Episode Transcript
[00:00:00] Hello and welcome everybody to the Annuity Straight Talk podcast, episode number 224. My name is Brian Anderson, founder and creator of AnnuityStraightTalk.com Been doing this for a long time. If you'd like to chat with me personally, you can schedule a call by clicking on the top right corner of any page on annuitystraighttalk.com please like subscribe or comment on any of your favorite podcast platforms or on YouTube. Let me know. Share it with your friends, see what they think, get a different perspective. Come back to me with your comments. I always love it. So going to talk about something that I cover to and a half or two ago, but had a case study where it popped up again.
[00:00:36] Really good lesson as far as like evaluating income products. If you're going to go that direction. Let me share my screen and I'm going to talk about trading maximum income for Legacy now. I got back from a nice trip to Arizona about two weeks ago, spent about five weeks there. I got the chance to meet up with several people in person. It was awesome.
[00:00:59] Ride my mountain bike in the desert, get some sunshine, exercise a bunch. Yeah, really good friends down there. I like my time in Arizona. So one of the guys is named Joe, and I met him three years ago during my first desert trip in the winter.
[00:01:12] He was a little younger then and he was pretty new to evaluating annuities. He'd been to a seminar at the time. I had to kind of talk him out of something, which wasn't hard because he knew there was something up with that one.
[00:01:22] We made some good headway. He was a great guy. We had a good time hanging out. Now he's had all the time to think about it and retirement is a few years closer.
[00:01:31] So on my way home we met for coffee and talked about what has now become kind of a more specific objective. He has a better idea what he wants. He has more or less decided to peel off some of his assets, buy a guaranteed lifetime income contract, avoid volatility that might change his lifestyle and let the rest of the assets grow over time. I think that sounds like a pretty good idea. He also works with Fidelity. They manage a lot of his money, the 401k for his business and all that stuff. They got the first crack at this. No problem with that. They're always going to put up some good companies. And this is where the lesson is now from an income standpoint, I can almost always beat what they offer, but it doesn't really matter. I can sell the same things they have, but they choose not to sell all the things that I have. I think that's going to change in the future. But big corporations tend to move kind of slow. I like to show both sides so you can really find the best deal. That's really all I care about.
[00:02:25] Fidelity options are different in other ways and that's what we're going to highlight today. Fortunately, you can look at both right on my website without having to talk to anyone. Unless you want to buy it, you got to use an agent. So I'm going to take you through the quote calculators on the website. There's a couple of changes that are valuable, but this is a good lesson for anybody who wants to look at it. Now, Fidelity only sells single premium immediate annuities and deferred income annuities. For all intents and purposes, they are one in the same product and only differ in the timing of payments.
[00:02:57] For simplicity's sake, we will call them all SPIAs. Now, I sell those when it's the right deal. But there are times when a guaranteed lifetime withdrawal benefit is a much better option for immediate payments. It's a toss up. If both of them are starting right away, they're usually pretty close and one or the other will pay more income. But if you defer income for more than a year, the gap begins to widen in favor of glwbs.
[00:03:23] You can get additional guarantees on ASPIA that make it a better addition to legacy. And some people might take less income because of that. One of my clients that I worked with for a long time took substantially less monthly income with ASPIA because it was guaranteed to pay at least 20 years. It's called a period certain and it covers your heirs if your life does not exceed that term. Life with period certain covers for your lifetime or 20 years.
[00:03:51] And you can get different periods certain. But in this case, 20 years life or 20 years, whichever is longer. Real hard for people to understand. Is your life longer or is 20 years longer? So if you die in 15, five years of payments, go to your heirs to make it 20. If you live to 23, it just pays to 23 because your life is over.
[00:04:09] Now in that case, this guy wasn't going to start income until he was 73 years old and he had already survived cancer.
[00:04:16] He was using the money as a living inheritance so he can gift it to his kids and watch them build a life with it. That was a sole reason for buying the contract. And if that's the case, it makes all the sense in the world to get a payment stream that keeps going if he doesn't live to 93 years old. Now, GLWBs on variable annuities or index annuities have a cash value component to the contract. It's going to grow some over time, but it drains quickly with excessively high payments.
[00:04:45] We have high interest rates. We have strong payment streams. That's going to drain the account. If the contract value goes to zero, the guarantee kicks in and you keep getting payments until your life is over.
[00:04:56] Whatever is left in the account pays out to your heirs when you pass. But after about 14 years, there isn't anything there. No matter what anyone tells you. You can project things, but it's not guaranteed.
[00:05:08] You're going to see. I've got it all set up. But this is as simple as it is one million bucks. You're easy numbers. I don't think that's what he's going to do. I don't know what he's going to do. But it's easy to get percentages that way. So this is just right side FIA Income quote. That's your GLWB or the SPIA income quote wants to put in a million bucks. Income starts after four years. Payment type life with 20 years certain. That's the change we made. We had life only before because we get you in the ballpark. But this will guarantee for 20 years of payments. 20 years from when the payments start, not from when the contract starts, because it's deferred four years. So it'll actually take them out to 24. Four years. Next step is we're going to put their information in. That's what you do. We got Mr. And Mrs. Arizona. We also changed. We had date of birth. These are going to be. It's going to be off on the spa a little bit because those are going to go specifically to the day you're born. We felt this was a lot easier for people to just get an idea of where you're at. And then obviously, hey, this is the direction we want to go. The numbers will adjust just a little bit.
[00:06:09] 59, 58 for those guys. Okay, let's see what the calculator comes up with. This comes straight from the Annuity Engine, the database that runs all the insurance companies. So this is to the minute accurate as of the day. I'm recording this. Tomorrow, it could be different. Okay, for this, in four years, when he's 63 and his wife is 62, he will get $82,038 per year with 20 years guaranteed. If they both don't live that long. Now, that is a guaranteed payout of $1,640,000. If he lives longer than that, it's going to pay more. But there will be nothing left for heirs after 20 years worth of payments. This is all you got to do. Now, once you get into this, I'm going to hit that calculator and do an FIA income quote. Maybe we'll change that to GLWB and it's going to keep your information loaded. Okay? Income starts after four years. Million bucks, Mr. And Mrs. Arizona.
[00:07:05] And we're going to submit and we're going to see what the GLWBs would pay. These are my selected companies with good credit quality. Things that I would have no problem recommending to anyone searching for it.
[00:07:18] Same deal. We've got American General paying 89, 110. That's AIG. American General is a rated AIG solid. But if we want to stay a plus, apples to apples on the credit quality versus New York Life Guardian, the top companies in the SPIA, we're going to get 88,431. With North American, that's $6,000 difference. Everybody can do the same thing. For your own numbers on here, and if you say, hey, that works, then you give us a call or get on the calendar, top right corner of any page on annuitystraight.com ce schedule a call. I'm going to go back to what I wrote.
[00:07:54] The 20 years certain with the SPIA, 1,640,000. With the GLWB, North American will pay over 88,000 per year with the cash value remainder going to his heirs after age 75 or so. There won't be anything left for his family if they both die early, a reasonable assumption in the worst case scenario, if he dies really early, what would his family get back? I'd say about 1.2 million. So there's a gap of 440,000. There's. But there's another way to look at this as well because you have to factor in the higher payment streams. In order for it to match the total minimum guarantee from New York Life, he would need to collect the higher payment for about 18 and a half years.
[00:08:35] If he or his wife live past the age of 81 or 80 respectively, then he's head of the game in both areas.
[00:08:42] That's how long it takes for the North American annuity to pay out more than $1.6 million. Now, again, 6,000 bucks per year, it's about 8% increase in the income stream. Give up a little hey, we never know what's going to happen. What, 6,000 bucks a year, no big deal. It's 500 bucks a month. More for some people than others, I suppose.
[00:09:02] But that's the question, right? Do you think you're going to live to 81.80? If you do, you're going to win on the, you know, on the annuity. It's going to be a much better rate of return. If you die early, the spia will be a better return. So that's it.
[00:09:14] Apples to apples, Honest comparison. Best I can do. And nobody else is doing this. All right, now there's one more thing to consider. If you're truly going to compare the two. When do you want income payments to start? With a spia, you have to lock the payment start date when you buy the contract. If your plans change, then tough luck because it's going to start coming.
[00:09:33] With a glwb, you don't elect income until you decide to take it, making it easy to start earlier or later than planned. We project and we can tell you what the guarantee is in three years, four years, five years, six years. But you don't start that until.
[00:09:47] If you're going to take income in four years and about two weeks before you want income to start, you submit the forms and you get it going. That's really easy. Now, there's one SPIA DIA combo that I know of where it'll allow you to change it once. Not all of them do, but some if it's important to have that flexibility, everybody, like the podcast with my client Dave, who, you know, talked about his plan and he is already two years into it, was going to defer six, now wants to go 10 so he can do some Roth conversions.
[00:10:16] No big deal, because then we'll just wait four more years to submit the paperwork, doesn't matter. And then if that changes again, he can move it up, move it back. It can be eight, it can be five, doesn't matter. Nobody's asking questions right now. If that's important to have that flexibility of when it starts, then make sure you ask the questions and you make sure. If you're going to go a speed deal, then go get the one that will let you change it at least once. Right now, in most cases we're dealing with people looking to maximize income or get the desired income stream for the lowest cost. In this one, if he goes with North American, he could conceivably spend, you know, 929, 30 to get a matching payment stream. You could save money that way. And then you could factor that into legacy because it's more money in your portfolio growing and all that stuff.
[00:11:00] But that's up to you. Different ways of looking at it, right? Others if you want to blend of benefits and that's perfectly fine so long as they understand the trade off for doing it. I'm not telling you to do one or the other. I want you to understand both sides. Nothing comes for free. My only goal is to make sure that everyone gets exactly what they want. If you want to see both sides of it and get an honest comparison, then get on my calendar. We'll take good care of you. And do it right the first time because there is no second chance. All right, guys, thank you so much for joining me. Like subscribe or comment on any of your favorite podcast platforms or on YouTube. Schedule a call top right corner of any page on annuitystraight talk.com if you want to talk to us. We are here to help and we'll figure it out and do it right the first time. You guys have a great day. I'll see you next week for episode 225. All right, bye.
