets and the option to change strategy over time. The flex strategy is still quite powerful and the development of that and the way I use it, it has turned into an a, a fantastic way to analyze the different options you do have. So I'm gonna update the webinar soon. We had a big project with a lot of new content creation, getting on the tail end of that, trying to enjoy my life.
Speaker 2 00:05:55 Man, I have been busier than ever in my life, but I'm gonna re redo that. A lot of you guys have seen it and uh, a lot of people have re adopted it for as a retirement strategy. I know a few years ago, one marketing company even stole the idea and claimed that several producers have been very successful using it. I got an email check out this one spreadsheet. This guy used to sell $50 million worth of annuities. Just one simple concept. So I'm like, I'm curious about that. Look at it. It's the same damn thing. There is no doubt that I created this strategy. I developed it over lots of years, more than a dozen years ago where it came to its current form, which is the most advanced form of it. It's a product of me reading all the academic res research that came before me from people who studied the subject of retirement income.
Speaker 2 00:06:54 I took pieces and parts of the things that I liked and used it based on conversations with people to see what they really were comfortable with doing. Molded that into a strategy with a real world application. So last, last week, I had a good opportunity to use a spreadsheet to help someone figure it out. He came in, typical saying a couple other people showed, hey, I think he had one product. And the guys, one of the guys said, you know what? We can explain all the details and it's gonna get really complex, but it's better off you if you just trust us, it'll just be easier. Just trust us. I don't agree with that approach. I think you should learn everything you possibly can. That's why I've dedicated a lot of time to explaining all the details of the various things that you can do.
Speaker 2 00:07:40 So he sold his business, wants to retire in one year, got a contract to work it for another year, then he gets a final payout. He's only 55 but he's in position where he can retire and he wants to go enjoy life. I do not blame him at all. Sounds like a great idea. He's saved well, wants to enjoy a stress-free retirement. So yeah, he got the standard guaranteed lifetime income pitch from a couple people, Hey, this is about all you can do. Nobody gave him the justification. So he comes to me and says, I don't know. Can somebody explain why I might want to use an annuity? I could tell he was pretty skeptical when we first spoke. So I had to hope if I'm gonna put time into this, I hope he's patient enough to learn a lot of the details and no one else is gonna teach him.
Speaker 2 00:08:23 So if he really wanted it, then he was in the right place. I decided to use a spreadsheet, look at a lot of different stuff. So when I did it, I waited for the second appointment and I was thinking, ah, I'm gonna look at the spreadsheet now. I did this live with him the first time. That means I didn't really, I prepped in my mind and knew exactly what I was gonna do, but I didn't. I was, I guess the numbers were as new to me as they were to him. So as we're talking, I'm just explaining how the numbers look and the different benefits of doing the different strategies, right? I had no idea what results it's gonna give me proof that I do not have an agenda and just want to help people out. I sit and I try to figure it out with you and explain it along the way. I will give you the basic parameters of the case. We'll go to the sheet and I'll show you how it works.
Speaker 2 00:09:10 So full retirement, he's gonna be 56. Currently his assets are 1,750,000. He's gonna net an additional million from his business in a year and he has an $80,000 income need from age 59 and a half for life. Now that income need is not really a need, but we'll talk about that later because he's prior to 59 and a half, a lot of his funds aren't gonna be accessible until then. But he has an inherited I R A that falls under the new secure act rules where he is got it, liquidate it within 10 years. It's enough to cover the income gap for three years. I think that's his best option. No decisions have been made. And again, this is where he is a very open-minded person and I appreciate the opportunity 'cause I said none of these things are set in stone. We gotta change the variables or change the expectations.
Speaker 2 00:09:59 We can certainly do that. He wants to fund the first three years of retirement with cash and save the inherited I R A for down the road. He's still gonna have to do it in four or five years. I think that's the best option. But that doesn't mean that's what he has to do. I want him to understand, he knows that I'm tell giving him ideas and giving him a justification for doing it, but that he gets to make the ultimate decision. So those who have followed me for a while are gonna know my first thought is calculating his income needs in relation to total assets, including the sale of the business next year. Fi the final sale. Annual income needs are 2.9% of his total portfolio. It is absolutely a case where he doesn't need an annuity, but it doesn't mean that annuity's not gonna make things better.
Speaker 2 00:10:42 I'll run three scenarios to see which is best using the worst 20 years in the stock market in the past 20 that resulted in good, steady, healthy growth. So the bad market scenario shows whether the portfolio would survive and the positive growth scenario shows how much you would be leaving on the table by using annuity. Everybody thinks, oh, if I buy an annuity, my money's not gonna grow and I'm gonna show you. That is definitely not the case and that's been academically proven for decades. There is no argument an annuity improves retirement. So in the first scenario, these are the three scenarios, okay? Leave it all in the stock market. Simulated using an s and p five or index fund provide full upside growth potential and all the risks that comes with it. Reverse dollar cost averaging is what makes this difficult. If the market drops and you take your income out, you're selling stocks at a loss has a exponentially detrimental effect over a 20, 30 year period.
Speaker 2 00:11:37 But we're gonna see if he survives doing that. Then we're gonna look at the income annuity, what the other guys said, again, not just trust me, let's really look at it and analyze it. So we're gonna leave the market based assets in the s and p 500 and we're gonna buy an income annuity that's gonna kick off 80,000 years, starting in four years. So one year more work than three years. The inherited I R A, then the income starts. So that would cost him about $900,000 today. So he peels off about a third of his portfolio. So guaranteed income for life takes a tremendous amount of pressure from the investment portfolio, but it also leaves fewer assets available for long-term growth. And then we're gonna look at the flex strategy. We use a fixed deferred annuity. So one thing about good rates is nobody can argue with me. I'm not cherry picking and using a hypothetical hypothetical index annuity return. An index annuity. Some people will choose to use that to take more upside.
Speaker 2 00:12:32 But a lot of people are liking, hey, I can just guarantee this. It's piece cake. Uh, income can be taken on a discretionary basis to replicate an income annuity. The owner retains much more control over the asset to, you're not gonna get fees. Most of the income contracts, the max income contracts are gonna have a fee. So this is how to keep the most money under your control and I'll show you how that works. Uh, we ran each of these scenarios to see how much the portfolio would be worth in 20 years because to cover all bases, I had a 3% annual inflation adjustment to the income. So each of the three scenarios will provide the exact same amount of income. There are two main issues I need to address in the a hundred percent market scenario or even the income annuity with some LE or any of them left in the market.
Speaker 2 00:13:17 There's no management fees that were used. If an investment manager were to tack on a fee, the results would turn out much worse. I did one a long time ago how fees affect an investment performance. So that can't be discounted. Again, give 'em the benefit of the doubt, just use an s and p 500 index on do it on your own. Let it ride in the flex and in the flex strategy scenario, we ran the numbers over a 20 years, but we can only guarantee the fixed rate for 10. So there's a little reinvestment risk on the back end of that. That's where we cover those disclaimers and say, all right, let's look at the effect this has over time in the newsletter. I got the, I got a table showing the results. What I'm gonna do now is we're gonna look at it on the sheet.
Speaker 2 00:14:07 Okay, so here is the first one, okay? What he has, interestingly enough here, if you look at it, you got 1,750,000 in the market today and then he's not really drawn from this portfolio for four years. If you remember work a year inherited I R A for 3 59 and a half 60 boom starts drawing from the portfolio. When he gets an additional sale from his business, this is an additional income that's not needed. So it kicks it back into the investment column. We're just looking at the s and p 500. We put 'em at 80%, 80,000 a year. 3% inflation adjustment starts the income in year five. After four years of deferral, they're all gonna be exactly the same. Okay? So we look through, he goes through this and this is what I want to uh, show you guys. In the worst case scenario, obviously tons of market volatility, but when the market's up you're pulling off of the gains and when the market's down, you're selling principle, your reverse dollar cost averaging.
Speaker 2 00:15:13 But I have a feeling that he's probably gonna be okay and you show remaining balance after 20 years of 2,036,776. So he survives and it's fine. You leave it all in the market. That's the worst period in history. If we change it to the last 20, then we're going to go, he's got 5.771 million. Big difference. Then he is loving life, right? Okay, so market only. I'm gonna fill this little table in on the bottom left. I just changed the text color. It's already populated with the results. That is the market. So he could s and p five at an index fund. Don't pay any fees, don't ever have to work with anybody. Nobody makes money and he can ride the market. He's fine. But you can see in some of these years, the LA in the last 20, let's go back to the worst 20 real quick.
Speaker 2 00:16:11 If it happens in some of these years. So year six in this scenario, like 1,000,001 is all he is got. So he'd probably be pretty nervous, a little puckered up maybe when he is 62 years old thinking, oh I gotta make it the rest of my life. The annuity removes the stress of that situation. Okay, so now we're gonna look at the income annuity. Here's how I do that. So instead of having 1,000,007 50, you only have eight 50. You're removing the annuity money from the portfolio and what you get in return is you still have the other million bucks coming back in a year and can be a vested in the market. It's all hypothetical depending on how he wants to do it. What happens however is that annuity provides income. So instead of having to draw from the portfolio for the bulk of income, now all he has to do with the portfolio is discretionary expenses to cover inflation adjustments.
Speaker 2 00:17:07 So the 80 thousand's locked for the rest of, and we're gonna look at that in the worst 20 year period. Okay, so after the million bucks comes in next year he's got 2.2, same income, same parameters, just a different strategy. How does it do? What do you guys think In the worst case scenario, 2,000,735. Worst case scenario, the having the annuity results in an additional 700,000. Now you want to talk about true inflation adjustments. You wanna talk about legacy, you wanna talk about long-term care planning. You gotta have more money in a terrible market scenario is to give 'em 700,000 more. So it's really good, right? How about the last 20? You gotta look, you look at that, oh, last 20, obviously he's not gonna have near as much money in the last 20 years 'cause he didn't have it all grown in the market in a great market scenario.
Speaker 2 00:18:01 Remaining balanced 6 million, 84,000. Oh my goodness, he still has more money in the guaranteed income scenario. Now remember he's got more money plus he still has $80,000 a year guaranteed everybody should use an annuity to some extent. It's just the way it works. Now we're gonna do the flex strategy. So you don't have to with the annuity, you don't have to worry about draw downs. You can let your uh, portfolio recover. If you're in a down market, lots more freedom and lots less stress. I can't even under, you can't even understand how much less stress would that be. So then we use the flex strategy and we put the, we take the income away but we put the asset back in the asset column, right? So he is got 900,000 into a fixed deferred annuity, a hundred percent in a fixed rate gaining five and a quarter.
Speaker 2 00:18:49 Now we can guarantee this for 10 years and you can do a little bit higher. I wanna talk about uh, choosing the right fixed annuities. There's a reason why I use that rate, although people who love to shop, you can go get B rated companies pay a little higher A rated companies that maybe don't have as much liquidity. We need a full 10% free withdrawal. So we gotta have a contract that does that changes this back to the worst 20. Okay? And what he's doing here is in the worst 20, when the market is up, he draws from gains. But when the market's down like in these first couple of years, he's pulling the money from the annuity, he's got enough in there within 10% free withdrawal piece of cake. Totally takes the pressure off the portfolio. Income annuity provides income in all years. The flex strategy provides income when you can't rely on the market.
Speaker 2 00:19:41 So it's just sticking something away and making sure that you always have that backstop if things don't work out. This is a good strategy for someone in their early fifties, early sixties because you can, the flexible nature of it, you can switch strategies and maybe go to an income annuity later. Of course we'd work the numbers, make sure you're doing the right thing. But in the worst 20 year period, that strategy produces 3,231,000. So improving that strategy, another $500,000 over what the income annuity was, 1,000,002 more than leaving it all in the market. Now this is really interesting to me. Last 20 years, so great market scenario. You didn't lean on the annuity all that much and it actually turns out less than the income annuity over 20 years. So you got 5 million 7 97 a little bit better. It's, we'll call it even with the market only strategy.
Speaker 2 00:20:38 So what we see with these two options is that there is no denying that an annuity will benefit his portfolio and his long-term accumulation for his uh, whole estate. Again, you want to talk about real inflation protection. You wanna talk about spending changes, you wanna talk about enjoying your retirement, you wanna talk about paying for long-term care or any of those things. More money is better. Reduce risk. Get the guarantee. In the past when rates were really low, the flex strategy would produce dramatically better results in the income annuity. It was always that much better than having the market. And then people will see this and they say, yeah, I think I can handle it. Go ahead deny it. But it's now published in a book with some of the leading minds in academic research on retirement, which is pretty cool. I don't get as big a spot spot as those guys, but I'm never gonna claim I'm one of them.
Speaker 2 00:21:34 But it's, it's great. I appreciate Carrie putting it in there. I believe in it wholeheartedly and obviously someone from an objective standpoint believes in it as well. Okay, so we go back to the newsletter, which I've gotta explain some more things. So results in the table below market only the same numbers is copied and pasted over. So using an annuity undoubtedly, uh, improves portfolio performance throughout retirement. In the worst case scenario, there's a dramatic increase in net worth using either strategy with an annuity in the past 20 years, all results are more or less the same. And let's call it we're splitting hairs, right? But are you really lo losing growth opportunity by buying an annuity? Absolutely not. I've talked to so many people, I don't wanna buy the annuity 'cause I wanna leave money to the, you need income. You're saying you need income.
Speaker 2 00:22:24 Where's it gonna come from? Go ahead and leave it in the market and we can show you that. I don't know, 70% of the time you're gonna go, you know 70% of the time you might go broke, right? Or leave way less, less remainder if that's your goal. So which one is best? It depends on what strategy you wanna use. Uh, from a numbers perspective, the income annuity's by far the best because this guy's only at 75, he'd have the same amount of assets, but he'd also still be getting $80,000 a year guaranteed. We can analyze the results in a lot of different ways and we can go deep into the details of interest rates to explain how the different annuity options work over the short run. The flex strategy is gonna work depending on how much flexibility you want. Again, it's very good for younger people because you do have the time to potentially switch if there's a better option.
Speaker 2 00:23:10 Free withdrawals on annuity can be used to rebalance the portfolio. It does not have to just be taken for income. So he's relatively young. Planning for 20 years only takes him to the mid seventies. But if we can show a strategy where he's got more money at 75 than he does at 55 and he is covered income for 20 years, I don't know why we wouldn't do it. And I, we can tell without a doubt that he is going to have more money with an annuity and there's no chance he's gonna run outta money if he does it the right way. So it comes down to personal preference in this case for him and it's personal, I think using the flex strategy now I talked about this at the beginning, it's not really a need 'cause he comes back, he's still got social security, a couple of other investments and he said, really, I don't know how I'd ever spend all that money.
Speaker 2 00:24:00 And so for someone like that, this is good for RMDs as well or what I call discretionary spending. He might only spend 20 or 30 or 40. He might not spend 80. So if he uses the flex strategy, ha, he has the ability to change the amount of withdrawal at any point in time. He can take more, he can take less. You might take 101 year and take nothing the next year. So increase or D curs plan withdrawals in at any time. If he doesn't wanna spend the 80 grand, you're gonna leave a larger remain remainder balance in the annuity. So the flex strategy is and always has been about control over the money while meeting every retirement goal and obligation along the way. I think it's pretty clear cut, best justification for using an annuity. I'm one of the few people that's truly gonna explain a variety of options.
Speaker 2 00:24:53 I've got so many people that get in a product specific, they got two or three guys going back to this product. Step back, we didn't even talk about the annuities except for it's a fixed annuity. In this case we didn't even talk about it. I didn't throw a product at him. He asked, I said that's way far past it. Because if he can sit and say, I truly understand the benefits of doing it one way or the other. This is a spot where maybe you do a little split, maybe half of it goes into an income contract and half of it goes into just a deferred accumulation contract. That's possible. But he's gotta decide what his strategy is first. And then it's so much easier to look at products because you figured out why you're doing it. And that's incredibly important. I think most of the people that call me have no idea why they're doing it.
Speaker 2 00:25:41 Like I've said before, ah, they're 63 years old and they're retiring in two years and someone says, oh, you gotta have an annuity. Why? That's what I'm here to explain. So this has been episode 105. The A S D flex strategy is still very much viable. It's an excellent way to analyze all the options for using annu in retirement to prove unequivocally what type of benefit you can receive for doing so. You're not throwing money away, you're buying stress relief is what you're doing and you're buying a bigger account balance at the end of the term. Whenever that is. Like I said, make schedule a call. Top right corner of any button on annuity. Straight talk.com guarantees your time slot on my calendar. This is gonna be hunting season. I'm gonna be out for a few days at a time, but whatever's there available, I will call you When that happens, subscribe or comment on your favorite podcast platform or on YouTube.
Speaker 2 00:26:39 Please share it with your friends. A lot of people say, wow, this is great. Then send it to to somebody you think might help. I got a lot of people listening to this on a weekly basis. Not most of 'em, I don't even know there's a lot of advisors walk watching it. There's some insurance company executives watching it. Probably. There's a lot of people. I don't know. I slowly and slowly hear from more and more people. But anyway, I appreciate you guys joining me. My name is Brian Anderson. I created the strategy. It is the best way to look at annuities in retirement, hands down. So thank you so much for joining me. I'll be back next week for episode 106. And you guys have a great day. Okay, goodbye. You
Speaker 1 00:27:16 Have been listening to Annuity Stray Talk. The proceeding information is for informational and educational purposes only and does not represent tax, legal, or investment advice. Views expressed by guests on this program are their own and do not necessarily reflect the views of annuities, 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 of the insurance company.
