Episode Transcript
Speaker 1 00:00:05 This is annuity straight talk since 2008. Your host Bryan Anderson has helped clients nationwide navigate the complex market for annuities with Bryan's assistance. Hundreds of clients have achieved a profitable and secure retirement. I would know because Bryan has answered many of my questions concerning annuities and retirement planning so that you can benefit as well. Let's get started. Here's Bryan
Speaker 2 00:00:49 So if you've got an, an annuity that you've had for a while, whether you've used it or not, that's a variable or any other type of annuity, but you want to look at different objectives or different planning changes. Then give us a call. So it's annuity straight talk.com. There's a schedule, a call button. It's a green button on the top of any page. We're in the middle of a website redesign right now. So hopefully it's going to be a lot. We're going to get a product that's a lot more interactive, help people find what they're looking for. And I'll be happy to introduce that when it comes out. So you can also give a call at (800) 438-5121 that rings straight to my cell phone. That's the best way to get me if I can't answer, I won't. So call 24 hours a day. If I'm sleeping the ringers off in the middle of the night, I have had a couple of those phone calls.
Speaker 2 00:01:29 So I think sometimes people just test it. Does this number really work? It does. And you'll get me right here. So anyway, so we're going to talk about all variable annuities, because I've had a lot of cases. And I think this year in particular, the market running up really well caused a lot of people to rethink what they're doing. And obviously with variable annuities, the basic contracts are fairly simple, but they can seem really complex when you get into all the different mutual fund options. You've got mortality and expense fees. You've got income riders, you've got death benefits, a variable annuity can go, I don't know, 200 pages or so. And anybody would be hard-pressed I guess, raise your hand. If you've ever read an entire variable annuity contract. I have, it's not that fun, but I had to learn somehow. So what I want to talk, I'll show you real quick, the newsletter.
Speaker 2 00:02:21 So I'm going to share my screen, give you a bit of a visual aid. There's nothing. I didn't do a great job with the PowerPoint, but I've got a couple of slides. I'm going to show you just to give you a visual aid. So if anybody's listening to this on the podcast, you can go to YouTube. You can just search annuity straight talk and you'll get the video as well. So you see me sitting here and my nice little cabin on Flathead lake, and you'll get to look at the newsletter, the pod, or the, the slides and all that. Just if you want a little bit of a visual aid. So, and also via the podcast or on YouTube, you can subscribe to it. If you want to get a notification, as soon as the new episodes come out. So if you like the content and you want more than that's where you can get it.
Speaker 2 00:03:03 So anyhow, so you see right now on the screen, this is the newsletter that went out on October 2nd. So that was actually went on a third. That was Sunday. I wrote it Saturday because I've been busy lately. So again, we're talking about people getting, seeing the high fees in a contract plus realizing there's market volatility. And if objectives have changed, then it might be a good time to eliminate either market volatility or the fees. So I'm going to look at three different case studies. And this is where we'll look at these. And again, I got a couple of comments on the newsletter for people that maybe I wouldn't say challenge, but I guess a, you know, a respectful disagreement with what I was saying. And again, each of these cases, this is just the variable annuity within a portfolio and an overall retirement plan. So I'm not doing each one of these could be a substantial case study, but I didn't use names.
Speaker 2 00:04:02 I just use basic figures because I didn't want to ask just for this. I didn't want to, I don't typically like to put people's case studies on there, unless they say, Hey, this would be really cool. And I've had the times pass. It literally has been someone. When I put a case study out there, it's literally been someone who says this is really cool. And I think this would help other people. You have my permission to do it, but in this case I didn't notify anyone, but it's just some general examples of how the annuity fits in the overall plan, but it is not a full blown case study in all the details we go through. I don't really talk about taxation too much, although that's a big consideration. So let me take you to the slides instead of trying to read through this here, and let's see if I can get it to work present.
Speaker 2 00:04:49 There we go. Okay. So what should you do with an old variable annuity? Again, highly appreciated asset changing objectives, maybe some high fees that you don't really like. So let's look at these one at a time and starting with case study. Number one, this is a nice couple. I met a few months ago, the husband's 80 and the wife is 75. Their annual income needs amount to about 6% of their total portfolio of all the assets they have. Their income needs are about 6% of that. And that's considered, you know, for a 60 or 65 year old couple, that's not typically sustainable, but usually you can sustain a 6% withdrawal rate past the age of 70. And again, it's going to depend on each individual person. So in this case, these guys had a highly appreciated variable annuity. It was non-qualified, which means they purchase it with after tax money.
Speaker 2 00:05:42 So qualified will be pre-tax money like an IRA and annuities can be purchased with either type of funds. And so, so taxes come into, into play here. So I think what they put in, they started with around $200,000 and it grew over years to 472. So that growth in there would be taxable. And so if they took a withdrawal, the interest comes first. So that's where we can get into a lot more details about this case and talk about why I recommended what it did. So the guaranteed this contract had a guaranteed lifetime withdrawal benefit. And when they told me what to pay, I was surprised, but they showed me the documents and it is in fact it's a pretty weak withdrawal benefit. Typically something that has been in existence for, I think in this contract, in the case of this contract, maybe 12, 15 years, it should be quite a bit higher than $20,000 per year, but that's what the guaranteed lifetime withdrawal benefit with me.
Speaker 2 00:06:32 So I immediately identify that as not being sufficient. So if that's all they could get, that's about 4% of their assets, right? It's a little over 4%, but they need 6%. So if any part of their portfolio is not doing 6% or better, then we need to evaluate different options because we've got to get that withdrawal rate higher. Okay. The reason is because now this couple has all of their assets in the market and at those ages, that can be fairly risky. So they need a guarantee of some sort and the guarantee of 6% or more than a payout rate, we'll take pressure off of the investment performance required to meet the needs for the rest of the portfolio. So if you could find a product with a six and a half, 7% payout rate, then this contract would overproduce what was needed with respect to the overall portfolio.
Speaker 2 00:07:23 And it would take a lot of pressure off of the other investments. So a lot of people don't understand and these guys didn't even know they could do it. As I said, why don't you annuitize the cash value? So a guaranteed lifetime withdrawal benefit is what they have, which means the 4 72 they'd subtract fees. They'd subtract the 20,000. And then obviously there'd be the ups and downs of the market also, but you'd have that residual value. So you've got control of the asset with the residual value, where if you annuitize it, you're just commuting the payment for the highest level of income you could get. And based on their ages, they could get a little over $30,000 a year. So just by knowing that that exists in the contract, I told them that, and I said, call the company and see what you get if you annuitize it.
Speaker 2 00:08:05 Because the first thing we'll always do is when you're talking about switching annuities, you know, a lot of people don't want to get into a new surrender schedule. We got to try to look at all the different ways we can use the contract in this situation with a fees, there's a fixed account in variable annuities. You might be able eliminate risk there. That was something somebody had pointed out. Uh, but then there's a taxation issue as well. So I'm just going to go into the basic solution. But I figured that if you get 30,000 POWs at 27,000, that's a 50% increase. That's also greater than 6% of their portfolio. Now at 80 and 75 what's life expectancy, 10 years, 12 years, something like that, one person pointed out. They're not going to get all their money out of it if they annuitize a for a long time period.
Speaker 2 00:08:49 But the reason I say that for this couple is because they both have serious longevity in their families. They're very healthy and very active at their age. And I always say this when I talked to them, they sound like your average, 55, 60 year old. So I think eighties, the new 60, something like that, 42. So 40 is the new 30. That's just me not wanting to get old any older than I already am, but be that as it may. So for these guys, they completely expect for the wife to live maybe into mid nineties, even longer. And so they want to plan for that 20 year period. They've got no legacy requests. So the importance of getting a guarantee in the plan is critical. And so that's why I said the best thing for them to do would probably be to annuitize this asset. Now we also looked at some alternatives with deferred growth index annuity.
Speaker 2 00:09:38 I've talked about the flex strategy, flexible premiums, but then they've got to switch to a new annuity and they don't necessarily want to do that. Then not a lot of people do because whether it works or not, the surrender schedule might not be a big deal, but it's still an emotional leap. And it's a mental block for a lot of people. So I've got to understand that and say, here's the way to do this. It's about 40% of the portfolio. Get some good guarantee, a solid guarantee in there, run with that. Then it's going to take a lot of risk off the rest of your portfolio. So that's case study. Number one, these guys should keep the annuity, but do something a little bit different than they had planned to do with it. Case study number two, this is a gentleman that I've my founding business partner.
Speaker 2 00:10:16 And I worked with him on a few different parts of his plan over the past, call it maybe nine, 10 years. And so he's been a frequent reader of the newsletter and he called and he said, man, this is the case. A lot of clients or people I met with, they come out and they say, well, I've got this asset that you never knew about it. So I feel like I know a fair bit about his plan, but he, I never knew that he had this giant variable annuity that he was taking it from. So this one's in an IRA. So he used an IRA to purchase it. And it's a single life payment. His wife is nine years younger. So he's been taking income for about 10 years if you bought it with $600,000 and he's currently receiving income for his lifetime about $44,000 per year.
Speaker 2 00:10:58 So the interesting thing, and I forgot to put it in the sheet is that the current value is 612,000. So he hasn't even invaded principle with fees. And with market performance has been taking income. And I think he's taken about 350,000 in income out of this over the past eight or 10 years, however long it's been. But he's currently at 44,000 per year. So when I say which, so it's re it's done really well. He has the freedom. He's got the full value. He's not losing anything by changing strategies, but is that important? The reason he'd want the variable annuity. There might be a residual. His wife is younger, but when I say we've worked together, that's a lot of stuff we did is we made sure that his wife had income. That would start when he's not around. If he passes away before she does, that is taken care of.
Speaker 2 00:11:42 So we, he's also done legacy stuff for his kids. He's got other investment accounts. This man has done very well. He's a sharp guy. So he doesn't see the asset. Well, I don't really need legacy all this stuff, right? So we're not trying to solve any other problems. He's you're saying, is this the right thing to do? So market risk is not an issue. And the thing about it, it's an IRA. So he's got to take required minimum distributions anyway. And the interesting thing is, is that on the current value of 600, 12,000, his required distribution will be 36,000 per year, but this is paying right here. It's paying 44,000 a year. So if you've got again, so it's meeting the 36 requirement from this account, but it's also providing an $8,000 offset on another account. And so that is actually doing them a really great service because it's going to take pressure off the requirement to withdraw assets from another part of a different IRA account.
Speaker 2 00:12:34 So I look at this, I see it is absolutely zero benefit. He's got everything. He wants everything he needs. He's getting good, healthy income. The fees on this contract are not that high, but so he look at it and say, Hey, keep it. So there's no benefit for him. This guy is going to stick with it and not change a thing. All right. So we got one where they should change objective within the same contract. This guy should just keep it, forget about it. I appreciate the opportunity to evaluate it, but nothing that he's going to benefit from elsewhere. So case study number three, this is an interesting case from a guy that I've been talking to for several years. We've never done business and he's in his mid seventies and he's got a non-qualified variable annuity again, non-qualified it was after tax money. So he wrote a check for it.
Speaker 2 00:13:17 And I think he's owned it for 25 years, not too many details, but he's had substantial appreciation of the asset. This is just, he doesn't have a guaranteed income rider on it. So fees are a bit more manageable and he doesn't have a need for income. That's all covered. He's got assets everywhere. And he just figures, he's going to leave this money to his heirs. But his concern for doing this is saying, well, all my assets are in the market. And like I said, if I'd known him for several years, he had a good asset base when I met him seven, eight years ago. And it's more than doubled since then. So he's got a bunch of money sitting around and he's in a very healthy position. So, but he's looking at the saying, well, I've done well because I'm in the market, but should I reduce risk at all?
Speaker 2 00:14:01 And if this money's just going to my wife or my kids then is this a place where I can make a change and probably balance a portfolio? So in this case, I think absolutely yes, he could. So with the fees or with a variable annuity, unless he goes into the fixed rate, so variable annuities have a fixed rate in the contract. So that's an option. So you look at what the fixed rate is. And in some cases, the old contracts that might be 3%, maybe 4%. So that's an option, but I won't, I don't know until we call the company. Now what's the fixed rate option. Some of them are only 1% or even lower. So then, you know, that's not really a viable alternative, but again, the idea being, should he eliminate market risk? And I think this is the exact, the perfect opportunity and because it's highly appreciated, it's non-qualified so let's say, I think it's about 80% of the value is in a gain.
Speaker 2 00:14:51 So that means it's a $700,000 annuity. If he pulls it out of the annuity and invest it somewhere else, he's going to have to pay taxes on more than $500,000. That's why my math is just an example. So what he can do is he, the best thing for him to do would be transfer it to another annuity, other, a fixed annuity with a good guaranteed rate that he was happy with, or an index annuity, if you wanted more upside in the contract, but those are going to limit eliminate fees, eliminate market risk. And he's going to be able to do a tax-free transfer so that those taxes continue to be deferred. So this is an interesting case where he can eliminate fees, limited market risk, and also balances overall portfolio better because of the tax situation. The annuity is the only thing that makes sense.
Speaker 2 00:15:33 So if he were to balance the portfolio with an annuity, then this is the place to do it because he's got all the upsides to doing that. So that's basically the, you know, number three case study. And so essentially all we're talking about the income goals, taxation, risk tolerance, legacy wishes, everything is factored in. If you decide whether you keep an annuity you've owned for awhile. So if your objectives have changed, it might be worthwhile to evaluate that. So in one situation we saw a couple who needed to use the contract in a different way, another contract, where the guy should keep it stay right where he's at. Don't complicate his plan at 81 years old, don't complicate it with a big stack of paperwork and a new contract. And finally, an instance where it was fairly obvious. The guy had a lot of upsides, a lot of benefits to creating or getting a different contract and changing strategy.
Speaker 2 00:16:19 So that is about essentially what we're looking at here. And I appreciate everybody's time. And if anybody has any questions, so it's interesting, a lot of people are nervous to call or nervous to reach out and think I'm trying to sell something. But I don't think I'm going to sell an annuity. Any of these cases may be in the last one, but again, he doesn't have a need for money. Maybe his objective, maybe he's going to keep his objectives currently. But a lot of these cases where I'm just trying to find the exact reasons for making a change, whether you want to do it or not again. So if you want to give me a call, these are three of probably 30 different cases I've looked at. I think in 30 cases of variable annuities, I've seen this year, there were two where I thought, I think you'd be better off switching to another spot.
Speaker 2 00:17:04 So I picked three. I could have done a whole bunch more and it's, uh, interesting to see what holds people back. But again, annuity straight talk.com. There's a green schedule, a call button. I'm not going to bite. I'm happy to help you. You can get ahold of me anytime you can call 804 3 8 5 1 2 1. And this has been a little bit about what you should do with an old variable annuity. Always analyze, always be able to change. That's what annuity straight talk does we tell the truth? We'll shoot you straight. And we're just trying to help people make good decisions for retirement. So check in with us next time for episode 17, got another topic on board for that. And if you need something, just reach out and give me a call. Don't forget to subscribe to the YouTube channel or the podcast. If you want to be notified directly when a new episode comes out. So thank you very much and everybody have a great day. Okay, bye <inaudible>.
Speaker 1 00:18:01 You've been listening to annuity straight talk. The preceding 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 nerdy straight talk or no information presented today should be acted upon without meeting with a licensed profession. It is important that you read all insurance contract disclosures carefully before making the purchase decision guarantees are based on the financial strength and claims paying ability.
Speaker 3 00:18:49 Uh, showcase G is an investment advisor representative of insight, folios an sec, registered investment advisor. The firm only transacts business in states where it is no spiraled or is excluded or exempted from notice filing requirements. Any fee-based financial planning and investment advisory services are offered through his association with insight folios top wedding LLC is not a registered investment advisor and is not another name under which insight folios provide services. Insurance products and services only are offered through top planning, LLC insight, folios Inc, and top planning LLC are not affiliated companies.
