Episode Transcript
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 00:00:49 Hello and welcome everyone to the annuity straight talk podcast, episode number 31. My name is Brian Anderson, founder and creator of annuity straight talk, looking forward to doing a solo episode. This one just hit me this morning. I'm going to show you guys a case that I presented earlier. So here we are with, uh, you know, episode number 31. Why not an annuity? And again, I was going to record something else today. I need to get out. It's going to be released on February 24th is when you'll get this. But I had a nice meeting with a couple from Florida this morning, and I thought, you know what? This is something I've kind of showed people in the past, but it's a different perspective on a different kind of angle. And again, they just call, you know, I met them a few years ago, actually. And that's something to, to explain to everyone is that I'm not in a hurry to do business with everyone.
Speaker 2 00:01:40 I appreciate the opportunities that I have, and I just really want to make sure that everybody gets the best information they can. They get really good advice. We cover all the bases and I really truly just want you to do it when whenever you're most comfortable when it best suits you in it. And because the market's been really well, it kind of served these guys well to stay in the market. And now they're getting to a point where they really want to take some risk off the table. And it's not a bad time to do that either. We've seen a lot of volatility recently, some big drops, and there's always a rally back and we don't really know where it's going to settle or if it ever will. But I think we all kind of expect the worst at times when we start getting nervous, especially after the run-ups in the past few years.
Speaker 2 00:02:18 So this is just a good time to look at it and a good time to think about it. And here's a different angle for you. So I'm going to share my screen and talk to you about how this case works and why the annuity will do a really good job for them. No matter what. Okay. I am sharing. Here we go. Okay. So I've got Rick and Valerie and they actually gave me permission to use their name. So I'm not going to give you their last name or their account numbers or the city they live in or their phone number. But I like to protect the anonymity of people. And the privacy is a really big deal when it comes to financial stuff. So we're going to stop it right there and that's all we'll do. But what we're looking at is a nice sized portfolio that they have, and they are really only concerned, required minimum distributions.
Speaker 2 00:03:01 Rick is 73, Valerie is 67. So Rick's already taken them. And Valerie has got another five years. So this is a perfect example of when they're going to probably use it for discretionary spending, maybe some vacations, maybe spoil the grandkids, a little things they'd like to do a little bit of charitable giving as well. So there are a lot of different ways we can do that. We're going to do an episode on charitable giving also in a, in a, probably in a couple of weeks, because a lot of people ask about that. So what I did is what people don't realize is that a required minimum distribution starting at age 72, whether you need the money or not. That's kind of like, you know, there are a lot of people say, well, I don't need an annuity because I don't really need the income, but required minimum distributions at age 72 are a forced income plan.
Speaker 2 00:03:42 You're required to take money out every year. If you have IRAs and the, you can see these guys are, these guys had a pretty sizable IRA balance. So what we have right now is currently Rick is taking 31,500 when Valerie's got to take it as well. It's going to add another 15,000 to it in five years. And because we're not looking at a traditional income scenario, I just put a 1% inflation adjustment in there and we can change those numbers however you want. But it's just kind of a, the ideas to account for the increase in R. And B's because everybody knows, as you get older, the factor gets smaller, which means a larger percent of your assets need to be withdrawn each year. And it's equivalent somewhere to the 1%. Maybe we want to half increase every year. And so we're going to look at portfolio of values in the last 20 years and in the first, the last 20 years with no annuity.
Speaker 2 00:04:35 And then we're going to do the worst scenario as well. And we're looking at the flex strategy with 25% of their money into an annuity, then we'll do the 30% of the annuity. We'll look at the values of that and I'll explain it as we go along. So here we go, right now, they're sitting at about 1 million, 150,000, and I was playing with some numbers. I like to look, I mean, the numbers don't change no matter what you do. So, so right now we're going to look and see what happened if they didn't, they're all in the stock market right now. And what would be the result in the last 20 year period, if they didn't change anything and they just floated with the market. Now, as a disclaimer, I'm going to tell you, this is a period ending 2019. It's not ending 2021. And so a lot of people are going to gripe about that.
Speaker 2 00:05:16 The reason I use that is because we had 20, 20 and 2021 were nice solid gain years, but then you would erase these three years right here. And I want to make sure under the reason why I want to keep those in there is because this is what we're planning for. And a couple of big gains on the back end. Wouldn't make as big a difference as you might think in the long run, it's not going to be as disastrous as a couple of losses in the beginning, but we're planning for what do we do if we want to reduce risk. And we think the market might be down. So this is the period starting in 2000 oh 1, 2 0 2, we're all down in value. And then it bounced back nicely. And then 2008 was down. So this is just a volatile period where you say, let's protect it in case this happens.
Speaker 2 00:05:58 We want to see, are you going to be better off with or without the annuity? Okay. So in the last 20 years, 1 million, 150,000, what we did here is the income goal. Sorry, I've got to do that. 31,500 is what they're currently taking. And starting in the fifth year, we'll do the fifth year. I'm going to put a negative 15,000 in the investment column. What that's going to do is if I put a plus in there, it would add money to this investment column over here. If I put a minus in, it's going to subtract 15,000 from it. So that's a way to simulate additional RMDs at that point, then I'm going to take it all the way down to here. And oh, 315,000 silly. I hope there aren't, these aren't that high. So it is good for them, but they need about what is it?
Speaker 2 00:06:51 10 times as much money to be crazy. The numbers will be the same. It doesn't matter. So I think I got everything right. We're going to, oh, inflation adjustment. We're going to do 1%. I was playing with some other numbers as well. I mean, I do this all the time. So 1% increase in what the poll is every year, 15,000 more coming out when Valerie needs to take it. So you've got asset values over here. And what I like to explain to people, and you guys seen this before. If you've seen the sheet, is that when the market is down in value, you're drawing from principle alone, it's called reverse dollar cost averaging. We could do a whole separate episode on that, but it's the exact opposite of the benefit you got from systematically saving in your earnings years. So it's in minus 31,500 from a stock portfolio that might've lost 9%.
Speaker 2 00:07:35 And again, this would be similar to an S and P 500 index fund. It's not considered a managed portfolio in which case we'd have to take off fees. And then a fee would make a dramatic difference in this portfolio scenario because you'd have a lower market value as well. And that's another benefit that the annuity is going to provide that we don't always talk about is that, you know, you take 25% of your money out of a managed portfolio, put it into a no-fee annuity. Then what you're going to see as a 25% reduction in the fees that you're paying. Now, the manager might increase the fee if your balance goes down, but let's just call it a wash. Anyhow. So what you want to avoid doing is drawing from principle at all times, and that's what the annuity is gonna allow you to do, but we can see they go through a 20 year period and they have 1 million, $163,000 left.
Speaker 2 00:08:24 So that's a 1% inflation adjustment they've more or less met their RMDs. Their account balance stayed level. They had some big drops in there because, well, I mean, the portfolio was cut in half by year three. So it's a really nice stress test to see if they'd make it. And you can see that obviously they wouldn't necessarily need an annuity, but again, if your portfolio is going to get cut by 20, 30, 40%, what's that going to do your stress level too? So that's a lot of reasons why people would take the annuity as well to relieve stress and just kind of maintain a little bit more balanced in the portfolio. So we've got 1 million, 1 63, and if they go on the worst 20 scenario again, this is the great depression, another really good stress test, and I'm going to, well, I got to explain something else, but in the worst 20 year period, same thing, you've just got a whole lot more volatility in that.
Speaker 2 00:09:15 And they still end up with $600,238. What you understand is, I guess their first reaction was saying, wow, we only have a million, 1 63 left. Well, if you look at this column here, that's the total of income that would have been withdrawn over the time. So it's really the result of over $2 million in that scenario. And even 1.5 million total in another scenario. Now people may spend this money, they may give it to charity. They, you could also reinvest it. You could pay the taxes and start a non-qualified brokerage account, another annuity, or just put it in the bank and save it. But if you save the money, there would be a separate column. We calculate for that, for what that accumulates to over time. And so it doesn't mean that you only have 600,000 left. If you would reinvest it, the withdrawals, you've got to take them out of the IRA.
Speaker 2 00:10:03 You've got to pay the taxes, but you'd still have the bulk of the money there to reinvest. And that would grow to a substantial sum. It's just an additional calculation we can add onto it if that's what you want to see, because a lot of people don't necessarily spend the money. You know, some people spend it, some people don't and for the people that don't a lot of times they're just saving it or, uh, re-investing into other options. Okay. So what we see here is with no annuity, last 20 was a million, 1 63 in the worst was 600,000. Okay. So this is interesting. When I first talked to him about a week and a half ago, you know, kind of got a feel for what they're wanting. And because I remembered our conversations from a couple of years ago, it was a little bit easier to kind of hit the ground running.
Speaker 2 00:10:42 And obviously they've been listening to the news or reading the newsletter, watching the podcasts. They know how I work and knew when they, well, I guess I don't know yet, but I assume that, you know, they like what they saw and kind of a straightforward approach and decided if they're going to buy an annuity, they might do it with me. So we'll see. But these are the numbers I showed them. So this is about 25% of the annuity. I just wrote it in a simple way on the sheet. Again, it's the same income goal. And you just put a little more protection. You're going to eliminate the fee and you're going to eliminate the downside of the annuity. What the annuity allows you to do is in the years when the market is down in value, you're taking money out of the annuity. When the market was down in value in these first three years, you're going to maximize the free withdrawal on the annuity.
Speaker 2 00:11:32 So remember in the early years before, until you get through the surrender schedule, whether it's, you know, most of the best contracts are about 10 years, everybody wants shorter, but when you really get into it, I think a lot of people are pretty satisfied with it. I have seven year contracts. I sold 12 years ago that people still have. So it's not like they got out of the annuity. Anyway. You just got to make sure that it works for you no matter what. So in the second year, this was a question they had the count value. Obviously the market's going down and the account value is going down. So that reduces the free withdrawal available because it's 10% of the account value anyway. So what that does though, is it allows you to escape from draw or selling so many of your securities based assets.
Speaker 2 00:12:12 When the market's down in value, what that's going to do is preserve more capital for real growth. So in the first example, in these first three years where the market was down, they had pulled almost a hundred thousand dollars out of the account that was eliminated from growing on a tax deferred basis in the IRA, made it a dramatic hit over time. Okay? So the result of that is you pull from the annuity when the market's down. And this is just an RMD scenario. It's once a year, we sit down and we talk about performance. We do a Nudie allocations. Do you want to pull some money? You got to pull it from your IRA. It is no more difficult. If you really down to business, we can do that conversation in 10 minutes. So, but if he likes chat, I like to chat with people.
Speaker 2 00:12:52 I like to get to know people over time. So sometimes we talked for a while. Sometimes we talked three or four times a year. Sometimes 10 just depends on what you need. But the result of that over time by putting 25% of the annuity is 1 million, two 17. As I recall, that's an increase. So we were at 1 million, 1 63 with no annuity. We had a million, two 17 with an annuity, and let's see what it did in the worst 20 year periods. Same principles apply real quick, though. Same amount of income, same amount of withdrawal of 930, $3,000 in total withdrawals over 20 year period. So in the worst 20 year period, as you recall, we're at 600,000 with the securities only, or the stock and mutual fund only portfolio worse 20 year period. He come through at 8 83. So it's substantially better in the best scenarios or in the, in the worst case scenario.
Speaker 2 00:13:45 But what I can tell you as I've run this over tons of different time periods, and if you're looking at a strong market period, there's times when it tells you to use a hundred percent annuity and there's yeah, a hundred percent annuity, or there's times when it tells you to use a hundred percent stocks and mutual funds, that's something important to understand, which is why that final decision do we know that this period is not going to perfectly replicate itself, but where is your personal feeling? Do you want to put more? Do you want to put less? What do you think? You know, essentially what we need to do is put up the appropriate amount of protection in place. So that in all scenarios you have the chance of doing as well or better as well as, and in this situation, when we look at the last 20 years, adding 25% annuity definitely made a difference by about a, what is it?
Speaker 2 00:14:32 A $54,000. What I'll tell you right now is if they had received the last two years of gain, they would have been about equal to this, or maybe a little higher, but it's not going to make that big a difference. I've run the numbers separately. I just kept this sheet because there's a lot of formulas and all that stuff that I got to change. So that's where we're at. Now, the question comes, some people surprised only 25%. Cause if you meet with other annuity guys, they might say, oh, you need to put half of your money into the annuity. And so I try to find reasons for the recommendations I make. And that's why I do it this way. If we look at the worst 20 years scenario, the more you have in the annuity, the better it will be. If you look at, you know, but the last 20 in this scenario, then it depends.
Speaker 2 00:15:13 There's a little bit of annuity. So the question they have is, well, how about a little bit more? And this is how I found the $300,000 figure. If we go to zero in the annuity, we know we make less money. What if we do more in the annuity? So I ran a bunch of numbers. I went down to two 50 in the annuity and all that stuff. So what if we put seven 50 in the market and 400 in the annuity, same income, same everything, same time period. We look at 1 million, 1 32. So now we're below what the market would have done at 1 million, 1 63. I think it's interesting how that works. If there's a, in this time period, there's a perfect amount of annuity that you can use. And if we went down to the dollar, we could probably find it's, you know, 297,000, $361 or something like that.
Speaker 2 00:16:00 But, you know, ballpark figures, this is pretty fair. And if we look at the worst 20 years scenario, this is actually probably going to be better. Because again, the more you use in the poor, in the poor market scenario, the better the annuity gets because you're protecting more money from volatility. And so when I look at these numbers to go back here using no annuity, and this is just a basic sheet, just to kind of a notepad, no annuity was a million, 1 63. If they did the flex strategy with 25% annuity, then there are a million to 17 or 883. So better in both scenarios by quite a bit in the worst case. And if you did a little bit more annuity say about 30%, then the worst case was, you know, even better. But the last 20 years was worse than just using no annuity at all.
Speaker 2 00:16:48 So there is a rhyme or reason for how much you should put it into an annuity and how it works. And when I look at these numbers and saying, well, it gives you a, the annuity gives you a ton of protection. If things don't go well, you're dramatically better in both scenarios by using an annuity period. But in the last 20 years, you can see that in most cases, you're dang close to the same tow asset, total with the same amount of income, same assumptions, everything. So this is why I look at it and I say, Hey, why not an annuity? Any questions? So I think that's pretty clear to me that an annuity is appropriate and a lot of different scenarios. Even you have outsized growth. What you can see is even in the period shown on the spreadsheet that ended in 2019, that was still a really good market year.
Speaker 2 00:17:37 You had some bad stuff at the front and you had one dip in the middle and maybe it was 2018 was down 4% or something like that. But again, that is exactly what we're planning for just in case. What if happens now? I also showed you a few weeks ago, how to beat the market with an annuity. There's nothing saying that you can't also take withdrawals from the annuity and put it back into the market. If the market's performing well, or if it takes a drop and you want to reinvest. So this doesn't, you know, you can always switch between the two and rebalance those sides continually over time, the annuities are flexible premium. You've got withdrawal privileges, and obviously an open securities account, a market investment account, IRA, whatever it is is going to you have the ability to go get that money anytime you want.
Speaker 2 00:18:21 So again, why not an annuity? It makes a lot of sense. It protects you in the worst case scenario and in several scenarios in the past, we can get dang close if not better to overall performance. So as long as we don't overdo it. So I want to thank everybody for taking the time with me today. If you want to chat with me about your numbers and take a look at some of those things, you can get ahold of me at 804 3 8 5 1 2 1, or you can schedule a call any page on the website top right corner says, schedule a call. It's easy, click it down. Menu, set your time zone, pick a time, pick a day. And I'm here again. I talked to these guys two, two and a half years ago, gave them some ideas. They thought about it. And the timing was right for them.
Speaker 2 00:19:06 Well, we'll see if it's right for them, but they're going to talk about it. Of course. And we'll probably do a follow-up and answer some questions more technically speaking, and who knows it might lead to another podcast. But, uh, anyway, if you want to subscribe to the podcast, go to youtube.com, search annuity, straight talk, hit the subscribe button or subscribe via any of your favorite podcast platforms. Podcast is good to listen to while you're taking a walk or if you're in the car or something like that. But if you want to see the sheets and you want to see the screen and you want to see what I look like after I just shaved my head, trim my beard. I think I'm looking pretty clean today, but, uh, I don't know. Uh, that's just me. So, but go and check it out. If you need something to get ahold of me, I appreciate you taking a stop by today and we'll see you next week with a brand new topic. Okay. Thanks guys. Bye
Speaker 1 00:20:00 You've been listening to annuity straight talk. The proceeding is for informational and educational purposes only and does not represent tax legal investment in the views expressed by guests on this program are their own and do not necessarily reflect the views of annuity straight talk or its partners. No information presented today should be acted upon without meeting with the qualified licensed professional. It is important that you read all insurance contract disclosures, carefully making a purchase decision guarantees are based on the financial strength and claims paying ability of the insurance company.
