Episode Transcript
[00:00:05] Speaker A: 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. You 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.
[00:00:46] Speaker B: Hello and welcome to the Annuity Straight Talk podcast, episode number 111. My name is Brian Anderson, founder and creator of Annuity StraightTalk.com. Written every word on the website. All my creation, years of research, 20 plus, to be exact. I started in February. I guess I was licensed first in early February of 2003. So pretty soon I'll be able to say 21. How about I say I'm in my 21st year? A lot of podcasts, a lot of good information for everybody who wants it, whoever can be helped by it. I encourage you to please support me by liking the podcast or commenting on YouTube or any of your favorite podcast platforms. If you want to make an appointment with me to talk about your situation, you can do so by clicking the button on the top right corner of any page on annuitystraighttalk.com. Schedule a call, pick your day, pick your time. Give me your phone number and tell me what you want to talk about. We'll get after it, and I'll take care of it.
Settle the myths, clear the air, make sure you know the path going forward. That's my job. I like to make it easy for people.
Today we're going to talk about one such case that I did recently and, like, share my screen visual aid. There's no crazy numbers here, tables. I suppose I could do that, but I'm just going to tell the story. And for anybody watching the video, you can kind of follow along. This is my visual aid for those people who ask, do you have a script? Because, man, I can't believe you can just talk like that. Well, I guess I'm a talker. I don't know. So when an annuity is critical you've heard me say it. A lot of times an annuity is just an option. And that is true. It's true in this case. But the numbers provide so much justification for using annuity in this situation. You got to do it. Maybe not with me. Whatever. You might do it with me. We haven't gotten to that point yet, but it's an easy case study not too long ago. I think we got a follow up here soon, in the next few days.
But the parameters of this match a lot of other people. Not necessarily the dollar amounts, but it's a pretty standard case.
I'll be the first to say that the numbers are easy. This is basic math. But there are only a handful of times where people made long term financial decisions based on numbers alone. It's easy for me to be objective because I don't have an emotional attachment to all the work that you put in to get to where you are today.
And I think that's a benefit to you to say someone's just going to give you break it down to the numbers.
But I understand that subjective variables play a huge part in that as well. And that's emotional between you. Maybe single couples, it's just you for married couples, you and spouse, you got to get on the same page, all those kinds of things. And I just understand that. That's why I try to take my time. That's why I'm not pushy. That's why this is one of the best ways for me to communicate, because you guys can consume it if you want, you can watch it if you want. You can delete the emails. You don't have to go look at it. But for those that are interested, it's here and it's a good resource. So the couple I'm going to talk about today, we're not going to go in dark and dirty into the numbers.
Mid 60s, they're separated by a few years.
Right now, they've got 100% of their assets, about 700,000 in the stock market, managed by a large national investment firm that everybody's heard of. I may or may not have talked about this firm in the past. Mentioning them by name is not important to this. They're paying about 1.25% in management fees annually, and they want to be able to draw. What they're doing now? Continue drawing 40,000 annually for retirement income. That's what they're doing now. They need immediate income. So it goes without saying that's an extremely risky position given where the stock market is right now, what's going on in the world, whether you have an annuity or not. I think you're crazy to be 100% in the stock market.
I know a lot of people, and obviously I'm in the annuity business. I'm in the safe money business. Annuities and alternative investments that are safe are as safe. Nothing's as safe, in my opinion, but that's up to you anyhow. But I think it's a tough time to be in the market.
Their likelihood of running out of money before they're done stands at about a 50% chance, depending on what model you look at.
50 50 deal. That's the first choice you got to make between the income draw and the fees. Their portfolio is being drained of about 7% of the value every year.
Now, if they were ten years older, this might be okay, but they're not. You got to look at some different options. So the goal, they said, well, we just don't want to run out of money, maintain the lifestyle. We're comfortable. Everything we have or we need is great. And if we can, we'd like to leave something to our heirs. The legacy is not an imperative request, but something they want if possible. They are very concerned with stock market risk and just like throwing up their hands I don't want to do it anymore because you're on pins and needles. You're watching it, especially in the past two years. It's up, it's down, it's flat.
There's been very little benefit for the majority of people investing in that in the last couple of years. And even if you had an index annuity that didn't move a whole lot either, at least you still have the money and you didn't have to worry about that. So I always think that's interesting. It's like you got an index annuity. Well, it hasn't grown a whole lot. Yeah, but you didn't have to worry about it. So your biggest gripe is you didn't make money, but you never to sit here last year when the market's off 2020 5% and worry about, hey, when am I going to get that back?
It's very interesting to me that an investment manager can in good conscience take a risk averse investor and have 100% of their portfolio and risk assets. But if the investment manager is limited to only doing that, they're going to show you the models and say, you got a 50% chance success rate. We're buy and hold all that stuff. In the long run, it'll be okay. But in the 50% chance that it doesn't work out, they're going to have to reduce spending or just run out of money. So we're trying to guarantee that doesn't happen. Right? Guarantee it. And if you don't understand that and that's not important to you, then you're probably listening to this for other reasons. If I did the same thing on the conservative side 100% now some people choose to do that. I'm going to show you doing that, but I'll explain the purpose of that in a bit. Those investment managers would surely have something to say about it. Oh, you can't do that. So why that guy doesn't get a slap on the wrist at the very least, I do not know. Because nothing about that position is prudent, suitable, or in the client's best interest. So let's see if an annuity can make things better. So recently I've been doing something I call an all or nothing exercise with people. It's not anything that results in a solid recommendation. So I'm not saying this is what you do, but it's a good way to compare several options. So if you take all or nothing, say, stock market annuity, income annuity, fixed annuity, and you do all that stuff individually, let's put it all into the market and see what happens. We come up with a 50 50, right, all in an income annuity. Right. Then we got a certain percentage of success, and you see all of those perform individually. Then you can come to the end of that and pick and choose the levels of participation you want in each of those asset classes. Okay? I think it works really well because you can spend a little bit of time focusing on one thing rather than seeing them all blended together and wondering, well, why is there 250 here, 250 there, and 200 in this spot?
Because your mind gets tangled up trying to see all three at once. You're better off looking at one of them at a time and then coming back around and deciding how much of each you want to blend into the equation, right? So almost everybody else is going to show you the blended deal. And there's so much going on that it takes time to pick it apart.
I give you three double space pages, one for each of the three options. And you can say, oh, I like this about this, I like this about that one. And the third one. Yeah, that one's okay too. So it's very complex to do it blended to begin with because the average person doesn't have a detailed understanding of each of the options. And you can learn a little bit more doing it this way. The first option, of course, we had to look at what they could do, they could expect by leaving things as they are.
Withdrawals and fees, along with market volatility, make for an unexpected outcome.
The numbers bear that out. Don't care what period you look at, unless you look at the high inflationary period advances. The bottom fell out of that in 2000, but you got to go back 43 years to start that perfect period. And that's just a little that's wishing for the best case scenario. I guess you could do it if you want.
So the worst 20 year period in the market showed them penniless after 16 years. No income, no money left over. All right. And the last 20 years, which is a pretty favorable market scenario, there are only three negative years in there.
Show them getting through 20 years. Now they're 85, and they only got 100,000 left. Life continues past age 85. The income is difficult to generate off to 100,000, and in my opinion, either of those is unacceptable. Second, we looked at guaranteed lifetime income because that's their major concern. That would take care of all of it. And they never ever again have to worry about meeting a standard of living. Somebody questioned this, and I will do a podcast on it. But people with guaranteed income live longer, reduce the stress, don't have to worry about it.
I do believe stress takes years off your life. And it's out there. There's studies been done to prove it. I will pull it up, and I'm going to do a podcast on that specifically. And that's a great idea. For sometime down the road, I knew they had enough money to make it work based on payout rates. Again, when I see something, I know where the ballpark is going to be. And it was true. It was about 600,000 would produce $40,000 annual income for the rest of as long as either one of them is alive. So a joint life payment that leaves only 100,000 for future planning opportunities and potential legacy.
Now, there's some people that might decide to do this, but I'm never going to push hard on something like it just depends. It's all down to personal preference.
If even one of them lives to the age of 90, they'd get a total of 1 million in payments.
So it's not bad, but it's a special set of parameters for this to be a desirable path for people. I already know that just because of hundreds and hundreds of times I've done it, that's going to take most of your money. But I'm not saying he won't do it.
The last thing we looked at was using a fixed annuity or a Mica with a guaranteed rate for ten years.
Now, you can get up to 6% guaranteed on a deal like that. So the interest alone would provide the income without ever touching the principal. In ten years, they'd have more money than they have today and could expect much higher available payouts from an income contract if they decided to switch strategies. Now, the 6% is a B plus company that you guys have heard me say it a lot. I do not particularly recommend those. Last week did an episode on choosing the best fixed annuity. I talked about AA Plus companies being right. This is a company I have done business with in a couple instances in the past.
I don't have a problem with it. But for them to maintain their principal balance and have all the income they need, they need about five and a quarter to 5.3%.
So we don't have to go with the B plus. You can go with the A plus company, peel a little bit of the rate off just to make sure you're safe as possible, but they'd never touch the principal. They'd be ten years down the road. They'd have the money still there. They'd be further down the actuarial scale. They'd have higher income payments available, meaning that guaranteed income would cost them less to procure. It's going to take less money. It wouldn't take $600,000. And even if rates are a little bit lower than they are, even half of what they are now, the payout rates for mid 70s are very healthy. That's always been one of like the tipping points where the rates just shoot up. Okay, so I think there's reasonable assurance that that is a good idea. So if you remember, the previous withdrawals and management fees were nearly 7%. And given the potential for market volatility, it will be hard for the market investments to match this either. Annuity solution is far superior. In my opinion. If your primary goal is to make sure you never run out of money, that's what they're built for the income, annuity provides a lifetime guarantee and the remaining assets. Remember that 100,000 that was left over would grow to 200 or 300,000 over the 20 years, using the same market performance as we did with just leaving it in the market.
It's a representation of what could happen that's based on actual historic numbers. But that's a good range, 20 year period. You're talking 6% to get to 300,000. That's not aggressive by any means. That scenario is actually pretty good when you think about two or $300,000 remainder, because they'd have two or $300,000 at age 85 and still be getting $40,000 a year for every year they live. The fixed annuity would give them the most flexibility and with the guarantee and no volatility or fees, keep them in control of all the assets over time.
And the only risk being where rates will be in ten years when they have to reinvest the money and if they go to an income product at that time. I just explained to you why I think that's probably going to be okay if that's what they decide to do. And if they have an increased principal balance, it may be a risk worth taking. And I think it probably is if that's something they feel suits them. So there's the all or nothing analysis.
It does not need to go in only one direction. In our first couple of conversations, I think we started with saying, well, let's go half whatever annuity strategy you like, and that's a great place to start. Whatever annuity strategy you like, do half and then see where everything goes. You can cover half your income. You've still got some upside potential in the market.
But we know we have two ways to guarantee the result is a pretty nice thing. We know we have that. Now some joker is going to ask me to, oh, what about inflation?
And of course, that only depends on how much money remains under their control. That is, the only way you can beat inflation is to have control of your money. Put it to work in inflationary scenarios. We've had monster inflation for the past two years and the stock market has gone nowhere. So you can't say the stock market is going to offset inflation. Historically it does, but we don't know that.
So the fixed annuity, keeping your principal intact and control over the assets, that's probably your best inflation play.
The income contract is probably the next best because you're guaranteeing something, but you've got a little bit of growth. You can adjust your planning strategies over time and spend more money. The stock market is not guaranteed to provide an inflation hedge. It's one of those things listed as a good inflation hedge. But you got to cover your basics first. The point of this is, say, if they're concerned, hey, we don't ever want to run out of money, they can take assurance of a positive result in two of the three strategies.
And it stands to reason that you'd want to use an annuity. In that case, you want to talk about CDs or bonds or any of the other little catchy things the investment managers, oh, just do this. Build a bond ladder with bond ladders. One person I talked to, oh, I got half my money in annuities and half my safe money in annuities and the other half in bonds.
And the annuities are like five to seven years, maybe ten, and the bonds are strung out laddered for 1718 years. That's not liquid. So this is an example of where I would consider an annuity to be a critical component of this retirement plan. And it's going to increase the probability of success for these guys to whatever extent they want to do it.
That's all I got to say on the subject, explained it. You got any questions, please reach out to me.
Comment on the YouTube channel or in your favorite podcast platform. Send it to your friends. Send it to people who like to see this, want to know about it. Send it to your dang CPA, I don't care. Send it to your investment manager. See if he agrees with it. If I'm lucky, he'll call and challenge me. I would love it. So because of their desire to reduce risk, then I would say it is critical. Love what I do.
Great opportunity. So yes, please share it with people. Comment or subscribe.
You can make an appointment with me by clicking the top right corner of any page on annuitystratalk.com schedule a call button. My name is Brian Anderson. I appreciate you joining me for episode 111. I will be back next week with episode 112. I've already got it written. It's a good one and I'm going to try to not get too fired up, but some people like it, some people don't, but that's my plan. I'm going to speak from the heart. This is Straight Talk and that's all I'm going to do. So you guys have a great week and I will talk to you soon. Okay? Bye.
[00:17:57] Speaker A: You have been listening to Annuity Straight talk.
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