Episode Transcript
[00:00:00] Speaker A: Hello and welcome everybody to the Annuity Straight Talk podcast, episode number 216.
My name is Brian Anderson, founder and creator of AnnuityStraightTalk.com today I've got a great episode for you guys. Research Journey from a past client. I talked to him last week, decided to run it over two episodes.
And this is about Dave, who spent months researching whether or not to buy an income annuity for his retirement.
And when he told me his story, I realized this is exactly the process a lot of people go through.
Fear, conflicting advice, the deep dive into the numbers, the technicalities of contract.
And he actually offered a while ago to say, hey, I'd like to tell my story, it might help some people.
So I didn't ask him to do it. I took him up on his offer and this is part one right here. You're gonna hear why he almost didn't do it in the process. He did it to research it and do all that stuff and what finally convinced him. So let's get into it. Here's me and Dave last week. Dave, thank you for doing this and welcome to the podcast.
[00:01:03] Speaker B: Great, thanks Brian, really appreciate it. As you stated, I think the main reason I want to do this, I've spent weeks, months, literally trying to decide what to do here. I've recently retired and one thing that I learned is in the last 30 years of investing, I definitely made some errors here and there. And those decisions matter over a 20, 30 year period of time. Now that I'm not working, my money works for me. And it's interesting, you work your whole life and you work a week and you get your wage and that's great. But when you retire, it's all about decisions that you make and that's the money that's working for you. And click of a button can make a really big difference over a 20 year period of time. I was pretty nervous about it, to be honest. And it's funny how I actually ended up even coming to you. It's funny how life throws things at you. I had been with Goldman Sachs actually for a few years back. They had recently acquired some new companies to fund for private investing. Goldman, they didn't have a real good history with doing private investing. So they actually bought two firms that I was looking at and interviewing and it started off pretty good. They used the traditional methods that you would use with any financial advisor. They were mostly stocks and bonds. And I wasn't unhappy with them until they told me that they're getting out of that business and they literally just cut Their clients loose and said, sorry, we're done. This was too hard. So we're getting out of this business and you're on your own. That just happened to be the time when I literally retired. I had time on my hands and I interviewed with a quest of trying to find a really good advisor. And I had not had the greatest success in the past. I've had a couple advisors that ended up really having more self interest in products they could sell me than my interest. And then I had this situation where I establish a relationship, get things in place, and then they leave. And then I've got again that next 20, 30 years and some pretty important things on the line. Our retirement that I, I really want to make sure we leave money to my kids. And so obviously some big decisions. So I took it very seriously. And I did interviews with many different firms, local firms, firms that specialize in retirement. I did the big boys as well. All of them spent many hours just trying to hear their story, telling them, here's my portfolio. What are you going to do with it? How are you going to manage it? And the interesting thing that came from it is there was only one vendor that came back and said, look, you know, what you have here is pretty good, but a big risk that I see is, is that you don't have enough guaranteed income. The only guaranteed income you have is Social Security.
And I think you should consider something to address that. And one of those options is an annuity. And my immediate thought was, I don't know what a. I don't know what those are. It sounds complicated. And I just had a bad reaction to it because of things I've heard. I've really never had any experience. I've never researched them, never even thought about them. No one's ever mentioned it to me before. I was just a little hesitant. That's why I thought, okay. And they're the only ones that had mentioned it.
[00:04:13] Speaker C: Okay. So that was where.
[00:04:14] Speaker A: And that was where we met.
[00:04:16] Speaker C: I think you maybe. I don't. I guess I don't want to direct it too much, but you started doing a little research and that's pretty much how you found me. And I remember you saying that one of the first times we talked. So you thought. I never really thought I would be even looking in this direction.
[00:04:30] Speaker B: Yeah.
[00:04:30] Speaker C: So did you feel like maybe you were about to jump down a rabbit hole?
[00:04:34] Speaker B: I did. I was very nervous about it. I'm pretty financially astute and I like to crunch numbers. So I wasn't really worried about doing the Math on it. It's just there was a lot of things to consider and there's a lot of ins and outs and there's so many different kinds of annuities as well. So my advisor was very specific that we're not talking about a growth type annuity. We're talking really about an annuity. Very specific to just making sure you have guaranteed income. And I started to really look into it. And the other interesting part is I had some advisors that were like adamantly against it. Just very strange. An analogy to that is I went to the doctor one time. I had twisted my calf muscle when I was running. And I had one doctor telling me, stay off of it for four weeks. I had the other doctor be telling me, stay off of it for one week, but don't stay off of it for four. It's going to atrophy and it's not going to heal. Right. So get two experts and you're trying to make a decision for yourself. And I felt the same way. Okay, I got to have to choose one here. So I started doing research on my own and it actually started to solve a lot of the issues that I had originally set out. So when I originally set out for an advisor, I was looking for protection for my heirs. I wanted something that would take taxes into consideration because that became an even much bigger deal for me. Things like RMDs, which can also get complicated. IRMAA. Now there's all those things. But then another big part of it was the mental aspect. I try to manage my own portfolio, and while I can do it, I don't like to do it. It's just stressful when the market's down and you feel like you need to do something.
[00:06:11] Speaker C: Yeah, not everybody wants to spend their retirement doing that.
[00:06:14] Speaker B: Exactly. So I definitely wanted someone that could handle the ins and outs and tax loss harvesting. I don't have to deal with any of those complexities. And so I really narrowed down to two vendors. One, a very simplistic approach, low cost simplistic approach, which is Vanguard, and then a little bit higher Touch, which was Fidelity. They're more active managing the portfolio, individual stocks, tax loss harvesting, and things of that nature, which I really liked. I was really impressed with Fidelity. The only issue I had with Fidelity is that their fees were basically twice as much. You know, they were 1%. That's industry standard, right? 1%. But anyway, my advisor was really good about explaining the reason why you need an annuity. Again, I wasn't necessarily sold on the annuity itself because there's other ways to do it, but once I started doing some research, it really started solving a lot of issues for me. One of those is like bonds, for example, you have to have something with steady income, but bonds don't pay hardly anything. And to be honest, they're a little bit of a pain in the neck because I don't like bond funds. And to purchase individual bonds is a continuous process that you have to do over the next 20 years with Bond ladders and worrying about what the rates are and when to get in, when to get out and all that stuff. And then if you've got someone managing that for you, if it's only making 3%, if they're charging you a half, even a half percent, then that's taking a decent chunk out of that as well. So all those things were appealing to me from the annuity perspective. It's just I needed to make sure that I looked at what are the things that I need to address that are potential concerns with an annuity. And I was able to check all the boxes. So first I just want to be really clear because most of the videos I see on YouTube where people talk about annuities, it's almost always an index annuity.
I don't know why people are so caught up on index annuities. I do, but that seems to be what everybody talks about. And they're always comparing index annuities to like traditional growth portfolios or a 6040 portfolio. That is not what I was interested in. So it actually was interesting. It was difficult to find the research that I wanted to find for just an income based annuity. But luckily I'm strong user of things like Chat, GPT and Gemini. And while they're good for general purpose information, I find they're absolutely horrible for actually crunching, punching numbers. They don't do a good job with actually doing the real calculations.
[00:08:38] Speaker C: Not in the program yet.
[00:08:39] Speaker B: Yeah. So spreadsheets and other tools are still better for that, but they are very good at the research side of it. And so for me, like I mentioned, I can just go down the list of what are the potential drawbacks of annuity and then what are the pros of it. So I wanted to take advantage of all the pros and then reduce the risks of it. As I mentioned earlier, a real important part is legacy and making sure that there's as much as possible left for my kids. And so that is always one of the things that comes up with an annuity, is that, yeah, you're going to get the Guaranteed income. But that's a principle that you're potentially going to lose. So thinking through that, though, if you address it just a little bit different way, I actually came up with a way where my kids will actually have more.
And so all this is predicated somewhat on, you know, statistics are just like the annuity companies do, is you have to know when you're going to die. Nobody knows that. So one of the things that did bother me, that was a big reason why I like the idea of an annuity, is because you don't know how long you're going to live. And you're trying to forecast and plan for the next 30 years. Maybe you need to plan for 40 years. Most financial advisors plan for you to live to be a hundred, but statistically that's just really not likely. But what if you do?
Yeah, and that's one of the big problems that the annuity solved for me is I went ahead and just targeted everything based on 90.
And what the annuity buys me there is if I do live longer than 90, then it's a definite win for me. So I really wanted to narrow it down to hard numbers. And so I looked at, if I do the traditional, let's say I go with a bond, then how much money would I have to have invested in bonds in order to get that guaranteed income that I want? And you have to invest quite a bit more in bonds, since they're only returning 3%. You have to tie that money up in your bonds. Doing the calculations with the annuity that you and I went through, I was actually going to get the equivalent of a 5.8% return, and that's almost double what a bond could return over a long period of time. Now, again, that's assuming that I live to 90.
Now, if I live longer than 90, then that actually goes up and I don't have to worry about the overall planning aspect so much. If I do happen to live to be 100, which is very possible if I look at my genetic line, most of the people in my family, they lived in their 90s. So that's obviously something that really could happen. But I also wanted to protect myself on the downside, what if I did pass away early? And that's why, because again, the different types of annuity, part of the riders that I have in there, and that's where you help me, is I have the ability to, if I were to die, say a year from now, I would get my principal back. I know not all annuities necessarily have that condition in it, but this particular one does.
[00:11:36] Speaker C: But it is something that you can just real quick, it is something you can add with the annuity, the desired remainder that you have. Right. So you get to really craft it however you want. First goal, income. Second goal, hey, what's the legacy aspect? And I think you nailed this before. There's a short window of time like in the middle somewhere where it's not that great a deal for you, but in the long run. And again, I'm going to say one more thing.
I like how you calculated the rate of return, the internal rate of return to age 90, because it's something that I think a lot of people could keep in mind. If that's your target area, that's a really good growth aspect for, let's not forget 20% of your portfolio. If that's the worst you do, that's a pretty good deal. And then if you live past 90, either you or your wife lives past 90, past that point in time, then that return goes up exponentially because that's your big money years, honestly.
[00:12:28] Speaker B: And that's a really good point. You're right. It's not just about covering me. It also covers my wife as well. So that's a really good point. So for me, it was like, it's a guaranteed income. It takes care of my core expenses. I don't have to worry about changing every five years. And is the bond market up? Is the bond market down? Do I want to buy now? Do I want to buy later? Having to, as your bonds mature, having to worry about that or again, having. I probably wouldn't do that anyway. I would have someone else doing that for me. But then there's going to be a fee associated with that. So it's going to again, further take away from already a pretty low return that you have anyway. But the other thing that kind of helped me get more comfortable with it is, you know, if I live longer, then it's a big win. You're going to make already a lot more than you would. And then on the other side of it, what about then the amount of money that you're leaving your kids? Right? Because if you take your traditional method and let's just say I put the money in bonds and I make this lower return when I pass away, then that money is still going to go to my kids. Now, on the annuity side, you're going to put the money in, you're going to get your income stream, you're going to get that 5.8% return. But when you pass away Then it's gone. That's there. That money's not there for your kids. So how do you compensate for that? The way I'm compensating for that is if I already have my income floor established and I've got my basic financial needs already met, that's guaranteed, then I can be more aggressive than I would have been.
If I would have went to say the traditional 6040 route, then 40% of that money's tied up in very low, low rate income. But because I've got the annuity A, I didn't have to put as much money in to get the same amount of return and it frees that money up to be invested in more growth oriented portfolios. So I'm not talking about risky type investments, I'm just talking about putting it in the market that over time has proven to average say 8 to 10% of a return.
[00:14:27] Speaker C: That's a really good point that you just made real quick was that you were looking at a 6040 stock to bond blend. It would have taken 40% of your assets, but you're able to do the annuity with 20%, which means it leaves 80% targeted for growth. And not necessarily the riskiest thing. But that's really hits on the main lesson of this and all the numbers that I did for you saying, hey listen, I think you're going to have more money if you do it this way, right?
[00:14:52] Speaker B: Yeah. And the numbers crunched out to do that. Now you have a very sophisticated spreadsheet that you use that takes a whole bunch of stuff into account. And you were one of the many people that I talked to. And it was, the interesting part was Fidelity actually does sell annuity. So anytime I have a financial investor that's telling me to do something and they have a product that does it, it immediately is going to send up red flags. I don't care who the vendor is. And I did some of the. Yeah, yeah. And some of the financial firms that. And we're talking about big name type firms. I won't name these particular names but it was pretty clear to me that they were going to be using products and there's got to be some back end correlation there. So.
[00:15:37] Speaker C: So of course the guy from Montana. Yeah, yeah.
[00:15:40] Speaker B: So a few red flags went up for me there but the logic was sound. I did my own research. And so then that's when I started my quest to say Fidelity. I have, I cannot really say enough good things about Fidelity. Their customer service is fantastic. Their management of the stock aspect to me is really good. And then the other part of it is I was actually torn between when I originally did it, between a very simplistic approach using like a Vanguard as an example, low fees, but very basic on how they do it. Right. They basically are just putting your money in ETFs and they're balancing your portfolio. Yes, but, but not quite as active. Whereas Fidelity, you're still getting managed portfolios. But the beauty of Fidelity is that you can go with a full on 1% fee just like you would do with any of the others. But Fidelity also has an option that is really nice where you can have what are called managed funds. And so you invest your money in say a managed fund for growth and they take care of all of the stock purchases and tax loss, harvesting all of that.
But they only charge A half a percent, not 1% if you're not getting their full on service but you still have access to an advisor, you still have access to all their internal expert. And so it worked out really well. I have a little bit more actively managed firm. They're going to be around for a while. I don't feel like I'm going to get dropped anytime soon by them. And they do have a pretty deep source of experts you can call on. And one of those, for example, was the annuity. So once I did my own homework, talked to you, you were clearly differentiated from the other people I talked to about annuities. I always felt like I was talking to a car salesman sometimes because I had talked to you fairly early on. You were very honest with me about things that are purported as being really great benefits. As an example, a lot of the annuities that are being sold are, they're giving you the sense that if you become disabled, if you have a problem, then we can double your payments for a period of time. And it sounds fantastic, right? It's oh, wow, that is really great, hey, free money. But you are very honest with me. That's really not what you think. It's, yeah, you can double it, but you're actually still pulling from your pool and it's okay. But it's not like this great thing. You were very honest about it.
[00:17:58] Speaker C: Guys will use that as the selling point. And that's the reason I tell you, because I don't want you to get 15 years down the road be mad at me because I didn't disclose something. It's not worth it.
[00:18:08] Speaker B: But then on the other side too is you are putting your money into a firm that's got to be there for 20 or 30 years. And so I was very intent on getting the best return I could. But I definitely wanted something that was high quality. Now with Fidelity, they only have three vendors that they use, and they're all super high quality. Although one of them, I believe, was an A. That's just three. So you have this whole large portfolio of people that you deal with. And I understand why Fidelity doesn't want to deal. That's not their space, per se. They do support it, but it's not what they do. Their real bread and butter is stocks and bonds. That is their core, and they're really good at it. But I have to give them credit. They are trying to expand. So, for example, I really just don't like bonds. There's just a whole lot of things I don't like about it.
[00:18:56] Speaker A: You're not alone.
[00:18:56] Speaker C: There's a lot of people that don't.
[00:18:57] Speaker B: So, yeah, but Fidelity, to their credit, they're like, look, because one of the things I was.
This is a little bit of a side topic, but it fits in diversifying your portfolio. I didn't want to have just 100% of my stuff in stocks. I did want to have a portion as well and something that's a little more stable when the markets are going up and down so that I can pull from that in addition to having the annuity. And so I was looking at private capital and I started to get pretty comfortable with it. Now you have to be, again, very careful. You have to be very selective on what funds you invest in. But Fidelity has partnered with another firm that is an expert in that. So they're very open to working with other vendors where once they reach a level of comfort. So clearly they're comfortable with annuities, and clearly they're comfortable with private equity as long as it's the right choices. I challenged them a little bit and I took your offer and I actually sent it to them. And they got on a call with me and they were really good. The person I was talking to was. Clearly knew what they were doing. They weren't trying to sell me or anything on anything. They looked at it and they said, this is a good deal. We can't match it. The difference was pretty significant in what you were able to get me for the same level of vendor. It was still an A and A plus.
[00:20:14] Speaker C: Yeah.
[00:20:15] Speaker B: Yeah. But they still couldn't. Couldn't match the numbers. And they were very honest about. They said, this is a good deal. They said, the only thing is just make sure that this is for income. It's not going to help you with growth. And I said, that's not what the intent is. The intent, it has nothing to do with growth. I've got a whole different plan for growth. This is about guaranteed income. They're like, you're good, then you know you're good.
[00:20:36] Speaker A: So, yeah, just so everybody knows exactly what he just said.
[00:20:39] Speaker C: Because you were the guy that got the Fidelity ball rolling. And that was the one when I've
[00:20:44] Speaker A: done a lot of podcasts on it, which was really strange. And this is a perfect situation in
[00:20:48] Speaker C: time because they didn't used to tell people that, Dave. They didn't used to say, hey, you could use some guaranteed income.
[00:20:55] Speaker A: They've always had it.
[00:20:56] Speaker C: But now that the numbers got it, more rates were at the time, like you identified the advantage of having a stronger income stream and an easier set and forget direct deposit, easier for whoever's taking it, all that stuff.
[00:21:10] Speaker A: But that was the beginning where your first time when you called me and
[00:21:15] Speaker C: you said, I only looked at this because Fidelity told me I should buy an income annuity. And I thought, wow, I've never heard that before.
[00:21:23] Speaker B: Yeah. And that, that's why I, like I said, I had several red flags that came up in my head, which is why I felt I had to do a really deep dive into this. Because, well, A, it is a commitment, right? You are making a very significant commitment. And it's not something that you want to just willy nilly like in the stock market, right? You invest in stock A, and it's not doing so well. Now I'll just pull out of that and I'll go into stock B, you don't want to do that. So I think anybody that's considering annuity. Yeah, you better be comfortable with it. Now the other thing that heard that you hear things, it's like when someone says something that's ridiculous, then you immediately get red flags, right? And so one of the ridiculous things I heard from one of the financial advisors that was very against annuities. So much. So that's like, why are you like getting so worked up about this? It's just a conversation. But they were saying, oh, did you know that 80% of people that get annuities end up getting out of them? And I'm like, I don't think that's right.
That's funny. And they say because they need the money. They find out something happens in their life and then they need the money. I was like, I guess maybe if someone put all their money in that, I could see that. But if you're like, in my case, I'm putting 20%. So I would hate for someone to walk away from this conversation. Oh, I should put all my money in annuity. That's not what we're talking about here. What we're saying is a compare apples to apples. Compare. You need guaranteed income, so compare it to your alternatives for guaranteed income, which is mostly is bonds. Don't compare it to a growth fund. That's not what we're talking about. Now I know some annuities have equity based annuities that grow and all that stuff. Now, I didn't do any research into those. I'm not going to say they're good or they're bad. It doesn't matter. That wasn't my focus. My focus wasn't growth. My focus was guaranteed income and being able to be more aggressive with the rest of my portfolio. Being able to protect myself if I live longer. Being able to. Which we haven't talked about yet, which is the mental side of this.
[00:23:16] Speaker C: Yeah, and that was important because I can look at this and when you came in, I thought, oh, I'm going to show him the numbers and he's got a nice portfolio and we take a little piece of it and do this and how much more you're going to have. And then sometimes I get too objective about it because you talk about those annuity salesmen, the guys that, you know, they use car salesmen there. It's all the, just the benefits, the emotional side of it, which is okay, but I need a little bit of both is all I'm saying. So go ahead.
[00:23:42] Speaker B: And you were even like, to your credit, it was funny because in this kind of gave me a little pause because even you, the annuity person is telling me, you don't have to have this, you have enough money that, you know, it's not like you're going to go broke or anything, which is true. But for me, like I said, after I did the numbers, and another thing that I'll speak favorably of, I looked at so many different tools that has to take all this stuff into effect. And for any of you that are retiring, you'll hear taxes are a big deal.
They're a big deal. It's really kind of amazing, especially when you start getting into things like required minimum distributions. It can have a huge impact on what you're doing. And there's so many complexities. You need to have a really good tool that takes everything into account. IRMAA, taxes, RMDs, all of that. And one of the tools I found that is really good at that is a tool called Bolden. And it does all of those things for you quite well. There's a couple little things that it's not quite as strong in, but overall, it really helped me get comfortable because you can do scenarios. You can say, what if the market goes down, then what happens? What if I die at this age, then what does it look like? What if I die at that age, then what does that look like? And so that's what helped me get comfortable, is crunching numbers. Now, not everybody's going to want to do that, per se, and that's where you help. Right. And that was the other thing that was nice, is that the numbers you helped me come up with matched the numbers that I came up with. So that also gave me another sense. And then I had Fidelity also do the numbers for me. And they have tools that are even a little more sophisticated than the ones that I have. And their numbers, now, they weren't like to the penny or anything, but they were definitely within range of what. So I had three different points to compare against so that I felt really comfortable. And again, I don't want to make it sound like it's all rainbows. There are some things that, like you mentioned, there's this range of ages that if I pass away in between here and here, then it may not have as good of a return.
But guess what? If I pass away in those years, that's money I'm not going to be spending that I could leave to my kids. So either either way, it's a win.
[00:25:46] Speaker C: You won't be stressed out because you don't have guaranteed income. At least it's not going to be a heart attack from stress. Yeah. Solve that part of it so there's fewer things that could take you down.
[00:25:55] Speaker B: Yeah. I think simplification is important if you're trying to juggle everything. And I tried to narrow it down, what my goal was. I wanted to actually have one firm that did everything for me. That was my goal. But unfortunately, I just really had a hard time finding firms that could do everything extremely well. It's like, I guess that's just life. So I was able to narrow it down, though. I've got Fidelity. They manage all of the growth part of my portfolio. They manage things like tax loss harvesting. They do a really good job of that. And then they give me access to their experts. So if I need an expert to talk about my heirs or I need an expert to talk about annuities or whatever, it is I can have a call with them, no cost. And they're really good now. They don't do the work. Like for my will, for example, I had to actually go get a lawyer. But they helped guide and direct me on the questions to ask and all the things that I needed to consider. It was the same thing with the annuity. They gave me a good framework of what to look for and questions to ask. And, you know, and then I found an expert, right, an expert that has a broader catalog of annuities to choose from. You, you were deeper than they were. Clearly, this is what you do every day, all day. So that's what I've learned, is I need to have an expert for taxes. So I have my CPA that does that. I need to have my gross people and general purpose, which is fidelity. And then I've got my annuity person. That's what worked for me.
[00:27:18] Speaker A: So Dave has done the research. He's compared the numbers three different ways, and he's decided to move forward with the income annuity as part of his overall plan. But here's what we haven't talked about yet.
How did he actually structure it? What percentage did he use? And how does this affect what he's leaving to his kids? The big question two years later, with the market having done well, is, does he regret it? Should he have waited? That's a big part of it, too. So we're going to cover all of that in the next section and really appreciate Dave for walking everybody through this. And I think a lot of people will recognize pieces and parts of this. Okay, so thank you for joining me on the episode on 216.
And we'll be back next week with episode number 217. Thanks a lot. Have a great day.
