Current events, commentary, and links to other resources on retirement income and annuities in the news.

The Relevance of Index Annuities Today

Last week I wrote about the wild year we are having in terms of not only what we see on the news but also how that has been affecting retirement portfolios.  The title if you recall is “A Wild 2019 and How Annuities Fit.”  More than one person commented that I failed to tell everyone how annuities fit but there’s a reason I did that.

It’s mostly because how annuities fit is up to you.  Most of you don’t really need me to spell it out every single time but here it is once more.  Index annuities lock in gains once a year and never lose money when the market is down.  In times of low interest rates you also have the potential for yields you can’t get anywhere else and enough liquidity to draw income as needed or ladder out to other investments if you find a better opportunity.

I can tell you all about the key benefits of index annuities but I’ve done that before and I think most of you know that.  Everyone seems to want to limit market volatility and portfolio losses.  Whether you realize it or not, interest rate risk can be just as big a threat to your assets.  The answer is sitting right here in front of you and for one reason or another many people can’t put the pieces together.

The problem comes from polarizing opinions.  Frequently I hear people say, “this is certainly a unique approach.”  Yes, my recommendations are different and nothing like the mainstream.  In a meeting this week one gentleman said to me, “I had no idea annuities could be this flexible.”  That’s someone who gets it.

Why are index annuities relevant today?  It’s because they are the most flexible safe asset.  Protection, growth and opportunity.  Aside from traditional advice on annuities I’ve explained several alternate uses and proved how those strategies can be more profitable.  The point of it all is to show you reasons why you may want to use an annuity, not why you have to use an annuity.

This isn’t a fear-based approach.  I’m not going to scare you into thinking that you might run out of money or talk about the likelihood and cost of needing long-term care.  While those are viable concerns they come from a defensive mindset.  I want you to play offense and learn ways to grow your money safely so that those concerns are an afterthought.

More than one client has recently told me that they are not even watching the stock market.  Why worry about something that has no effect on you?  That’s in stark contrast to many I know that worry about it every day or those who want to make just a little more from a market that has been frothy at the top for two years.  It’s not as if you don’t make money with an annuity and I have several indices that prove you can grow even in times when the broader market is having trouble.

Index annuities are relevant today because they provide a solution to the uncertainty in the economy.  Low interest rates and market volatility are the two major factors that affect retirement investing.  There’s one solution that will give you more certainty in both areas.  If you’re afraid to give it a shot then you just don’t have all the information yet.  Send me a note or comment below and I’ll send you some info that gets you started on the right path.

All my best,



Make an appointment now…

A Wild 2019 and How Annuities Fit

This year so far has certainly had its share of ups and downs.  In some ways it could be viewed as a microcosm of the issues one might face throughout all the years of retirement.  It’s summer time and I stepped away from writing for a few weeks because I figured no one would notice.  The weather has been nice and most Friday afternoons I decided to get out of town and refresh myself.  The bug to get back to writing hit me and it made sense to do something of a recap of the year. 

And what a year it has been.  Political and economic uncertainty have been prevalent.  The stock market has been up and down with almost no consensus as to whether the bull market will continue or if we should expect a serious correction.  Interest rates that started to rise last year settled back down to some of the lowest levels ever while the Fed is trying to prematurely prevent a recession.

At the beginning of this year lots of people were hurting, or at least very concerned.  The market was down sharply to end 2018 and the damage to portfolios had everyone frozen.  No one likes to move money after a big loss, preferring instead to sell only for top dollar.  Whether that actually happens is a different matter altogether.  But the market came back… and then dropped again but came back, and then this week happened.

Through it all I have become more confident in the recommendations I make.  That’s because fundamentals always hold true and if you plan based on those you’ll be just fine.  Throughout this year I know people who have lost money and people who haven’t, those who worry and those who don’t.  I’ve created new strategies that enhance the potential of a protected portfolio and through it all discovered even more benefits for using annuities in retirement.

People say all the time that my approach is much different than anything else they’ve seen.  Of course it is.  How can you expect to do better if your strategy is not different?  I’d pick a different line of work if I had to be as boring as everyone else. If I didn’t have a solid rebuttal to the asset management proponents then I’d throw in the towel.  But here I am trying to convince people to see things through a different lens.

Aside from the market being all over the place, this year has seen some whacky interest rate moves.  For years all the armchair economists have been telling me that rates are going to go sky high.  That started to happen a bit last year but very few took advantage.  A few months back I hinted that rates might drop.  Not many people read that newsletter because I guess it wasn’t interesting enough.  Can anyone tell me where treasury yields are compared to earlier this year?

I watch Bloomberg for my financial news.  It’s not very political and offers a diverse, global perspective that gives me an idea of what concerns institutional investors have.  If the big boys and girls are worried about something than maybe you should be too.  Of all the research and reading I do, information specific to annuities takes about 10% of my time.  The other 90% of my time is spent understanding the broader world of financial markets and economies.  Last weekend I took the family on a camping trip in Canada.  I spent five minutes fueling up my truck and an hour looking over maps to be sure I could make the most of our time.

Strategies are more important than products.  It’s better to be flexible than stagnant.  Things have been up and down this year but everyone is alright for the time being.  Through it all I’ve been saying the same thing over and over again.  Some listen and others don’t.  If things change I’ll pivot on my recommendations and those who work with me will be able to do the same.  For those people we set things up right and there will be no issue with altering a plan because we built every single one to do it.

The old saying still holds true.  Fear and greed drive most financial decisions.  It’s contrary to the rational thought and objective analysis it takes to make solid plans.  I’m not a psychologist and don’t know how to pull people away from emotional tendencies so the best thing I can offer is consistency.  Take the best deal you have today but reserve the option to make changes over time.

If you’re up for a rational conversation then leave a comment below or give me a call. And if you’d like to know specifically how annuities fit, please follow the link to my second post on this subject titled “The Relevance of Index Annuities Today.”

Have a nice weekend!



Make an appointment now

Index Annuity Performance from the Past Year

At times it seems as though everyone talks about yield as if they are able to get the highest possible growth from every asset they own.  I’ll admit that may just be my perspective because it often comes in the context of my recommendation to use an annuity to reduce risk without sacrificing growth potential.  It’s in situations like these where people tend to over analyze the growth prospects of the annuity and think the opportunity may be too good to be true; or that it’s not quite good enough.

The past year perfectly illustrates the value of index annuities, especially in terms of retirees who don’t want or can’t afford to lose money.  There are two reasons; first, interest rates went up and came back down and second, the S&P 500 dumped last fall and climbed back to reach a record high as of Friday, July 12.

I’ll get back to why these two points are critical for retirees but first I want to talk about how two contracts performed over the past year.  Each of these contracts reset and locked gains in the past week.  It is fresh in my mind after talking to both clients about allocating index options for the next year so I will focus on these two alone.

As of this writing, the S&P 500 is up about 6.2% which is a nice result from the year if you consider what the annual chart looks like.  Neither contract beat the market but considering how the S&P 500 got here, the ride to the end result was much less stressful and more beneficial in terms of most retirement applications.  I’ll explain each very generally since a detailed report for either would be extremely long.  It’s the overall idea that’s important anyway.

The first contract from Midland National was split evenly between four indices.  The DJIA, S&P 500, Euro Stoxx 50 and the Hang Seng all returned positive growth for the year but the US-based indices did much better in the rebound than did the European or Chinese markets.  The equal blend of the four was meant to offer some sort of global diversification in yield potential.  While the international exchanges muted the returns a bit, the long-term potential of such a strategy suggests the type of balance that is appropriate for consistent returns for the year.  All in all, the 4.1% blended yield across the entire contract is what I would consider to be quite reasonable given all the political and economic turmoil and uncertainty.

The second contract from Great American Life did a fair bit better being divided among three different indices.  Half of the funds were allocated to the S&P 500 while the remaining half was split between the S&P US Real Estate and SPDR Gold Shares indices.  Real estate across the US stayed strong and the rally in Gold over the past six months brought the total contract yield to nearly 5.2% for the year.  I recall that a year ago there was plenty of market uncertainty so initially we allocated to a couple indices that could move in a positive direction regardless of the stock market.  Several different economic indicators are needed to explain why either gold or real estate can move inversely to the stock market but that’s worthy of a white paper all its own.  Suffice it to say, yield on the contract is very acceptable and creates optimism for this annuity to work out as illustrated from the beginning.

As I said before, yield is only a small part of the equation.  Growth is nice but far from the only reason to use an index annuity in retirement planning.  I mentioned in the second paragraph I would dive into the two most valuable features of index annuities and how that was illustrated by the events of the past year. 

Rates rose meaningfully for the first time in several years.  This caused a decrease in bond values that was erased over the past few months as treasury rates fell back to some of the lowest levels since 2015.  It represents the type of short-term risk to portfolio values that many don’t consider.  Aside from this, rates in general have stayed low, regardless of 2018 increases and it is still hard to identify opportunities with an acceptable combination of safety and yield.

Although US stock markets rebounded to finish the past year solidly positive, you can’t discount the affect that October and December 2018 had on the psyche of the average individual with assets exposed to daily fluctuations.  Just because it is back up does not mean it’s going to stay up.  Each of the annuities I mentioned locked in the gains made last year and will never lose value.  If the market corrects all funds are protected but if it keeps going both will continue to grow.

Both interest rate and market risk are compounded during retirement because consistent withdrawals are needed to fund a stable lifestyle.  Interest and dividends are not enough to cover the income gap for most people with the typical stocks and bonds portfolio.  If consistent withdrawals are taken when rates are rising and markets are falling you will be liquidating assets below top value which, over time, will have an exponentially negative effect on total portfolio value.  These two events happened in conjunction last fall when rates spiked to a five-year high in December on the heels of a 15% decline in the S&P 500.

To have an asset with enough liquidity free of interest rate risk is the solution to maintaining maximum growth potential while using a portfolio for income in retirement.  The numbers prove it and the long-term effect is dramatically more positive than any other strategy.

As a disclaimer, I need to remind anyone who has an objection that I could write an entire paper on any of the paragraphs above.  There are far too many contingencies to explain them all without making this post 20 pages.  I don’t have the time to do that every week so if you’d like an explanation of the details I’ll reserve that for individual meetings so I can show you exactly how it can benefit your situation.

All my best,



Make an appointment now

Even Advisors Ask for My Advice

In some ways I consider it a waste of time but it happens often enough that I’ve realized it validates the information I provide.  This website and all the newsletters are meant to help consumers but there are plenty of advisors as well who are looking for answers to the same questions.  And it makes sense because this site was created more than ten years ago mostly because the science of asset distribution in retirement was and still is unresolved.

Academics study the problem.  Insurance and asset management companies create new products and funds as a solution and most advisors just sell the products.  Target date funds, dividend stocks, bonds, annuities and various strategies that mix all of the above into a mess of options and ideas.  If you think it’s hard to figure out then imagine what it might be like for an advisor who is responsible for making the recommendation.

I only bring this up because about one third of my advertising budget is spent on other advisors who sign up to read my reports.  It’s important to understand because some of the people giving advice are just as lost as you might be.  Many great things are learned from seeing what’s hiding in plain sight.  This has been happening for years and I only just realized it.  Advisors ask me for advice because many of them need answers to the same questions as you.

I don’t mind helping out anyone who asks.  About a month ago an advisor who reads this letter asked if I’d help him find one of the annuities that I talk about.  He was retiring and had just sold his business to a younger guy so was creating his own plan.  He had been following this site for a few years and decided this approach is best.  He didn’t need me to sell him one, preferring to keep the commission for himself, I assume.  That’s fine with me so I took it as a compliment and put him in touch with a couple of companies and told him which products I typically recommend.

A more egregious example from a few years ago came from an advisor who posed as a customer.  We went through several meetings and got to the point where he was ready to put my plan into action.  He took the questionnaires and promised to return them with all the info so I could complete the applications.  To make a long story short, after not hearing from him I eventually was able to contact him.  He admitted being new to retirement planning and just wanted me to help with a case he couldn’t figure out.

In addition to this example are three different cases where I was able to determine that someone else had taken one of my reports, personalized the cover and passed themselves off as representatives of my company.  I don’t have representatives and I don’t share names from my list because I refuse to put my name on someone else’s recommendation.

Not all examples of advisors using this information are negative and I don’t mind lifting up another professional in the industry with a new idea every now and then.  Most who call only want to know if I’ll give them free leads and some want to know if I want a regional partner.  Once in a while a nasty comment comes in from some advisor I offended by unintentionally poking holes in his approach.  As much as it may seem like there’s too much information there is actually a lack of creativity that produces new ideas and strategies.

A couple of past newsletters partially illustrate the source of the problem.  One has to do with there being more salesmen than advisors and the other has to do with how commissions affect annuity sales.  You can read either or both by clicking below.

The Difference between Sales and Advice

How Commissions Affect Annuity Sales

Most information you find will give you a dictionary-like definition or represent nothing more than someone’s opinion.  It all relates to pushing available products and collecting assets.  But there is a better approach available and just as many advisors are trying to find it as you.  As always I am here to help anyone who asks and if you really like the guy you’re working with then send him my way and I’ll teach him a thing or two.

Enjoy your weekend…



Make an appointment now

The Myth of Annuities and Liquidity

The thought of not having access to retirement assets is one of the biggest issues people have with annuities.  I think it’s funny when investment advisors, who have no intention of every giving up management of a person’s assets, claim that if you buy an annuity you will lose control of your money forever.  As much as annuity salespeople can be misleading, other professionals in the industry who want to sell you something else can be every bit as misguided in their claims.

The truth is that annuities have more liquidity than any other safe investment, except for cash in the bank. And it’s the ability to access money that gives the right annuity a strategic advantage when managing a retirement portfolio.

When mentioning the 10% free withdrawal people often mention they may need more and don’t want to give up control.  Many of these people having been saving and investing for 30 years or more and have never touched their money so 10% is more than they’ve ever pulled before.  That’s not always accurate considering some people kick-off retirement with a major purchase and need full liquidity.  But for anyone talking about general retirement planning, if you need more than 10% of your portfolio consistently then you haven’t saved enough.

So taking up to 10% annually from your safe assets should be more than adequate if a portfolio is structured correctly.  Almost everyone underestimates the value and flexibility that can add to a retirement strategy.  In addition to access providing the opportunity to draw income for anyone who doesn’t opt for the lifetime income stream, free withdrawals can be used to rebalance a portfolio or ladder funds out to other investments as opportunities arise.

Protecting enough to sustain consistent retirement spending is important.  Continued growth of assets is also important to protect against inflation and provide for unexpected emergencies in the coming years.  Low interest rates and uncertain financial markets make it difficult to find the right balance between safety and growth.

That’s the exact justification for the strategies I propose.  Several years ago I started comparing income producing annuities.  Most were paying between 4% and 6% of premium as income.  Since that is well under the free withdrawal amount in most annuities I started looking at short-term deferred contracts that offer the same level of safety only without the lifetime income guarantee.  I realized that you can always take the deferred product and use the funds to buy an income product later.  Why not take the short-term deal now and wait for a longer commitment when rates are higher in the future?

This is a simple explanation of how you can use the free withdrawal to your advantage.  The idea is to keep your powder dry, so to speak.  In the absence of the absolute best option, take the best option available but be able to make changes as conditions improve to give you more advantage.  Using this as the basis for my annuity recommendations has led to the discovery of more sophisticated strategies that make the traditional approach obsolete.

I’m not here to tell you what to do with your money, rather to share ideas so you can make confident decisions for yourself.  Don’t underestimate the advantage provided by a 10% free withdrawal.  Most contracts I recommend span from five to eight years in total term.  By maximizing free withdrawals you can get a substantial portion of your money into other investments before that point in time when you can move it all.  As I say all the time, if the annuity is the worst thing in your portfolio  then your other investments are in great shape and you can move your annuity money in that direction with the available withdrawal.  But if the markets hit the crapper you’ll be darn glad to have an asset that doesn’t lose value.  Maybe then you can even use the withdrawal to buy into the market when there’s good value.  Ooh… there’s a new idea!

Regardless of what you do, don’t let ignorant comments limit your scope of understanding.  It may lead you to make decisions you regret.  I’ve seen it go both ways.  There are not only people that spend far too much on the wrong annuity but also people who have far too much risk to survive volatile times.

An annuity would never work for a professional gambler or someone who flips houses.  But for solving general concerns related to retirement planning, the right annuity inside your portfolio really is one of the best options available.  If liquidity was a concern before this will hopefully convince you that it’s all relative and if you have saved enough for retirement, the 10% annual withdrawal is well more than you need. 

If you end up using an annuity in retirement, I want to make sure you do it the right way.



Make an appointment now…

How Technology Benefits Retirement Planning

It’s never more evident than when you talk to kids growing up today.  Younger generations take for granted easy access to information that can still seem like magic for anyone who remembers a rotary telephone.  I appreciate the convenience it adds to my life while trying to make sure it doesn’t run my life.

Technology is a blessing and a curse at the same time.  While almost everything we need is instantly accessible it also means we are always connected and rarely have full privacy unless we just walk away from it.  Most of us are not likely to adopt the use of technology like current teenagers have but we are all using it to enhance life and broaden our scope of understanding on certain subjects.

I started in this business at the very beginning of the evolution.  Digital processing eliminated stacks of paper and file cabinets.  Everything got smaller and faster, resulting in cost reductions and simpler transactions.  I’ve seen both sides of it and have to say that the new way of doing business is not only more convenient but also much more effective.

In my opinion, the two greatest benefits of this new age of communication are information and time.  An answer to any question you have is immediately available and takes much less effort to find what you need.  What before required you to have full trust in an individual is possible now if you trust yourself to make decisions and sort through all that’s available.

I started this website because I had questions about some products a wholesaler wanted me to sell.  I did some research and crunched some numbers to figure out which parts were worthwhile and which were not.  I came to some interesting conclusions and decided to catalog the results and information.  It turned into a website with the primary purpose of documenting the research I was doing.  I put an 800 number on it and was actually surprised when someone called with questions.

That’s not at all why I initially did it but over time it has turned into my primary business because a lot of people want a second opinion.  And that’s where the information age lends a serious benefit to you.  The right answer for you is out there and you can find it from the comfort of your favorite chair with a cup of coffee in hand.  You don’t have to believe anyone in a strip mall office.  You can do it all yourself without leaving home.

My mentors in this business are a successful group of guys in Missoula, MT who started decades before I did.  They know the old way of doing business in the days where information and communication was limited.  Automated changes were not embraced but accepted mostly out of necessity.  I get it, a required 300 word legal disclaimer at the bottom of every email is somewhat overbearing and a little less personal than a hand-written note on office stationary.

If you walk into the conference room at their office and start asking questions about retirement planning the options they have are somewhat limited.  They have a variable annuity from Guardian Life, a couple fixed annuities from Jackson National and from what I’ve recently heard they are now pushing some new structured annuities from Brighthouse (Met Life).

The limited options speak to another problem I have with the industry that relates to captive sales agreements and it’s a separate issue I’ll acknowledge but set aside.   But they are not unlike most other professionals you are likely to meet who claim to have the best options and ideas when in reality what they have is limited to what a broker/dealer or marketing organization tells them to sell.  The science of asset distribution is still very new and many agents are recommending what’s easy rather than stepping out of a comfort zone to see if more is possible.  Technology has allowed me to take ideas from an insurance company board room and apply new strategies to the products based on traditional fundamentals.

It’s understandable that my age comes up a lot in meetings.  I’m younger than all of you so it’s common for someone to question my experience.  My typical response is to remind anyone who asks that the 60 year old agent wants to retire as well and won’t be around when you really need him.  Aside from that I reminded someone this week that in terms of the information age I’m really old because I’ve been on the edge of it since the beginning.  My learning curve was steeper because more information came available every day.  I consumed it and continue to do so. 

Pressure to compete against other agents and proposals, along with access to a significant amount of information has allowed me to not only find best products but also the new strategies and ideas that work.  I urge you to not take that for granted and suggest you leverage my experience for your benefit.

Anyone who talked to me this week knows that I stumbled upon a really good idea.   After doing some simulations to validate the strategy I shared it with a few people who I thought could benefit specifically.  It’s a rough idea that hasn’t been polished into actual advice yet but I was able to share it right away with people all over the country.  It’s one more step in the evolution of retirement science and when the next one comes I’ll be ready.

Stay flexible so you can take advantage of that as well… have a great weekend!



Make an appointment now…

Does Anyone Have Too Much Money to Use an Annuity?

It’s a great question that I got a few weeks ago during a meeting and it stumped me for just a second.  Dianne and Fred have saved more than enough for retirement and their income needs are modest in comparison to the total portfolio value.  They are also young, both under the age of 60, so traditional products don’t have the same value as they would for a couple age 65 or older.

I took the common approach and first showed them what a traditional income product would cost and the benefit of doing it that way.  Some people like the idea of consistency and guaranteed income annuities are convenient and worry-free.  But the cost is prohibitively expensive in many cases so alternative strategies need to be explored as well.

For Dianne and Fred, retirement spending needs amount to roughly 3% of their total portfolio value.  At that level a traditional income annuity would be affordable but given their young age I don’t feel it’s the best option for them.  So I took them through several other strategies for producing retirement income that included use of bonds, growth and dividend stocks.  Each has benefits and disadvantages so we spent a lot of time talking about the potential for every scenario.

One option I showed had them staying 100% invested in the stock market.  For anyone with higher spending needs this will show potential disaster in times with serious market volatility.  But Dianne and Fred saw that their portfolio would have survived some of the most volatile periods in past market cycles.  This is when Fred asked if there was ever a time when someone has too much money to use an annuity.

My answer is simple.  Yes, there are plenty of times when a traditional income annuity is not necessary.  But there are always other reasons to use annuities.  In situations like this when someone has more than enough for a comfortable retirement it’s more about risk tolerance than anything else.  Lots of people have enough assets to weather any market downturn but seeing a portfolio cut in half might not be all too settling, even if a long-term simulation shows portfolio recovery.

Dianne and Fred are investigating the use of annuities in retirement because they want to reduce volatility.  That’s exactly what a deferred annuity can do.  Bonds are the traditional choice for people that don’t buy annuities but an annuity has a decided advantage when consistent withdrawals are part of a retirement plan. 

Annuities are meant for reducing risk in retirement.  Insulating a portfolio from market losses allows you to maintain more of your principal balance and increases long-term growth potential.  When the market drops it takes less time to recover if your whole portfolio didn’t take a hit.  That means you get to move forward and start growing sooner.

Lots of people who have more than enough money and still use annuities.  I would honestly say that many of my clients don’t even need annuities but choose to use them for one strategic advantage or another.  Guaranteed income products are fine but there is usually a better way.  If you have saved enough for retirement and don’t like the idea of a lifetime commitment or fees that erode your investments then you may want to look at an alternative use for annuities no matter how much money you have.

If asset protection, liquidity and growth are of concern to you then a simple alternative may provide what you want. Feel free to call, email or get on my calendar below.



Make an appointment now

More Important Than Money in Retirement

One benefits of picking my brain that many people don’t realize has nothing to do with asset management or annuity shopping.  I’ve talked to hundreds of people just like you.  I hear stories of both failure and success or good choices and bad.  My recommendations are not only based on what I know about retirement products but also on other people’s experiences.

So when I give advice it is quite likely the result of me having seen someone in an identical situation who has done it right and another who has not.  This weekly post was started with the idea of sharing those stories so you can find similarities that will help sort through the mess of options and ideas.

Regardless of what you decide to do with your money in retirement, isn’t it also important to have a plan for what to do with yourself and all that extra time?  Some pursue retirement as an opportunity to finally experience all those things sacrificed for family and career while others keep working because they don’t know anything else.

I only bring this up because it’s a natural part of most conversations I have and what I’ve recently realized is that most people don’t have it completely figured out.  So I consider it to be a nice diversion from the potentially complicated matter of portfolio allocation.  Why not take a break and map out a plan for all the time you have as well?

Most people who retire early plan to travel a lot.  High pressure careers and a substantial savings rate don’t allow for free time or frivolous spending.  It makes sense that anyone with that kind of discipline would like to open things up and enjoy life a little more.  But there are some who were able to travel plenty even if it meant a later retirement and now travel is not so much of a priority anymore.

That’s an important consideration simply because no matter what your plans are, I’ll bet they change somewhere along the way.  Time with grandkids is another great reason to want more freedom but when they grow up and start families of their own regular visits are going to take more effort.  The things I enjoy today take a fair amount of physical fitness that I won’t likely have when I’m in my 60s.  I’ll enjoy taking pack strings into the mountains as long as I can but in retirement I may have to trade the horse trailer for a camper trailer.  That means less time chasing elk and more time around the campfire.

I happen to know lots and lots of people who are happily retired.  Eliminating the stress of a career is the biggest motivation and it also happens to be a healthy choice too.  But after that, what’s your plan?  Living in the tropics, giving time and money to charity, improving your handicap or catching every last fish in the ocean are but a small sample of the ideas I’ve heard. 

I spent last week at something of a college reunion and it made me think a lot about life from the age of 20 to 40.  Looking back at the last 20 years of my life made me think about how my clients are planning for the next 20 years of theirs.  What I realized is that it’s much easier to dream when you’re young but as time passes the stress of life disconnects you from those ideas and retirement is your chance to reconnect.  It’s reasonable to spend as much or more time doing that instead of worrying about the financial side.

I had a conversation this week with a lady who is having a hard time making financial decisions.  Three people, me included, are all telling her different things and she can’t decide which idea is best.  So I decided to be the first to tell her that it’s ok if she doesn’t do anything.  She doesn’t owe anything to anyone and there’s no reason why she can’t put financial matters on the shelf for a bit.

After speaking with her I decided to put “Life Insurance and Long-Term Care” (yawn) on hold for a week or two.  Sometimes the best ideas come to us when we are focused on something else.  Give yourself a break and spend some time thinking about something a little more fun than numbers.  It may just make that part a little easier when you get around to it.

All my best,



Make an appointment now

How to Beat a Guaranteed Income Contract

During Preparation for a meeting this week I was running numbers and comparing options for a couple in California.  They had recently been to a dinner seminar to get some answers to retirement questions.  Of course the follow-up meeting included an annuity pitch so they decided to do some research online to verify whether they were getting the best deal.

Sound familiar?  It should since most of you have done the same thing so I’m writing this to remind everyone of the basic premise behind how I work.

Jack and Beth are both 67 years old, plan to work for three more years and retire at 70 when social security can be maximized.  With substantial growth in their portfolio over the past few years they decided now might be a good time to reduce risk and set an income plan in place.

Currently Jack and Beth have roughly $1M in savings.  With projected social security payments in three years they need to produce an additional $20K to $30K annually to meet desired spending levels.  So the advisor pitched them a product from National Life Group that looks like this:

                $500,000 initial premium deferred for three years

                14% premium bonus to income account and 7% annual increase

                0.9% annual fee for the lifetime income rider

                Joint life payments of $32,800 annually starting in year four

During the first meeting Jack mentioned the deal seemed fine to him but he liked the idea of having more control over his assets.  So I promised to first verify whether that contract is the best deal available and also run some numbers to see if an alternate strategy would give him more of the benefits he wants.

I took the information from the proposed contract and spent some time looking through the database to find other competitive contracts for that age and deferral period.  The National Life contract is at the top end, with a couple options paying a little more and a couple paying a little less.  All in all the proposal is right in line with the better options in the market.  But would a different strategy improve the results?

You first need to understand the potential downside of using the guaranteed income contract.  I’ve talked about it a lot but never given specific numbers until now.  Most importantly, with the above contract the break-even point for Jack and Beth is just past the age of 85.  That’s the point where aggregate payments equal the initial investment.  It takes until that point in time to realize any profit from the contract.  Now that deal would be great for Emma Morano (I had to look up the oldest living person), but the average person is not going to live to the age of 117 and collect payments for more than 47 years.

It’s also important to remember that contracts with bonuses and guaranteed income riders are built with lower growth potential.  So in order to start a comparison I first identified a few contracts with more than twice the growth potential of the National Life annuity.  By eliminating the income rider it would translate to more than $5000 per year in recaptured costs.  The combination of those two enhancements results in performance that offsets withdrawals so Jack and Beth have control over their assets and discretion as to how they are used.

I ran three separate illustrations with contracts built for growth in order to demonstrate that it’s more about how you use the annuity rather than the annuity itself.  Each was shown being deferred for three years and then annual withdrawals of $32,800 were shown to match those of the guaranteed income contract.  All produced favorable results and I’m going to show you the lowest performing contract below.  I do that so no one accuses me of relying only on an overly-optimistic illustration.

As you can see, at the break-even age of 85 there is just over $400,000 remaining in the account.  The income contract offered a 14% bonus on the front end but my way gives you an 80% bonus on the back end.  The two other contracts projected an account value that was much higher than the initial investment.  Because any of them would work I would recommend dividing the purchase between two contracts to spread risk and diversify growth opportunity.

The benefits of doing it this way are explained below in case you guys want a reminder of the advantages of the AST Flex Strategy.  If you maximize growth on safe assets you can always take the income you need.  Eliminating fees allows you to preserve more capital.  A shorter time commitment with more money gives you much more flexibility and opportunity to make changes as the market dictates.  The combination of the three puts you squarely in control of your assets through retirement.

Some may say they don’t want to rely on performance of an annuity to produce income.  That’s why I added a twist to it that gives this strategy a fundamental advantage over guaranteed income annuities.  Traditional use of income annuities separates those assets from your total portfolio.  One side is used for income and the other used for growth.  The two sides work independently and that gives you less control and decreases total performance.

The biggest disadvantage of using a guaranteed income contract is that the premium is separated from your total portfolio to produce income.  But when safe assets offset the risk of market-based assets, income can be drawn from either side depending on market conditions.  It produces a coordinating effect for both assets that provides substantially more growth over time.  If the growth contract is that much better than the income contract on its own then imagine how much better it can be when used in conjunction with your other assets.

The justification for using an annuity is a different argument altogether and I believe that has been thoroughly covered in previous posts.  This happens to illustrate the best way to use an annuity right now.  It’s different than what I recommended several years ago but options change over time so I know there will be better opportunities in the future.  That’s why I only recommend plans that can change so you can take advantage of my next great idea.

Take the best deal available today but keep your options open so you can pivot if and when a better opportunity arises.



Make an appointment now…

Index Annuities That Grow When the Market Drops

Timing is a deciding factor for a lot of people.  Interest rates and stock market performance keep people locked in to current holdings and nervous about making changes.  If rates were higher many would find it easier to shift toward protecting assets.  Instead there are those who hang on to old habits and currently have more risk than they should.

As often as I hear from someone who is waiting for rates to rise I also hear people say they are waiting for the market to correct before buying an annuity.  I get it.  Why buy a contract with growth potential tied to the stock market when the market is at an all-time high?  Asset protection is one thing but everyone seems to be focused on yield.

From a mechanics perspective there is one feature of index annuities that mitigates the risk of no earnings when the market is down.  If the market drops you don’t lose money and the next year you get to start the crediting period from the new low point, giving you the opportunity for enhanced yields after being protected from loss.  After all, the point of a good investment is to have a nice average, not just one year when you do really well.

But that’s not enough for some people so I thought it would be a good time to point out a few ways an index annuity will grow no matter what happens with the stock market.  One way is available with all contracts and the others are only available in select contracts.  The best options have a little of all three so there is always opportunity for growth, regardless of market conditions.

First is the fixed rate option that all contracts have.  One of the allocation options you have is to place funds into an interest bearing account so if you think the market is overvalued you can get a guaranteed interest rate for one year.  You make money no matter what happens in the market and at contract anniversary you can change the allocation to chase growth with market options if you are optimistic and want more potential.

It’s a good option for treading water, giving you a reasonable yield for one year.  Currently fixed rates are close to 3% so it meets or exceeds safe yields on CDs and money market funds.  Sure the contract requires a longer commitment but after you bank the interest it’s your choice whether to take guaranteed interest for a second year or chase more yield in one of the market-based index options.  Every year you get to choose.

Second, alternative indices are available in some contracts that allow for growth not tied to the market. Two of the more common options I use are real estate and gold bullion indices that provide positive movement that can either precede or follow market growth or decline.  As the market has been more volatile over the past couple years, U.S. real estate has continued a steady recovery  from a bottom more than ten years ago so annual yields have beaten the S&P 500 in several years since.  Gold has been mostly flat for the past few years but I expect it to provide a safe haven for investors if the economy falters and the stock market reacts negatively.

The final option is less common but not unknown.  It’s called an Inverse Performance Trigger option.  Essentially it gives you an interest credit if the chosen index stays flat or drops in value.  Just like you can make a bet on the market going up you can make a bet on it going down.  In one of the better contracts I frequently recommend, the insurance company will credit your account with 6.95% if the S&P 500 stays even or drops by any amount by the end of the contract year.  For anyone who insists the market is doomed in the near-term you have the chance at a decent payoff with no risk if you predict correctly.

More important than excessive growth potential is consistent performance with any contract.  I get tired of the new indices and outrageous participation rates that some agents suggest are built to create yields you can only dream about.  But I’ll tell you from experience that simple contracts with various index options and believable crediting terms will always win in the long run.  Consistency produces the best results.

Most explanations of index annuities use general examples and illustrations regularly use the S&P 500 to show performance potential.  It’s easy to do because the S&P 500 is widely understood and followed.  But that doesn’t mean it’s the only thing available or that tracking just that index will produce the best results.  Having hedges available that allow for growth during volatile market periods is one of the keys to finding the best contracts to use. A variety of indices gives you diversification of opportunity and long-term yields will be more favorable if you have more ways to earn interest.  If you blend the allocation so yield potential comes in every scenario you’ll find the kind of performance that makes the safe part of your portfolio work well throughout retirement.



Make an appointment now…

Why I Call It The Flex Strategy

Regardless of your expectations when you first hit the website, you should know by now that I try to get everyone to think about annuities differently.  Most of you come here with a general interest in annuities, trying to find a solution to a specific problem.  If I join the chorus and just stick with saying things you already know then you wouldn’t have an opposing viewpoint with which to judge a potential option.

Most people don’t believe that I started this website because I didn’t like annuities.  Agents get pitched products too and my initial reaction was to question the motivation of anyone who said I should sell one thing or another.

I realized that many retirement concerns can be solved using basic contracts stripped of all the options that make for good commercials and ad copy.  No matter why you’re here I know you didn’t come in expecting to see the AST Flex Strategy, much less know what it means and why it’s a really good strategy.

I want to give you a quick summary of the AST Flex Strategy.  This will outline all the benefits of approaching retirement this way so you can see it all in one place.  I gave it this name because I promote flexibility with retirement assets and this strategy provides it.  There are six major benefit categories and each individual puts more importance on some over others.  The result is more effective income production and increased wealth accumulation in retirement.

  • No Fees

Cost is only an issue in the absence of value.  I’ve run the numbers and most annuity fees will not give you anything that you can’t already do for yourself.  Fees erode the growth potential of your assets.  So much so that this point deserves its own newsletter.  Eliminate fees and keep as much of your money as possible in your own pocket.

  • Short-Term Uncertainty

The market is top-heavy and interest rates are low.  It’s a bad time to be over-committed to risky assets and if interest rates rise you don’t want to be locked to a contract paying lower rates.  I’m not predicting a market correction or sharp increase in the inflation rate but I do recommend that you keep your options open so your assets can be rebalanced if rates rise or an excellent opportunity arises for buying securities at lower values.

  • Pick Your Start Date

Lots of people don’t make a move because they don’t have a planned retirement date.  And a few years ago I read a statistic that said the average person who buys an annuity with a deferred income rider takes income several years before they had initially planned.  That means they end up changing plans and settling for less income because the contract had fewer years to increase.  A better approach is to implement a plan that can be activated at any time without negative effects.   

  • Changing Income Needs

I spend more money in the summer than I do in the winter.  Some years I spend far less than I did the year before.  I don’t expect retirement to be any different.  I want a plan that is flexible enough to choose the amount I want to spend each year.  Some people retire before they collect social security or are eligible for Medicare, meaning expenses in the first few years of retirement are higher than expenses that are offset by additional income or reduction of insurance premiums.  There are lots of reasons why you will spend more or less than planned at certain times.  It makes sense to have a plan that makes it possible.

  • Lower Cost

In the marketplace today, guaranteed income products are expensive to the point that lots of people shy away and are afraid to make a lifetime commitment.  I don’t blame anyone who is hesitant for that reason.  Because the Flex Strategy produces more I often see a 25% or greater reduction in the amount of annuity required to make the plan work.

  • Greater Wealth Accumulation

If you spend less on an annuity and don’t have any fees then it stands to reason you have more money available for long-term growth.  And if you’re not locked in for life you will have the opportunity to rebalance assets toward more growth or preservation.  After people see what the Flex Strategy can do the most common response is something like, “well I’m not greedy and I don’t need all that money.”  Well I’m a competitive person and I like to win.  I want my clients to win so I won’t apologize for showing someone a strategy that gives them a substantial wealth increase in retirement.  Besides that, there are plenty of unexpected things that can happen in retirement like inflation, long-term care and legacy wishes that might be easier to deal with if you can continue to grow your assets.

All of the above benefits individually give you more control over your assets and more potential income and growth over time.  If some part of it isn’t working you can change it.  That’s not possible with a standard approach.

I am reminded of a simulation I did with Bill last year.  We had talked several times and run a bunch of scenarios.  He liked the Flex Strategy and decided he wanted me to run the presentation by his CPA before he bought any annuities. 

The CPA’s first request:  Explain to me your reasoning for this recommendation. 

I said, “Interest rates are low and that has made guaranteed income products expensive and also suggests that making long-term commitments to fixed products is not advisable.  Since Bill would need to spend 2/3 of his assets to secure guaranteed income for life, my solution cuts that to less than half his assets.  He can use the annuity to draw income when his market assets are down in value and take gains off the market when it’s up in value.  The result is more money working for long-term growth and enough in the annuity to survive the worst market periods in history.  Bill is planning on splitting the funds between a five and seven year contract so if and when rates increase he’ll be able to shift to a better opportunity in the future, and at laddered intervals.  Since Bill has half his money in bonds right now anyway this doesn’t at all change his current asset mix except to give him more flexibility.”

I have a nice little spreadsheet that allows me to illustrate this over various historic market scenarios.  After seeing it the CPA replied that it was the most creative use of an annuity he had ever seen.  Like me, he also didn’t like annuities but realized there is value in the basics.  The CPA blessed the sale and Bill put it in place.  After one year the annuities had modest increases and his securities were all over the place but flat.  He’ll start taking income next year so we haven’t made a decision yet where it will come from but it’s only going to take us about two minutes to figure it out.  He has no reason to worry since half his money is safe and there’s enough in annuities to weather any storm in the market.

It’s simple, easy and effective.  Take out all the things you don’t like about annuities and use them for what works.  If you haven’t seen it already then you need to give it some thought.  If you’d like to see it give me a call.



Make an appointment now…

An Annuity Success Story

Frankie and Linda are like family.  We met in 2011 when Frankie was doing what most of you are doing, trying to find the right way to distribute retirement assets.  They had made the rounds through several online salespeople and contacted me for an opinion on some of the offers they had seen.

I talk a lot about the risk spectrum.  On one end is money in the bank and on the other end is market investments that go up and down in value.  Most people fall somewhere in the middle, wanting to protect some assets but also hoping for long-term growth.  I’ve met people who go to either end of the spectrum with everything they have and it’s a matter of personal choice so that’s fine with me.

Frankie and Linda fall squarely on the conservative side of the spectrum and that’s why they were looking into using annuities in retirement.  After making the rounds and looking into several different options they honored me with the job of helping them put assets to work.

Well like everyone else I keep in regular contact with clients, some more than others just depending on personal needs.  Frankie and Linda have been actively reinvesting as certain allocations mature so their money has always been safe and always at work.  We speak a lot because they are very proactive about getting the most from their money and never taking risk.

We spoke this week because Linda has some funds maturing this summer and Frankie is looking for some ideas.  I looked into the accounts to see where it’s at and we were both pleased to see the value of current holdings.  In 2012 they were sitting with a combined $500,000 in 401(k)s and as of yesterday it’s all worth just over $763,000.  Over a period of seven years that amounts to more than 6% annualized return, all without risk of loss.

Back in 2012 the stock market had fully recovered from the losses in 2008.  Everyone was still nervous about the market dropping again and anyone at retirement age, like Frankie and Linda, were justified in protecting assets.  Sure the market has roughly doubled over that time period but it’s easy to pick winners in hindsight.  And there’s nothing wrong with a 6% yield with none of the ups and downs that were all part of the market getting to where it is now.

Everyone is going to want to know, what specifically did they do?

Well the full picture is complex because we’ve been working on it for more than seven years but I can give you a general idea.  The placement of their assets pretty much follows my evolution of recommendations as a result of a difficult interest rate market over time.  The most important point of their plan is not just the specific assets used but they flexibility they have had for reinvestment

Back in 2011 I sold a lot of structured settlements because of higher rates available on the secondary market.  Frankie and Linda needed an income stream so we were able to place several secondary annuities that would give them a discount on the initial purchase.  They did more with their money at the beginning but that’s not what made it work.

Frankie decided to go back to work for a while so he saved a little more money and didn’t officially retire until they started collecting social security.  Since they live within their means none of the income we put in place was needed so they continually reinvested in short-term deals to ladder investments and always have funds available if rates rise one day.  They used a series of fixed and indexed annuities with one maturing this year and another next year.  Plus the unused income stream provides steady available cash for reinvestment so flexibility in the future is optimal.

No one can predict the future and there’s one thing I say all the time that Frankie and Linda do better than anyone else.  Take the best deal available today but make sure you have the option and ability to make changes if better opportunities arise.  They have never been afraid of simply putting money to work in the best option available.  The result speaks for itself.  Not all of their assets have done better than 6%.  Some have returned higher and some lower but their diligence in identifying opportunities and acting on them is what produced the result.

Oh yeah, and there’s one more thing.  So many people question me about fees and feel like I’m holding back some hidden information.  Well Frankie and Linda do pay some modest fees.  They both have a self-directed IRA and the custodian charges $295 annually for each account.  So on $763K of assets they have combined fees of $590 per year.  No other fees of any kind apply whatsoever.  That’s less than 1/10 of 1% for anyone who wants to do the math.

Everyone knows I promote the Flex Strategy and I tell all who ask that it takes a different form for everyone who uses it.  There’s no single way to do it but the point is to maximize safe assets and maintain control of your money so you can take advantage of new opportunities when markets change.

Next week I’m going to share with you a complete overview of all the benefits of approaching retirement with the Flex Strategy.  Since I talked to Frankie yesterday I thought it would be a better idea to show you how it worked for some of my clients.

If you have any questions feel free to call, email or leave a comment below.




Make an appointment now

How Will Lower Rates Affect Annuities?

For the past year or so the Federal Reserve has been steadily increasing rates at every meeting.  Response from consumer product rates was similar as we saw modest rate increases in all types of financial vehicles.  Mortgages may be a touch more expensive but options for conservative savings gave people better opportunities for safe income and growth in retirement plans.

Increasing rates gave people higher payouts on income-producing products and more growth for conservative investors who simply want to protect assets.

With widespread predictions of a recession coming in the next year, the Fed has paused rate increases and is now suggesting rates may be cut to keep the economy moving forward.  If that happens a market correction could be in the works and options for safe money are going back to the point where it will be hard to find something appealing.

My career has spanned more than 16 years and rates have been decreasing during most of that time period.  In fact rates have been on the decline since the peak of the late 80s and have only risen in a meaningful way over the last 18 months or so.

As long as I’ve been watching, all interest-based assets paid lower and lower rates giving retirees fewer and fewer options.  Over the past year when rates started to rise a bit that all changed.  All assets improved in yield and everything including cash accounts, CDs, bonds and even annuities seemed to offer improving potential.

Those who acted at the right time were able to lock into opportunity that hasn’t been available for six or seven years.  It may be nothing like things were 15-20 years ago but even a few years can be a long time to wait if you’re not earning much.

Over the years, low rates have caused lots of people to delay commitments on long-term plans.  I’ve heard it more times than I can count.  “Inflation is going to go crazy so I’m waiting for higher rates.”  Since higher rates have been here many people have continued to wait thinking more is coming.  It would be nice to have a crystal ball but then I wouldn’t spend my time writing this newsletter.

So what happens if rates do in fact drop?  Well, rates didn’t come up a whole lot so there isn’t as much room for decline as there has been in past recessions but the higher benefits we’ve seen recently will go away.  Income payouts will be decreased as well as growth potential on all safe assets.

In approximate numbers, the S&P 500 is up 15% or more since its low point back in December.  That’s back when I wrote the article titled “Don’t Make Decisions after One Bad Day in the Market.”  While most salesman were using the market turmoil to urge people to buy annuities I tried to remind everyone that short-term events should not dictate long-term planning.

Economic indicators that should help with long-term planning decisions reveal themselves over periods of time.  So I’m writing this to remind everyone that things aren’t so bad right now.  Yields have been good for market investors and current rates offer reasonable opportunity for anyone who is nearing or in retirement.  It’s a much better scenario than waiting until the market corrects and rates drop.

Annuities still offer potential and guarantees that are better than anything we’ve seen for several years.  It doesn’t mean you have to jump on a major commitment but it’s a good time to think about your goals and explore options to achieve them.

I listen to a lot of market commentary and right now my instincts side with those who say the bull market still has legs, although it may not be long before that changes.  I’m more concerned with the interest rate side of things and this time the two may go hand in hand.  High market values and reasonable options for safety are a good thing.  It’s much better than the alternative so now is as good a time as ever.

Call, email or make an appointment below if you’d like to revisit any of the ideas I’ve shared.

All my best,




Make an appointment now…

The Reality of Roth Conversions

If your goal is to never pay taxes again then converting qualified assets to a Roth IRA is one way to do it.  But if you really just want to pay the least amount of taxes over time then it may be best to leave your assets right where they are and adopt a different strategy.  In reality there are only a few specific situations where a tax-free conversion works.  I’ll explain first why it doesn’t work for most people and then give you a couple examples when it can work well.

First a disclaimer:  This post is meant only to provoke general thought and conversation in regards to an oft-promoted retirement strategy and should in no way be construed as tax advice or a specific recommendation on any particular tax strategy.  You should consult a competent tax advisor in conjunction with any retirement plan that includes conversion of a Roth IRA.

When a conversion happens all the money coming from an IRA is counted as taxable income on top of any other income you receive.  With our progressive tax system, the more money you make the higher taxes you pay.  Converting large sums of money to a Roth puts you in a higher tax bracket which may have you paying more in taxes than if you withdrew smaller amounts over an extended period of time.

This was certainly the case with Mike, who I met with last year.  He had a few years until retirement and thought a conversion might put him in a favorable tax bracket.  His goal was to retire in a 15% tax bracket and he was planning to spend the last three years of employment to get half of his IRA converted to a Roth.  If so his retirement withdrawals would eventually be taxed at half the rate as otherwise.  The problem is that the last few years of retirement are his highest earning years so a six-figure conversion would have him paying taxes on those fund in one of the most aggressive tax brackets.  It amounts to paying a significant premium for a small benefit down the road.  Plus, given his assets and income goals I calculated him to be just under the 15% threshold without doing anything so a conversion would add unnecessary complication since his goal was already attainable.

A similar situation happened with Candace who retired at 63 and needed to supplement social security with $30,000 per year from her IRA.  She thought it might be a good idea to convert an additional $100,000 per year to a Roth so at age 70 there were no RMDs and income from that point would be completely tax free.  First of all, $30K per year as her only reportable income puts her in a very low tax bracket.  The additional $100K conversion annually would have her paying taxes in a much higher bracket on the whole thing than if she just left it alone.  Plus during the time period of the conversion her social security payments would also be taxed at the highest rate which brings the cost up a touch more.  If she simply leaves all assets in the traditional account she will be able to meet RMDs, remain in a low bracket and pay a very modest amount of taxes each year.

The above two scenarios in a general sense fit the objectives of most people I know.  There are situations where the conversion works but those are more specific and I’ll explain below.

Richard has a sizeable portfolio and a modest retirement expenses.  He has lived within his means which helped him save a substantial sum.  Social security covers all his needs and he doesn’t like to spend money, preferring to manage his assets and leave them to his kids.  In this situation Richard has no taxable income so he can convert a fair bit of assets annually while staying in one of the lower tax brackets.  A Roth is superior to a Traditional IRA for inheritance purposes so he made a strategic decision to convert gradually to maximize the benefits.  His prudence and discipline helped create a nice portfolio so I have no doubt he possesses the perseverance and aptitude to make it happen.

In another scenario when it works, Charles retired early with a disability at age 60.  He has a private disability policy that pays until he is 65 and that income is tax-free.  For the five years he is receiving tax-free income he can gradually convert to a Roth IRA without paying high taxes upfront.  A similar strategy can be used when non-qualified investment losses can be deducted to offset additional income.  In either case conversions can be done while staying in a relatively low tax bracket.

A few of my clients use a different approach and I recommend it as an option for anyone who likes the idea of having more assets in a Roth IRA.  The maximum contribution to a Roth for anyone over age 55 is $6500 in 2019, or $13,000 when each person of a couple does it.  I’m also fairly sure that rate will rise over time, allowing for even greater contributions in later years.

Pulling an additional $13,000 from a Traditional IRA every year will not substantially affect taxes and if consistent contributions to a Roth average even 4% yield then there would be nearly $400,000 in the account after 20 years.  It provides a nice base for inheritance or tax free withdrawals in the later years of retirement.

So I’ll ask the question again.  Do you want to never pay taxes again, or pay the least amount of taxes over time?  If you are looking for a strategic advantage there first needs to be an advantage.  In most cases a significant Roth conversion is not the most profitable strategy.

As with everything else it comes down to an individual decision and variables are different for everyone.  If you have questions about whether a Roth conversion is the right approach go ahead and call or click below to make an appointment.

All my best,



Make an appointment now…

How to Really Maximize Social Security

It’s the foundation of many retirement plans.  You all paid into it so everyone is entitled to receive something in return after years of contributions.  As part of planning for retirement you need to get an estimate of benefits and compare different strategies for getting the most from the system.  It makes retirement easier by lifting the funding burden from your investment portfolio.

In addition to information available from the SSA there are various forms of planning software and articles that offer general tips for maximizing payments.  I recently purchased an advisor subscription to since social security planning has always been a part of what I do.  Now I can get the options as technically accurate as possible.

I’m going to show you why going for the highest payment will not necessarily get you the most money.  In addition to any projection you need to also run a break-even analysis to see when the cumulative payments actually add up to more money in your pocket.  Articles on the subject typically recommend delaying as long as possible and standard advice follows a similar line of thinking.

That’s general advice and doesn’t reflect the personal variables that are different for every individual.  There are plenty of situations where delaying social security payments goes against your best interests.  If you happen to still be working after you are able to claim then it makes sense to delay as you don’t really need the money and the additional income may have adverse tax consequences.

But if you are actually retired and choose to delay payments there’s a cost for doing so since you then need to fund retirement for the interim out of another pocket.  To illustrate this issue I’m going to refer to the table below.  These are the numbers for Debbie, who I met with recently to answer some questions about her retirement options.

Before Debbie makes any other decisions she needs to firmly commit to a plan for collecting social security payments.  She has plenty of other assets so she can afford to pick any option but wants to make sure she does what’s best.  As is common, everyone so far has told her to delay taking social security as long as possible to get the highest payment.

As is common, I disagree with anyone who says that and I’ll show you why.  Debbie just retired and will turn 64 in a few months so that’s where I started the numbers.  Her monthly income needs in retirement are $2200 which is coincidentally the benefit available to her if she claims this year.  In the table I show monthly benefits available if she claims on her 64th, 67th or 70th birthday.  Monthly income is shown beneath each age and the income column for each uses annual income totals.  Take a look and I’ll explain below.

Annual income for each year is listed in the first column and the second column shows aggregate payments for each strategy.  This is how you need to look at it…

If she waits until age 66 to claim it will cost $52,800 in lost payments in order to receive an additional $4512 per year.

If she waits until age 70 to claim it will cost $158,400 in lost payments to receive an additional $13,200 per year.

If she waited to collect until age 66 she would not actually receive more income until age 77 and beyond.  Note the bold box at age 77.

If she waited until 70 she would not actually receive more income in comparison to collecting at age 66 until age 84.  Note the bold box at age 84.

Cumulative income numbers to age 85 show a minor cumulative advantage to the delayed collection strategies.  If you factor in the out-of-pocket cost for delaying payments she is well ahead by taking the money at age 64.

So, when do you want the money and how much will it cost to wait?  For most people it makes sense to take social security payments as soon as it’s available.  My cynical viewpoint is that the SSA knows they pay out less money for the average individual if they can convince everyone to wait.  That most advisors suggest a similar strategy reveals a lack of creativity and critical thinking on the subject.

The remaining life expectancy for the average 64 year old is about 18 years for men and 21 years for women.  Half of all people won’t even make it to the point where delaying social security payments becomes worth it.  Again, after factoring in the cost of lost payments the comparison is not even close.

Since asset allocation in retirement is dramatically affected by additional income sources I feel that it’s critically important to get this right.  Creating a plan based on half information will never be as effective as one that truly consider all angles.  Lots of annuity proposals are based on an income gap for someone who is waiting to collect social security.  Without waiting the same need doesn’t exist so that type of recommendation is worthless.

If you are waiting then I suggest you reconsider.  If someone else advises you otherwise then you need to think hard about his/her motivations for doing so.  Feel free to reach out if you’d like to talk about your numbers.  Go ahead and call, email or make an appointment below if you’d like some help.



Make an appointment now…

The Difference between Sales and Advice

It dawned on me last week that I’m giving people advice and competing with other advisors who are just trying to make sales.  There’s a big difference between the two.  No one likes the hard-selling guy who only emphasizes the positives without mentioning potential negatives.

In fact, most people end up finding this site while trying to determine if a sales pitch is legitimate.  As much as everyone hates it, lots of people still end up falling for it.  Most of the people who contact me via phone, email or appointment mention regretting a past decision regarding annuities.

One of the clearest indications of this is in a short email I received a couple days ago.  You all got the same email where I simply try to confirm you received the information you requested.

This person responded by saying, “Yes. I will look it over but my wife already has an annuity so she is not thrilled with the idea of getting another one.”

My response?  “No worries Pete- it’s free information and you are not obligated to do anything.  I hope you find some useful ideas.”

Someone sold these guys an annuity and for one reason or another they are not happy about it.  There’s also a vague indication that he feels as though I might try to sell him a second contract.  I know nothing about the guy and can’t tell if the first annuity is the right thing for him let alone whether it’s worth my time and effort to try and sell something else after a bad experience.

Learning the difference between sales and advice will give you a substantial advantage while you evaluate various strategies for asset management in retirement.  Sales consist of highlighting features of a product or service in hopes of getting a buyer to commit.  Advice centers around finding solutions to a problem that are in the best interests of a consumer.

Oftentimes sales start by creating a problem in order to solve it with a specific product.  You should avoid anyone who first tries to complicate your life right before they recommend fixing the non-existent problem with something you don’t really need.  Most of the mistakes people make are the result of a similar strategy.  Advice provides justification for a particular strategy over another.

I’m not a very good salesman so I have been skeptical of the classic sales pitch since my entry into the financial services industry.  That’s also why I almost quit about ten years ago.  I got tired of being told to sell a new product because of a specific feature.  I was told things like, “call everyone on your list and tell them about this new idea.”

Every product or strategy has a drawback but it’s not because of a negative feature in the product itself.  A person’s individual situation is what makes it work or not.  A Tesla is a great car but it won’t tow my horse trailer so it would be a waste of money for me to buy one.  Yes, a few people have tried to convince me to buy a Tesla but it won’t be relevant for me until they make one with the towing capacity of a diesel truck.

Advice comes with a focus on what you want and need.  More time should be spent trying to understand where you are in relation to where you want to be.  Finding strategies based on sound advice takes time and patience.  Sales happen fast without regard for specific variables that may qualify or disqualify the product for a given individual.

Some of you may remember a past newsletter I wrote:  Some People Don’t Need Annuities.  Go ahead and click the link if you’d like to read it.

The point of that post was to illustrate an example of my process.  Good advice gives you different options to reach your goals.  And I don’t mean just different annuity options.  I mean different asset classes, all with specific benefits or disadvantages so you can decide which option is the best.

My process centers on the five keys of retirement, which are:

Income– First determine the amount of necessary and/or discretionary income a person needs in retirement

Market Volatility– Then find the amount of growth needed in the portfolio to meet goals and limit fluctuations in value depending on personal risk tolerance

Inflation– Position assets in a way that enables you to adjust spending levels in retirement

Control– Promote strategies that keep a person in control of assets throughout retirement so changes can be made when needed or as better opportunities arise

Legacy– Some people like the idea of leaving money to the next generation or a charity while others don’t mind the idea of bouncing the last check they write

Every individual has a unique feeling about each of the above variables and each person places more importance on some more than others.  How you approach one can have a dramatic effect on another.  The amount of assets you have and the number of years until retirement will also provide a foundation for realistic expectations.  When it’s all said and done there are literally hundreds of results to the above formula.

Until this is figured out there is no way to determine whether an annuity is what you need.  That’s why the guy who buys dinner for 30 people and tries to sell the same product to everyone should not be taken seriously.  It’s the most obvious type of sales pitch and it won’t do you any good.  The sample trays at Costco might be a good way to sell boxes of frozen food to random people but the same tactic is no way to influence people in regards to major financial decisions.

Sound financial advice results in good relationships and sales put people in a defensive position from the beginning.  Nothing good comes from that.  When people are defensive I can hear it in their voice.  The conversation usually starts with those people trying to convince me why they shouldn’t buy an annuity.

So you all need to know that I am available if you want some advice about your situation.  But if you expect me to jump in the mud with all the others who are competing for numbers then you have the wrong guy.  I’d probably make more money doing it the other way but that’s not my style.  Those who know me would agree.



Make an appointment now…

Index Annuities Explained on One Page

Lots of people tend to overthink big financial decisions.  It happens all the time with annuities.  When you’ve heard constantly from other sources that annuities are complicated then your search is started with a negative opinion, grounded in nothing but someone else’s opinion.  You’ve probably owned mutual funds before but I doubt that many of you have read the entire prospectus.  Talk about boring and complicated!

In reality an index annuity is not that hard to understand.  It may seem so because too many agents speak only in sales pitches.  That leaves you wondering how all those wonderful promises are possible and many of you decide it’s just too good to be true.

Well that’s not the case.  You just need someone to simplify the product so you understand first and foremost how it works.  For years I’ve been talking about how the important components of a contract can be listed on one page.  After a recent meeting with a man who was overthinking the issue I decided it might be helpful if I wrote it all down on one page so he didn’t spend too much time thinking about irrelevant technicalities.

So here it is:  Index annuities explained on one page.  Start with the basics so you have workable knowledge that can be used for more important issues like creating a retirement income plan.

Start with Fixed Annuity:

  • Insurance company invests premium in bonds
    • Receives +/- 4.5% and takes a spread or portion of the yield to cover expenses and produce profits
    • Roughly 3% remaining is credited to annuity as guaranteed yield

**estimate only and actual rates depend on bond maturity and length of annuity surrender schedule

Fixed Index Annuity is Slightly Different:

  • Contract can be credited with 3% fixed rate, or…
  • The fixed interest will be used to buy an option in an external market index
    • If index is positive, earnings from the option are credited to annuity as earnings
    • If index is negative, interest earnings are lost
    • Principal is never at risk so the contract will not lose money

Index Options and Crediting:

  • Each contract has several options for external indices and money can be divided among all available options at buyer’s discretion
  • Interest is credited once annually at which point you can change how the money is allocated to the available market indices, the fixed rate account or any desired combination
  • Any earnings are locked in as principal and will never be subject to loss going forward

Limited Earnings:

  • Fixed interest earnings do not buy 100% of the market option so cap, participation and spread rates determine how much of the market index yield is credited to the contract
  • Limitations aside there is excellent growth potential available with yields into double digits likely, although 5% is a reasonable expectation for long-term yield

Free Withdrawals:

  • Standard 10% of account value available for withdrawal annually without penalty
  • Sometimes lower free withdrawal can be exchanged for higher growth potential


  • Fees only apply for benefits additional to the above, such as…
    • Enhanced earnings potential with higher cap, participation or spread rates
    • Guaranteed lifetime income, long-term care or enhanced death benefits

It does not need to get any more complicated than this.  Obviously certain components above can use more detail but you need the basics first.  Start here and build upon that as you investigate ways to use the contract in your portfolio.  Certain sales strategies might cause you to lose focus of what’s important.  It’s kind of like buying a car based on the color alone.

If someone is trying to sell you a contract and you can’t figure out how the promise relates to the basic structure then you are not getting the service you deserve.  I’m here to help so feel free to call, email or make an appointment.




Make an appointment now…

How Commissions Affect Annuity Sales

Everyone either asks about it or thinks about it.  Journalists write about it and competitors criticize it.  Annuities pay commissions to the agents who sell them and that’s just how this part of the industry works.  It’s ok to be concerned about this because the amount of money a salesperson gets does make a difference in the products and options you are given.

I’ve met agents in the past that refuse to sell anything that pays less than 8% commission which clearly shows a person who is primarily focused on self-gratification.  Not everyone is greedy even if the critics claim that anyone who sells an annuity is only in it for the money.  But there are very few people who put the importance of consumer value at the forefront of a proposal.

If you want to understand how commissions affect the products you see then you have to understand first what the pot looks like and then see who has a hand in it.  Agents are not the only ones who control product options and in a lot of cases that’s the main reason why so many people sell certain products more than others.

The source of the issue is what’s called Insurance Marketing Organizations (IMOs).  Most insurance companies have outsourced their sales and marketing departments to third party companies like these that handle product distribution and assist agents with consumer sales.  The payoff comes in the form of additional commissions paid to the IMO on top of what’s paid to the contracted agent.

It’s a necessary evil on this side of the business and I don’t feel as though IMOs add any value to my business and definitely don’t add value for the consumer.  Essentially what this means is a third party determines in part what contracts are appropriate for your situation.

IMOs compete aggressively to get an agent’s business.  I get three or four new calls every week with offers of free leads, fancy vacations or extra commissions and bonuses if I switch to the other company.

I get more pitches than you do which is one of the reasons why I don’t call people endlessly.  I understand what it’s like to have someone relentlessly bother me for business.

Incentives offered by IMOs are too numerous to list but for purposes of this article I’m going to focus on additional commissions.  Products with the highest commissions are usually the flashy ones with a big bonus and longer surrender periods.  The agent gets what is called street-level commission and the IMO gets an override.  Some overrides are bigger than others and typically that additional compensation comes alongside the products with big street commissions.  IMOs have no direct responsibility to you so money rather than ethics dictate product recommendations.

Bigger overrides mean a better bottom line, or more money to entice agents to do certain types of business.  You can call it my opinion but I am positive this is the reason why some annuities are more widely used than others.  I’ll give you an example that will make it pretty clear.

Allianz is a company I pick on a fair bit mostly because the motives are obvious.  They have a list of annuities that are considered “preferred products.”  In order for an IMO to distribute products from the preferred list they need to be able to hit some pretty high sales targets.  The benefit of selling Allianz preferred is that Allianz does not allow an IMO to share overrides on those products.  So when an IMO gets an agent to sell preferred there’s more money in it for the IMO and the high distribution requirements mean they push those products hard.

An exact reason why those products are so widely distributed is because that’s what the IMO wants agents to see for the two major reasons mentioned above.  I’ve met a lot of advisors who say those products are the only options they have to sell.  If so they are working with the wrong IMO but at least you can begin to see that it can be just as hard for agents to find good products as it is for consumers.

I had the same problem several years ago when I first started investigating index annuities.  The IMO I was using limited my options to one or two companies they had a good contract with.  As a result I wasn’t able to recommend a truly unbiased product recommendation.  It didn’t take me long to figure it out so I fired the IMO and decided never again to take their suggestions as fact.  Rather than rely on them to educate me I opted to pay for access to a database of all products so I can see the entire market and use a detailed search to identify the best value.

I’ve always believed that a small percentage of something is far better than a big percentage of nothing.  After looking at my books from 2018 I can see that my average commission was just under 4%.  It’s not that I’m better than anyone who sells for bigger commissions, that’s just the result of being involved in competitive situations and keeping the focus on finding the best solutions for people.

Commissions will always hold some people back from making a big purchase but it shouldn’t.  Someone makes money off of everything you buy so it’s up to you to make sure you are getting as much value as you can.  The cheaper it is for a company to manage an annuity contract, the more you will get out of it.

Large commissions happen to come along with the most commonly sold products and that is part of the reason why I spend so much time trying to get people to avoid them unless it’s an absolutely perfect fit.  Making strategic financial decisions based on fundamental analysis will allow you to naturally find the best contracts with the most benefits.  For those of you willing to look a little deeper at that type of approach, the result will be a more profitable retirement.

All my best,



Make an appointment now…

When and How to Retire

Last week a loyal reader of the weekly newsletters responded to me and asked if I’d give some advice specific to his situation.  He correctly assumed that others were in a similar position and it would help himself and other people who are trying to decide when and how to retire.  So I’m going to talk about the when and how of Bill’s situation so everyone can see how to objectively approach these decisions.

Bill lives on the other side of the country.  I’m in the mountains and he’s in the city.  We are both benefitting from the enhanced communication that is provided by technology.  For me I can share my message with more people and any of you, like Bill, have more information at your fingertips than ever before but need some help sorting out all the options and opinions.

Last fall Bill scheduled an appointment and made me part of his search for a financial advisor that can help with retirement.  He is now a 58 year old federal employee and wants to see if his expectations are realistic.  His pension would be available at age 60 but he plans to work until age 62 so early social security will set a nice baseline for retirement income.

So his first question:  Do I have enough to retire as planned?

I use the below assets to do a basic calculation:

$525,000 in a Thrift Savings Plan

Continued maximum TSP contributions until retirement

$175,000 in a Roth IRA

Continued maximum Roth contributions until retirement

He wants $5K per month in retirement and social security will pay $1600 and his pension is $2000

That leaves a $1400 monthly income gap to cover

Yes he can retire as planned with plenty of funding and will have his choice of options for asset allocation.  His annual income gap amounts to 2.4% of his current assets.  With continued growth and savings the gap will be a much smaller percentage of assets.  That means Bill can either retire earlier than expected or plan to spend more when he gets there.

Traditional planning gave us the 4% withdrawal rule and you are in really good shape if annual needs are less but 5% of assets as income is very possible for those of you who aren’t.  Bill at 2.4% of assets is in an extremely strong position.

The second question:  What do I do with my assets until then?

Like many people, Bill has been saving and investing during some excellent market periods.  While the market is still very high he is concerned that any volatility could put the planned date in jeopardy.  In a lot of situations there is an easy answer.  Once you have enough there is no reason to take unnecessary risk.  A few years away from retirement is the perfect time to add an annuity to the plan so risk is decreased and volatility won’t change your retirement date.

But like a lot of people with qualified retirement accounts Bill can’t move money from his TSP until age 59 ½.  Fortunately with the TSP there is a G-fund option so he can get the 10 year US Treasury rate and keep his assets protected.  It’s a floating rate that is paying about 2.7% now but was over 3% at the end of 2018.  The best feature is that the money is totally liquid so he can continue contributions and get a safe yield.  A whole new set of options will be available to him in a year and a half when he can move funds and that’s when I’ll recommend allocating assets to a more definitive retirement plan.

If you don’t have a TSP and G-fund then your options are going to depend on what’s available in your employer-sponsored plan.  In many cases nothing more than a money market fund is an option for protecting assets when they can’t be accessed.  Bond funds are a common option with liquidity but those are a bad idea when interest rates continually fluctuate.

No matter what your situation, a few years before retirement is when you need to start protecting assets, especially if you’ve saved enough already.  If low yields are holding you back just remember that often times not losing money is better than taking risk because you want a better return.  It’s up to each individual to decide for him/herself how much risk to take before and during retirement.  When it’s possible to yield well and protect money I don’t see why so many people continue to take risk but it’s not always up to me.

Bill is in a great position and there’s no reason to take risk.  About two years from now he’ll have access to funds and then can compare income strategies and products.  His income gap is small so there will be plenty of options and like always I’ll show him how to get the most from his safe assets.

As for the how, there are several ways he can do it.  If he chooses a guaranteed lifetime income product it could cost as much as $300K to lock in the steady cash flow required to fill his income gap.  Since that is less than half of his current assets it is a reasonable option if he doesn’t mind locking the money away for life.  But since he has plenty of assets, running out of money in retirement won’t be a problem.  The Flex Strategy would provide more growth and spending potential with the same level of safety and assurance, just without the lifetime commitment.

The Roth IRA is the perfect qualification for assets that can be managed for long-term growth, discretionary spending and tax-free income later in life.  Bill doesn’t need it for income so he can invest it for growth and will likely see substantial accumulation toward the later years of retirement.  Like I said, he is in a great position so has plenty of options.

Everyone should hope to retire at the top of the market and then take chips off the table in order to protect what they have.  Bill has done that a bit early but he still got out on top and will enjoy a profitable retirement because of it.  His when is whenever he wants and his how will happen when he can move his assets from the TSP.

If any of you would like a mathematical and objective answer to these questions then give me a call or schedule an appointment below.

All my best,


Make an appointment now…

Annuities Are Not Just for Income

It’s time to set the record straight.  After hearing this in the vast majority of my meetings so far this year I have realized that the industry mantra has permeated the subconscious of most retirees.  Since my strategies focus on how to enhance performance in comparison to lifetime income products, I often take for granted that people who find me are looking for an alternative.

The traditional approach of using guaranteed income to cover basic needs in retirement is not the only way to go and I pointed that out several weeks ago when I wrote about The Problem with Guaranteed Lifetime Income.  But the point still seems to be not getting through because people keep saying, “I thought annuities were only for income.”

So if you are shopping for the highest payout rate or trying to find a way to game the numbers, I’m sorry to tell you that I’ve already done it.  From immediate annuities to variable I’ve seen them all and know exactly where each one is the right fit.  My goal is to compress the research process so you don’t spend as much time trying to find the answer as I did.

But apparently I have not put enough emphasis on one detail that is fundamental to the search for the best retirement plan.  Annuities are not just for income.  Annuities are for protection.

Variable annuities will protect you from taxes…

Fixed and index annuities protect you from market volatility…

And income annuities protect you from longevity…

Most people are looking to produce income so all products have been given components that allow for guaranteed income in addition to the core benefit each provides.  That’s right, income benefits were added to most annuities you will see which means something existed in the contract before income was there.  That’s where I focus my attention because the core benefit is where you’ll find the best use.

Really it’s all about longevity risk.  That’s the risk of outliving your assets because of unknown life expectancy.  Providing income in retirement is all about insurance and good insurance is expensive.  That’s exactly why guaranteed income may not be the best deal.  If you’ve saved enough for retirement you can avoid the steep cost of insurance and worry more about true profit.

Instead focus on safety, yield, liquidity and a shorter contract commitment so you have flexibility to make changes to your plan.  The aforementioned benefits are all things an annuity can do without a fee or lifetime commitment.  It’s not about income, it’s about protection.

The proof of this approach goes back to my “Five Keys of Retirement”.  It’s the foundation of the Flex Strategy that shows how focusing on a single goal in retirement will limit your output and future planning options.

The Five Keys Are:

Producing Income

Decreasing Market Volatility

Mitigating the Effects of Inflation

Control of Your Assets

Leaving a Legacy

The guaranteed income only approach is going to leave you exposed in certain areas.  Many of you might remember the green thumbs up and red thumbs down.  It’s what I used as a graphic in the webinar to show how certain retirement strategies help plan for the five keys.  Most traditional plans and products show deficiency in two or more areas.  The goal is create a plan with five green thumbs up so you know all the risks have been eliminated.

Remember that an annuity is not just for income.  The basic benefits provide what most people need and do so without the cost and time commitment of expensive insurance.

The traditional income approach works for some people but not others.  My approach works for people who want or need to produce more and keep control of their assets.  If I send you a proposal it means I have looked at all the other options and know what I’m showing you is the best.  If you’d like to revisit our previous discussions about your plan then please reach out.

Have a nice weekend…



Make an appointment here…

The Danger with High Expectations

Over the past few weeks I have come across a couple proposals from other advisors that have revealed something of a trend throughout my career.  Certain annuity illustrations can be made to produce spectacular numbers and it’s fine if someone chooses to believe those results will happen but more realistic expectations will give you a plan with more certainty.  I’m going to show you how to put these types of projections in perspective so the most optimistic outcome is really good news, rather than anything less being a disappointment.

About a month ago I saw an illustration for a variable annuity with a lifetime income rider and additional death benefit.  Then this past week I ran into a similar illustration of an index annuity with guaranteed income payments that increased each year based on the growth of an external market index.  Each produced exceptional results and my problem is not with the contracts specifically, rather the consequences of it not working out that way.  Lower than expected income or a depleted remainder account value could leave you in a bind at the worst possible time.

This is something I’ve dealt with for years with all types of financial vehicles from mutual funds to insurance policies.  I hear crazy claims and see ridiculously high projections that are often based on questionable assumptions.  When people realize the truth and find that the proposal is not very realistic they are disappointed.  An alternative plan may be more reasonable but it’s not exciting enough and they just stop trying to find a solution.  Worse yet, many people disregard my advice and go forward with the proposal anyway.

In this case, whether it be the variable or index annuity, what concerns me most is that for either plan it wasn’t the annuity that made it work.  Both plans worked well because the market period used in the illustration was one of the best performance periods in history.  If expectations are based on that period then there would have been no reason to use an annuity because either person would have been much better off keeping all their money in the stock market.

The variable annuity had fees close to 4% and the index annuity has capped gains.  Without the fees or cap rates, growth for either individual would have been substantially better.  The market period used was from 1988 thru 2018 so it’s not a matter of cherry picking the perfect data, it’s just that the last 30 years was pretty outstanding.   Almost the entire exponential part of the stock market’s curve happened since the late 80s.  Fine by me if you think that’s going to happen in the next 30 years but if you’re so sure about it then don’t even mess with an annuity.

Just about everyone on this list has benefited greatly from saving during the best years in the stock market.  There have been plenty of pain points but the market always bounced back and climbed even higher.  Whether it will continue for the next 30 years remains to be seen but the reason most of you are here is because you think it might not.

We all use past results to predict future performance but it’s important to simulate plans over poorly performing market periods as well and not everyone does that.  I feel that’s the key to setting your expectations at a reasonable level and I recommend it as an approach to evaluating any overly-optimistic plan.

Both the variable and index annuity showed guaranteed minimum outcomes.  This is what you know the insurance company will do no matter what.  Each contract showed a guarantee based on 0% growth over the contract term and the results for both would be devastating, or the kind of thing that would happen in a very dark economic time period.

Since I don’t think we are headed for the apocalypse it is reasonable to assume some growth in the future even if it doesn’t match the substantial returns from the past.  What I told each of these people is to take the average of the best outcome possible and the guaranteed minimum.  For both annuities this would mean lower starting income but not below the guaranteed minimum and smaller annual increases with a lower remainder benefit.

If the average of the best and worst case scenario is appealing then base your expectations on that. There will still be variability in the outcome but your plans will not be derailed by sub-standard performance.  In a worst-case scenario you’ll at least have income when everyone else is looting grocery stores and the best case will exceed your expectations.  It’s much more reasonable than planning for the best only to be disappointed or trapped when it doesn’t work out.  Give me a call if you need some help creating a plan grounded in reality.




Click Here to Make an Appointment