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

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.




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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,




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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,



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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.

I 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 77 she would not actually receive more income in relation 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.



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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.



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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 on 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.




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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,



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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 how 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,


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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.  The 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…




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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.




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I Didn’t Sell My Dad an Annuity

The point of this whole operation is not just to sell as many annuities as possible.   A lot of time and effort goes into making sure people don’t make mistakes and that results in me not selling annuities most of the time.  Some people get it and some people don’t.  Annuities work for some but not others.  Some sales are easy and some take a lot of time and effort.

Last week I thought I had a really easy sale coming my way.  My dad needed help setting up a living trust so he could organize his assets.  I have five siblings and this will make things a lot easier than just hoping we all agree on something.  Many of you have had good or bad experiences with the issue so it’s something I recommend to all clients.

Part of what he needed was an investment idea for a fair bit of cash he has set aside over the years.  He has little experience with the stock market and is one of those people who really doesn’t spend any time thinking about how much money he can make.  Simple and conservative is his wheelhouse and there aren’t a whole lot of options.

Kim Anderson spent a 42 year career as a school administrator in Montana and Wyoming.  Two modest pensions and social security allow him to easily cover expenses with plenty of extra cash each month for discretionary spending.  He also has supplementary health and long-term care insurance so is well prepared for the big emergencies in retirement.

With plenty of savings and positive cash flow he is in a perfect spot to do about anything he wants.  He should invest some money and get more growth, right?  Yes he should and based on his limited experience a simple fixed contract would be a good way to increase yield.  Dad knows I’m in this business of course so he directly asked me to find a place where he could put a couple hundred thousand dollars.

Well he’s my dad and I really like the guy and would never steer him wrong.  I know this market and how to find a nice easy deal that yields well with no complication.  But I’d never take him for granted and just assume he’ll cut a check and send it wherever I tell him.  So I made him go through the same process as anyone else to find the need or justification for giving him a retirement product.  That’s how we settled on creating the trust before anything else happened.

During our conversation we talked about how he is planning to spend his time in retirement.  Currently he is getting ready to move back to our small family farm in the Bitterroot Valley so he can raise a few cattle and plant a big garden.  My grandmother and his mom is alive and well at age 89.  She lives alone of the property and needs some help.  Since my dad built the house back in the 70s there is a family connection he wants to keep in place.

Grandma needs help to keep the place in good order and it will provide him the opportunity to putter around on a little farm and do what he loves most.  But Kim has siblings too and they have an equal right to the property where Grandma lives, and she won’t be around forever.  Kim’s plan is to buy his siblings’ share of the property but won’t do anything until Grandma is gone.  Otherwise she’ll think they are trying to push her out.

So with a big need for cash coming at an undetermined time in the future he needs to be fully liquid.  He can’t risk losing anything in the market for the time being and no safe asset will give him the flexibility to make the purchase when it happens.  Real estate considerations play a big part in many retirement plans.  Some people upgrade or add a second home and some people downsize to cut cost and free up extra cash.

My advice is the same for everyone.  Money needed for major purchases within a few years should be kept safe.  There’s not enough time for real growth no matter what yield you get so it doesn’t make sense to risk not having fund available exactly when you need it.

For now, Kim needs to focus on his tasks around the farm.  When the snow melts he’ll go to the stock sale, buy some steers to finish and plant some raspberry bushes.  He will continue saving money and eventually buy the old house.  When that happens he will then be in a place where he can look at investing some assets for long-term growth.

Part of him thought that I didn’t want to deal with him because he doesn’t have that much money but that’s a long ways from the truth.  He understands it differently now that I explained why liquidity is the biggest issue for him.  I also told him that I spend my time solving problems that he doesn’t have.

He has adequate savings and monthly income plus insurance to cover contingencies.  He is simple and would rather trust me than spend a lot of time researching products and financial strategies.  For that reason I chose not to sell him an annuity.  He wanted me to make the decision so I considered all factors and determined it’s not what’s best for him right now.

I only sell annuities that solve problems and improve financial security and opportunity.  Whether it’s my dad or anyone else, I won’t recommend any strategy unless it’s the right thing to do.


Enjoy your weekend…



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How to Choose the Best Annuity

This is always a tough issue to address because there is no objective definition for the best annuity.  Last week one of my readers sent me the link for Barron’s Top 50 Annuities of 2018.  The highly regarded financial publication puts a list out every year and Steve wanted to know my thoughts.

Barron’s list comes out in the summer every year and I chose not to link it because you can look it up easily enough if you’d like to see it.  Objectively speaking it’s a good list of contracts but the limitation is the same as looking at an individual contract to see if it will work for you.   There has to first be a plan before you find the annuity to do the job.

Some of you may get tired of me repeating myself but I need to remind you of the most important lesson I try to share with everyone.  The point of using annuities is to protect assets and if you’re going to use an annuity then you have to use a strategy that helps you get the most out of it.

The Barron’s article is limited to showing variable annuities with the lowest fees or best performance and income annuities with the highest payout.  All of those relate to getting the most out of an annuity but they are not necessarily relevant to all retirees because of certain drawbacks that may come with a specific contract.

I often recommend plans to people and an annuity that makes it work and don’t ever hear from the person again.  A lot of times a person will respond to me asking if a different annuity would work better.  So I am left to assume that many people think I’m not giving them the best option.  There will always be an agent who believes to have a better annuity and consumers have a hard time deciding which way to go.

So for each type of contract available there is a two-pronged approach to finding which is best.  First you need to focus on the specifics of the contract type to determine if it’s right for your situation and second you look at the objective components to find the contract that will deliver the best mix of cost and benefits.  Here they are one at a time…

Variable Annuities:

VAs were originally created as a means for high net-worth individuals to defer taxes on investment gains.  If that is your purpose then you’ll want to follow Barron’s advice that defined the lowest management fees and highest recent performance figures.  More often these days, however, variable annuities are used for guaranteed income and then getting the most out of it is a variable proposition, as the name suggests.  Enhanced fees for such benefits cut long-term growth and legacy potential substantially.  This option tends to be a matter for personal preference so if you want the upside of the market with the downside of an income guarantee you simply need manageable fees and a variety of investment options that provides plenty of opportunity.

Immediate Annuities:

This is really easy because it’s the simplest form of annuity – premium in exchange for lifetime income payments.  So all you have to do is find the highest monthly payment from a company with financial strength that meets your ideal scenario.  For true, hands-off security this can be set in place to provide the greatest form of stability.  But maximizing income depends your age and underlying interest rates so getting the most for your money is a matter of timing and economics.  These days the perfect fit is a unique situation so give alternate options some consideration in order to verify what you’re getting.

Fixed Annuities:

Interest rates, time frame and liquidity.  Lock-up period corresponds with yield to indicate whether there’s an advantage over other safe money options.  Liquidity will set this apart as a better option for many people with that being what really determines the best contract.  Access to funds can be limited for greater yield and increased for less yield so there’s lots of gray area in the top few contracts.  Read the fine print and make sure you’re not short on benefits just for a few more basis points.

Fixed Index Annuities:

With lots of ways to use these there are lots of variables to consider.  If you are looking for guaranteed income then it’s just like an immediate annuity so choose the highest payout from the best company.  The guarantee won’t be as much as you can get from an immediate but more than the minimum offered with a variable.  Outside of that is where it gets tricky because of the sales pitch that comes with most contracts.  New and improved products are not proven so projections can’t be trusted.  At the bottom line you need to keep it simple.  Use indices that have been around for a while so you’ll be working with more reasonable expectations.  Avoid fees if at all possible and skip bonuses since we all know insurance companies are not stable because they give away free money.  Fees and bonuses add restrictions, mostly in the form of income guarantees and if you want to get the most from the contract then you need to avoid the complexity.


All of the above are general guidelines and I could probably write an entire post to fill in all the details for each type of contract.  Just remember it’s more about strategy than contract.  If you spend too much time hemming and hawing over tiny differences then the annuity has not been put in the right context and you need to go back to the beginning and redefine your objectives.

My goal is to show you how an annuity can improve your situation and give you the best annuity to make it work.  If I’m wrong and there happens to be a different contract that works better the difference will be negligible.  Two similar contracts of any type will both do well if one does well so it’s really not worth trying to predict the future.  By contrast I prevent a lot people from buying the worst annuity for their situation so being picky about the good ones doesn’t make a lot of sense.

Do your homework and due diligence and contact me if you want some consistent advice.  My message doesn’t change and I’d be happy to go over it again if you need a reminder.


Enjoy your weekend!


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I Can’t Believe a CFP Designed This Plan

Long considered to be the benchmark for ethical behavior in the financial services industry, the Certified Financial Planner (CFP) designation is thought by many to be a necessary qualification for anyone who gives financial advice.

The CFP designation does not, however, exempt anyone from criticism who implements a retirement plan that is poorly conceived and woefully inadequate.  CFPs after all are human and no more capable of competence than anyone else just because they spent a little money and took a test so they can have some initials on a business card.

Before I go any further please let me state that I know hundreds of professionals in this business with all sorts of specialties.  The person behind the credentials is what’s most important.  Whether it be CFP or any other standard, there are those who know what they are doing and those who don’t.

And now for the plan…

I met Roger last week.  He had signed up earlier this year and read some information that has him questioning the plan he put in place two years ago.  He is retiring this year and in addition to social security would like annual income of $60,000 with an additional 1%-2% yearly increase for inflation.  His total assets were roughly $1M in 2017 when a CFP assured him of a conservative plan that would take care of it all.

1/3 of Roger’s money would be put in a commercial cash account paying 3% and 2/3 of his money would be split between three deferred annuities.  One annuity would be used for conservative growth and the other two deferred for ten years to provide lifetime income.  After hearing the general details I was immediately scratching my head.

Allow me to break it down into more detail but remember this is a close approximation and not perfect to the penny.

Cash Account:  $340,000

This is meant to provide income from 2019 thru 2025.  If the yield is 3%, principal and interest payments over six years would come to roughly $5100 monthly.  So that part meets the income goal but in the first six years of retirement, 1/3 of assets would be gone.

Annuities:  $660,000 split three ways

  • Midland National Endeavor 8 – $220,000
    1. Safe growth until the end of the surrender term in 2025
    2. Reasonable projection is growth to $300,000 in eight years
    3. Plan calls for taking proceeds and buying dividend paying stocks
  • Midland National IncomeVantage – $220,000
    1. Guaranteed lifetime income starting in 2027
    2. Projection shows income of $21,000 annually after ten years
  • Allianz 222 – $220,000
    1. Guaranteed lifetime income starting in 2027
    2. Projection shows income of $20,000 annually after ten years of deferral
    3. The CFP actually quoted higher income figures but I consider those to be ridiculously overstated so I am giving this the benefit of the doubt and projecting income numbers that are very high relative to all the 222 illustrations I have reviewed

Below are the issues I have with this plan.

  • 1/3 of assets are spent after only six years with likely 20 years of retirement left
  • The first annuity becoming surrender free in 2025 cannot all be spent on dividend paying stocks. For two years until 2027 there is an income gap and over $100K of the proceeds need to be spent to bridge the gap if I offset the $60K annual goal with the average stock dividend of 3%.
  • In 2027 there would be $200K in stocks paying $6000 annual dividends and a combined income from both annuities of $41,000 for a total income of $47,000 annually
  • In the best scenario this leaves Roger $13,000 short of the annual income goal with no plan or prospect for inflation adjusted income. Assuming a 2% inflation adjustment, by 2027 his income goal would be over $70,000 annually so that results in an even bigger gap.
  • After 20 years of payments, Roger will be 81 years old and the above would provide him with a total cash flow of roughly $850K. There would likely be a remainder of some dividend stocks and two annuities would continue paying $41K per year but from a yield perspective he does not really start making money until he is over 80 years old.

To me, the first 1/3 of the assets was wasted in order to sell a couple of deferred income annuities.  Future success is going to depend on performance of the growth annuity that matures in 2025 and the Allianz 222 needs to wildly exceed expectations.

The major fault of the above plan is not with any specific element but rather the entire plan as a whole.  Roger’s withdrawal rate amounts to 6% of his total assets which is quite high so he needs real growth and no element of the plan allows for that.  On the flip side, with a high withdrawal need you can’t afford much risk either.  There is no answer that is guaranteed to be right.  But it is without a doubt wrong to risk it all or lock it all away in safe assets.  It can’t be all or nothing one way or the other.

There’s no doubt many of you would like to know what I would have recommended.  Well like I said above he needs to have a growth element in the plan.  Two years ago I was saying the same thing I’m saying now so there’s no doubt this is what I would have recommended.  He should have put half his money in a couple annuities meant for security and conservative growth and the other half in low-cost index funds tracking the broad stock market.

Everyone knows I like to run two different scenarios, one based on the worst 20 year market period and one based on the last 20 years in the market.  The worst case scenario is something of a stress test that indicates a maximum amount of protection that is required for success.  The last 20 years simulates roughly average market growth but with a few periods of volatility that justify protecting assets, especially during the withdrawal years of retirement.

If I match the income distributions from the CFP’s plan, the worst case scenario is managed with a remainder portfolio value of around $700K at age 81.  The last 20 year scenario obviously performs better and shows a remainder value of over $1.5M which would give him room to increase his income to the desired level and even provide for the inflation adjustments he wanted.

One obviously can’t bank on the second scenario that shows substantial portfolio growth.  It needs to be approached conservatively and changes for the better can be made after performance is proven.  Split the difference between the two remainders and you’ll get $1.1M.  So I’ll use that and say the income goal of $60K annually is possible and inflation adjustments can be made on a discretionary basis depending on performance.

So what should Roger do?  That’s a hard questions to answer and I’m working on it.  His worst-case scenario is $47K per year but there’s really no upside.  He may be able to improve his position by annuitizing the deferred annuity that matures is 2025.  That would get him close to $60K after 2027 when the others start paying but will leave him with a larger income gap for those two years that he may or may not be able to absorb.  Without real growth in the plan there aren’t a lot of options.

It’s likely going to come down to adjusting spending levels in the early years in order to preserve some of the cash that was tagged for early withdrawal.  There is also the chance that he can use the annuities he already has but with a strategy that is similar to what I promote.  There are two problems with that.  Income annuities do not accumulate as well as growth-oriented annuities.  And there’s no real growth element for maximum accumulation so this may not work.  He would need both to make this successful.

Roger called because he has doubts and may consider surrendering his annuities.  I don’t feel this would be the best option since taking a loss is almost never in someone’s best interests.  Most likely he should deal with the plan he has but continually monitor it to see if growth in the contracts and changes in market conditions present a better opportunity.

When I heard he had a plan designed by a CFP I expected to see a mix of bonds, dividend stocks and long-term growth funds.  That’s a standard asset management recommendation for someone with a high income goal.  I did not expect to see a mix of no-growth cash and deferred annuities that were shoe-horned into his situation.

My advice to you is set reasonable goals and settle for nothing less than a plan that gives you the optimal level of protection and growth while preserving your options for re-balancing and making changes for future planning needs.  The optimal annuity plan that covers all contingencies is simple and effective.  If you’d like to see how it works in your situation or how it compares to plans you’ve seen then please reach out.  You can call, email or make an appointment below.

Talk to you soon…



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What’s So Great about Bonds?

The traditional safe haven for investors is one thing I see with just about every plan and I’m not sure I agree with such widespread use of this asset class.  Bonds are a consistent source of interest payments and usually come with much less volatility than the stock market.  For those reasons bonds have been the go-to choice for risk reduction and the backbone of a balanced retirement portfolio.

Let me state for the record that I believe bonds are a fine investment, so long as they are used the right way and with full knowledge of the potential downside.  If you use them the right way there really is no downside but there’s not a lot of upside either.  My problem is not with bonds specifically, rather that most people hold a substantial part their portfolio in bonds but don’t understand the limitations.

So I’m going to point out the main drawbacks so if you decide to use bonds for retirement you will do so for the right reasons and as part of a well-designed strategy.  There are two major issues that I see on a regular basis and I’ll explain both so you know what to avoid.

Bond Funds:

Most people don’t actually own bonds, rather a fund that buys and sells bonds regularly.  Minor interest rate changes cause holdings to constantly fluctuate in value.  In a steady rate environment you’ll get the same result as the actual bonds provide, steady interest payments and a stable account value.  But rates have been anything but steady over the last several years.  Bond yields hit a double bottom in 2015 and 2016, climbed steadily through 2018 and have started to decline again as concerns over Fed movements give pause to institutions who request long-term credit.

I’ve been talking to people about this specifically for the last five years.  There are a lot of people who have no choice but to use bond funds given limited options inside a 401(k).  There are also a lot of asset managers that choose bond funds over the laborious task of selecting a diversified portfolio of highly rated individual bonds.

After looking at several personal account statements recently, I’ve seen several bond funds that are down in value as much as 20% over the last five years.  Interest payments are steady but combined with the loss in account value the total yield is miserably low.  Safe assets are not necessarily the best choice when the value of those assets can fluctuate so dramatically.  And we haven’t even seen rising interest rates yet.  It’s certainly no place to be if you’re wanting or needing to start drawing money from a portfolio either because you may be force to realize those losses in account value.

Income and RMDs:

Above I established that if you are going to use bonds, use individual bonds and hold them to maturity.  Don’t use a bond fund because interest rate risk is out of your control.  This leads me to the next major issue with bonds and it comes when you have to pull money from your portfolio.

Right now a highly-rated 5 year bond is yielding just under 4%.  It’s down from almost 4.3% in December but we can use the current rate since it’s a little simpler to calculate.  Let’s assume a $1M portfolio that is split 50/50 between U.S. Stocks and Bonds.

The average initial Required Minimum Distribution (RMD) is about 4% and that’s equal to the average withdrawal for retirement income.  So whether you are 60 and wanting to draw income or 70 and required to take a distribution, the problem is the same.

4% interest on half of the portfolio produces $20K annually and that leaves you $20K short so where do you draw the balance?  There are two choices, take dividends from the stock side or sell principal of either stocks or bonds and that’s where the risk is.

Selling bonds exposes you to interest rate risk, which is declining value of the underlying bond in a rising rate environment.  Selling stocks may be beneficial at times but during corrections or bear markets you compound losses by selling undervalued securities.  Growth over time will be severely limited.

Dividends for the S&P 500 have averaged around 3% over time and that will still leave you a touch short of the withdrawal goal so at most times, selling principal on one side or the other may be necessary more often than not.  It’s also worth noting that taking dividends for income and not re-investing them results in much less growth over time as well.

It’s not all bad news of course.  There are plenty of stocks with stable performance that pay higher dividends than the average so it’s possible to exceed 4% withdrawal on the total portfolio without selling principal.  But it takes a lot of work and specialized expertise.  If you hire someone to do it the fees will take you under 4% so the result is the same.

Retirement planning is a tricky business as there are limitations to about every strategy. I advocate using annuities in place of bonds for the extended liquidity on the safe side of the portfolio without being exposed to interest rate risk.  Anyone who knows me well realizes that I’ve run the numbers on either scenario over several different market periods.  I tried about 50 different simulations just to write this post.

The results show that in a favorable market period the annuity has a minor advantage.  This is because with consistent growth you can always sell securities at high values and won’t often find yourself handling a serious decline.  In a poor market return period the annuity has a significant advantage because it allows for greater principal withdrawals when the market is down, giving the stock side of the portfolio a chance to recover in value.

So what’s the answer?  Since it all depends on how markets and interest rates perform then we don’t exactly know.  But if both are the same when rates are stable and markets perform well and one is clearly better when rates are low and markets perform poorly, the correct answer is diversification.  No single product or asset class is appropriate for every situation.  Diversify risk and opportunity in order to optimize protection and maximize growth in all scenarios.




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The Problem with Guaranteed Lifetime Income

During meetings people frequently comment that they know I don’t like guaranteed lifetime income.  I guess I do understand why people say that since most of my writing and advice centers around finding the best deal and guaranteed lifetime is only the best deal in a very specific situation.

So it surprises me to know many people get the message that I don’t like it because that’s not the type of message I’m trying to spread at all.  The insurance industry survives on long-standing principles of security and consistency.  The push to sell guaranteed income to baby boomers is an attempt to capitalize on a person’s fear of running out of money in retirement.

Running out of money in retirement is a real concern and my aversion to using guaranteed income products in most scenarios doesn’t mean I don’t think it’s important.  It’s more a matter of adjusting to current market conditions.  Today’s market conditions show that income products are not the best deal.  Again, it depends on an individual situation because it can still be the right choice but everyone needs to explore all options for making that big a commitment.

The truth of the matter is that I love guaranteed lifetime income.  That’s why I’ve worked so hard to make it even better than the industry says it can be.  Below I’m going to give you all the reasons why you should consider an alternative to the standard approach of producing income in retirement.


Most of the people I work with have an average age somewhere in their mid-60s.  Payouts for lifetime income are best when the buyer is in his/her mid-70s.  This puts most people in the market to buy when it’s not the best time to buy.  If this is you then you need to explore a short-term strategy that protects assets but gives you the option to change the plan when better opportunities come available.

Interest Rates:

I’ve said this hundreds of times and I’m not quite sure it sinks in.  When rates are low you want to be a borrower, not a lender.  When you buy lifetime income you are essentially loaning money to the insurance company in exchange for payments.  Your money is stuck at today’s interest rates for up to 30 years in many cases.  The realistic choice is to hold off on long-term commitments so if rates rise you can wait to lock in when it’s a much better deal.


Because most people are shopping too early and interest rates are low, the cost of buying guaranteed lifetime income is prohibitively expensive.  Look at it this way, the average income contract takes a minimum of 18 years until the buyer breaks even.  So for a buyer at age 65 it will take until age 83 before you get back in payments every penny you put toward premium.  This means the average person needs to beat life expectancy by a significant margin in order to make the income annuity a good investment.


Since the cost is high it takes a larger portion of the average portfolio to purchase the guaranteed income a person needs.  The cost of this comes when you have less to invest elsewhere for future planning.  Many guaranteed income plans leave you without options for optimal growth, inflation planning, discretionary spending or a legacy.  This is so much more important than most people realize and that’s why my solution to this problem is called the AST Flex Strategy.

Contrary Advice:

There are a lot of opinions out there and if I may be completely honest, there are lots of people with opinions who have no idea what they are talking about.  During one meeting last week a lady said another advisor told her that most people don’t sell immediate annuities because they don’t pay enough commission.  That’s about as ridiculous as Ken Fisher saying he doesn’t make as much money as an insurance salesman but he’s willing to pay surrender fees if clients will cancel annuities and put those funds under his management.  I don’t know how the actual numbers look but Fisher did not become a billionaire by losing money and he doesn’t run a charity.  Choose your strategy on facts and analysis, not a random opinion.

So at the right age, when interest rates give you a good deal you’ll be able to use an income annuity without using the majority of your assets to do it.  Until then use a short-term strategy that allows you to keep control of your assets.  It won’t matter what anyone else says because you’ll have fundamental analysis that proves you’re doing the right thing.

I like guaranteed lifetime income but I don’t agree with the standard message from the insurance industry and I find fault with most of the plans put forth by other advisors.  Guaranteed income products have their place but I see the appropriate situation only about five times per year.  As time goes by and markets change my recommendation may change as well.  But for now I’m more interested in making sure people get the best deal and I’m going to put in a little extra work before I recommend a major financial commitment to anyone.

Talk to you next week!




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Don’t Make Decisions after One Bad Day in the Market

It all started Tuesday.  During lunch I watched the market report and things were relatively calm but by the end of the day the Dow had lost roughly 800 points.  I was speaking to a prospective client at the time and he’s the one who told me about the drop.

During our call he had received an email with a bold headline saying, “Avoid the Next Market Crash!”  The email came from another advisor who does a lot of online marketing so I thought it was interesting to get a peek at the competition’s tactics.

It amounts to fear-based selling at its finest.  And I think it’s ridiculous.  How in the world can you make substantive financial decisions based on a single day of market performance?  I suppose a day trader or hedge fund manager would disagree but those opinions are irrelevant to your concerns.

The carnage continued throughout the week and it’s anyone’s guess where it goes from here.  Trade talks, Fed decisions, corporate corruption or any of the myriad reasons why the market might hiccup will always affect outlook in the short run.  A look at the bigger picture shows that the S&P 500 has now gone negative for the year, for the second time.  It happened in October, the market bounced back and now it has dropped again.

Basically that means the S&P 500 has gone nowhere this year and that’s a far cry from the type of correction that will affect portfolio values in the long run.  For those of you heavily invested in the market it indicates that you are about in the same position as you were a year ago.  In my opinion, drastic moves based on short-term volatility are reckless and ill-conceived.

I’ve spent a lot of time on this newsletter in order to give you fundamental reasons for making major financial decisions.  From one day to the next solid advice doesn’t change.  Over the past several months I’ve given you plenty of documentation that will help you make decisions based on your needs and not exterior forces you can’t control.

One of the first newsletters I sent gave some information about how interest rates affect decisions.  More important than the stock market, the US Treasury Yield curve has gone inverted between two and ten years.  In the interest rate newsletter I referenced an article that explains what has always followed an inverted yield curve.  I’ve been watching it and talking about it for the past year and a half.  I thought it was so important that I sent it to everyone on the list three months ago.  You should read it right now.  Find it here…

Most people think about interest rates in terms of yield on safe assets.  That’s fine for analyzing options but there’s a deeper explanation as it relates to indicators that can help you make good decisions.  Interest rates have a broad and far-reaching effect on business and global economic activity.  It’s an indicator that lies beneath what you see on the surface in terms of stock prices.  It’s an indicator you can use to determine timing and market participation based on your time frame and individual needs.

I’m writing this on Thursday, Dec. 6th.  This morning the Dow was down more than 700 points and it has climbed back to being down about 500 right now.  I thought to myself that I might have to update this on Friday just in case there’s a bump that changes numbers.  But I don’t care because that wouldn’t change a thing.  One day in the market doesn’t matter.

Making decisions based on a single day of performance is nothing more than an emotional reaction.  Many of you can look back and remember emotional reactions that were not beneficial to your long-term growth and accumulation, kind of like when some people bailed in 2008 only to miss out on several years of recovery.  I don’t want you to do that so settle down and consider the big picture before making any major financial moves.


Best of Luck!


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Don’t Put All Your Money in an Annuity

It happens more often than you’d realize and I saw it again last week.  I was meeting with Joe, who liked the idea of protecting some assets but had one major hesitation.  The only person Joe had spoken with was recommending he put all his investment assets in a fixed index annuity from Nationwide.

This is something I have seen several times before but it still surprises me to see a salesman stick his neck out so far with a wild recommendation.  After the meeting I went back through some notes and found five other people from the last month who dealt with a similar situation.  Another salesman had told each of these people to put all of their assets in an annuity.

I’ve spent some time in the past couple months talking about bad product recommendations but I think a bigger problem is what I would call bad allocation recommendations.

You should almost never put all your money into an annuity.  It’s only appropriate in a worst-case scenario, when retirement savings are just enough to meet income needs.

Let me tell you a little more about Joe.  He owns a successful business and has more than adequate savings in addition to some real estate investments.  Joe is not quite 60 years old and doesn’t have a planned retirement date.  He plans to work another six or seven years and has a local advisor that manages his portfolio.  The local advisor is friend who has done a really nice job choosing investments and performance figures indicate Joe has done well.

Joe is like almost everyone else.  Even if returns have been good he doesn’t want as much risk with his assets going forward.  The recommended annuity would eliminate risk but it made him nervous to put all of his assets into one product that would lock up his money for 12 years.  He had a good relationship with the local advisor and I think a lot of his hesitation came from the fact that Joe didn’t want to turn his back on a guy who had served him well for several years.  I don’t blame him.

I told Joe what I tell everyone.  Annuities are meant as an alternative to safe assets.  Approaching retirement, close to half a portfolio should be allocated to safe assets.  That cuts volatility and risk in half but also limits yield.  Traditionally bonds have been used for the safe side of a portfolio but with recent rate increases bonds have taken a hit as well.

Annuities give you greater safety free from interest rate risk.  Risk in a portfolio can also be cut in half but with the greater earning potential of the annuity there are less limitations on upside growth.

I am certainly not suggesting that half of your assets should go into an annuity.  It works for some but not others.  My recommendations are unique for each person and depend entirely on individual parameters.  Plenty of people will never believe an annuity can improve their situation and nothing I say will get them to see things differently.

Annuities are sold, never bought.  It’s an old saying that kind of makes sense to me.  With so many salespeople proposing an all-or-nothing approach to using annuities I can see why the sentiment toward annuities is often negative.  The bad actors in any profession get all the news.  Just don’t use that as a reason to not explore an annuity strategy.  You may learn something you didn’t know before and find a reason to buy an annuity that makes sense.  You wouldn’t be the first.

If you have any questions or would like me to review a proposal that seems too aggressive please don’t hesitate to give me a call.

All my best,


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The Debate Over Annuities in a Retirement Portfolio

Marketwatch recently published an article on annuities that is worth reading for one simple reason.  It will highlight the reasons why it’s so hard to make retirement decisions when annuities are involved.  This article has received a lot of attention and Marketwatch has been running it for a few weeks now so it seems as though people like it.  I’ll explain the important points of this article and give you a link to it at the bottom.

The premise of the article centers on the long standing question of whether to annuitize in retirement, which means exchanging a portion of your assets for guaranteed lifetime income.

It’s important clear up some confusion from the beginning.  The article uses the term “annuities” and refers only to single premium immediate annuities which is a specific type of contract.  “Annuities” is a general term that can include immediate, deferred, fixed, variable or indexed.  Some are for income and others are for growth.  When referring to information in the article I will change the term to “income annuities” in order to be as specific as possible.

While the article does not draw any specific conclusions, it contains useful information because it does point out a couple considerations that need to be used in retirement planning.  When making allocation decisions it’s important to have a basis of comparison so you can recognize the best deal when you see it.  This is a stumbling point for a lot of people that see one or two options and don’t know if there is something better available.

Starting with a good academic debate should help put some building blocks in place.  If a consensus on using annuities does not exist then it is up to you to determine how and why to use them.

The article lists two particular issues with using income annuities in retirement.  You may notice I have dedicated newsletters to each of these topics recently so I’ll paraphrase below.

Interest Rates

The article equates lifetime income annuities to long-term bonds.  Although the income insurance from an annuity is a distinct advantage, the two investments are similar from a wealth-building and allocation perspective. (Newsletter Aug. 8, 2018)


What I took some time to illustrate two weeks ago is clearly stated in the article.  Income annuities do not offer true inflation protection.  (Newsletter Nov. 10, 2018)

Interest rates and inflation are what I consider to be fundamental variables.  Both are present in any planning situation and should be accounted for but cannot be controlled.

I spend time in print and on video talking about the five keys to retirement planning, which are Income, Market Volatility, Inflation Protection, Control of Assets and Legacy.  The fundamental variables working for and against you allow you to test the viability of a plan based on how it will help meet goals.

Guaranteed income annuities eliminate market volatility on assets and provide income payments for life.  But they expose you to inflation, take assets out of your control and leave nothing for the next generation.  Each of the five keys has a different level of importance for every individual.  That’s why there’s no consensus on any financial product.  Some people love the assurance of steady income while others want as much growth as possible and don’t mind some volatility.

The academic debate over this subject has been going for decades and I’m going to tell you why no one agrees on the right answer.  Too much time has been spent on arguing over whether to annuitize and if so, how much of one’s assets should be used.  Annuities are not only used for income so adding an additional list of options for asset protection would certainly increase the likelihood of finding a solution.

A contributor to the article states, “It is easy to criticize annuities if you are not required to provide an alternative approach that guarantees one will have sufficient income in the event one lives to 100.”

I don’t mean to criticize income annuities and happen to know of several instances where the product fits well in a plan.  But you should know by now that this entire website is dedicated to an alternative approach. When your plan calls for creativity you will have an option.

The debate will continue and there’s no doubt most of you have seen something other than a single premium immediate annuity and want to know how it compares.  I will continue trying to put the pieces together but solutions are all individual so you’ll have to be patient with me.  If you need to know the answer for your situation then you need to send me some of the details.  Perhaps it will become the topic of an upcoming newsletter.

Read the MarketWatch article here.

Enjoy the rest of your holiday weekend!




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Some People Don’t Need Annuities

As much as I say that every situation is unique, the truth is most people fit in one of several categories of retirement preparedness.  If you’ve ever spoken with me than you might remember me telling you a story of someone in a very similar situation.  It is helpful to see that others have been in your position and have retired with a strategy that works.

Categories are general and specific.  How and why to use annuities are specific categories that separate the majority of people into unique situations.  Everyone also fits into a more general category that indicates whether they need an annuity or not.

Because most people are nervous around salesman I feel the need to make sure everyone understands that my goal is not always to sell annuities.  My goal is to help you find answers, regardless of what that means for me.

So I’d like to explain the factors that surround the people who don’t need annuities.  It may help you decide whether you need to be searching at all.

Last week I had the pleasure of speaking with a man named John, who had done well preparing for retirement.  When I say he has a bunch of money it’s not so much that he is wealthy but it speaks more to the fact that his spending needs were but a small fraction of his total assets.  That’s a far better measure of wealth than just adding another zero to the portfolio value.

John found my website because a local broker had pitched him an income annuity as a no-lose, obvious choice for a portion of his assets.  He asked me to weigh-in on the matter and what I discovered is not much different than what I see with many proposals.

Annuities are meant to solve problems and John was pitched an annuity that would solve a problem he didn’t have.  Therefore, I determined the recommendation to be irrelevant.

John is well-positioned and has his objectives clearly defined in relation to strategy.  He made a calculated decision to exit the market and maintain a majority cash position until an excellent investment opportunity presents itself.

If he were to use an annuity it would be for reasons unrelated to the standard industry approach, which is guaranteed income to reduce market exposure.  Instead you should consider a simpler approach.  Safety and yield can provide enhancement or diversification for a conservative plan but there needs to be a deeper justification for buying an annuity.

Most of my clients are not too dissimilar from John.  Many of them don’t need annuities either but using them is a strategic choice to add stability without sacrificing yield or flexibility.

Portfolio growth is more stable and sustainable when market-based investments are balanced with an annuity in place of other safe asset options.  Income needs can be met in all market scenarios so fluctuations in the stock market don’t negatively affect lifestyle or endanger longevity.

I get the feeling that some people think an annuity is going to stick to them if they call to ask questions.  I don’t like the average sales pitch either but in many cases an annuity is the preferred approach.  Within all the proposals and available options you might see there is a right way to approach allocation in retirement.  If an annuity is not the tool for the job then I’ll be the first to tell you so.

Talk to you next week…




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Annuities and Inflation

Inflation is one of the biggest concerns retirees face.  The possibility that your retirement income won’t buy as much as the years pass can be frustrating and scary.  It’s actually more of a reality than a possibility so rather than just worrying about it, you need a plan that accounts for it

Financial institutions know this so there are plenty of products and opinions that will claim to help you beat inflation.  But most of the traditional advice you might receive actually works against you and does nothing to solve the problem of declining purchasing power.

I’m going to give you an example of an annuity that is designed to keep pace with inflation and explain why it doesn’t do the job.  There are a couple inherent flaws with all inflation-adjusted annuity contracts and it’s a difficult concept for many to grasp.  Understanding this limitation is the first step to finding a real solution for inflation risk.

The first of the flaws shows that you don’t actually get more money out of a contract with planned increases, at least not for a long time.  Let’s look at a standard example of the same annuity, with and without an inflation adjustment to see how they compare for cash flow.

This illustration comes from a leading carrier with very competitive payments, although it may not be the highest available payment it is very close.

Single Life Age 65

Straight Life Payment is $548 per month for life

Adding 3% annual inflation adjustment drops the initial payment to $405 monthly

The inflation adjusted payment doesn’t exceed $548 monthly for 11 years at which point aggregate cash flow from the straight life payment stream would have put an extra $10,000 in your pocket.  So by age 76 you would have had more money going with the level payment.  Aggregate cash flow from each payment stream is not equal until year 20 so you receive no real benefit from the adjusted stream until after age 85.

This is just a matter of simple math.  Evaluating two options of any kind require you to run a break-even analysis to see which the better deal is.  Do you want a lot more money for the first 20 years of retirement or a little more for the last few years?

The other flaw of inflation adjusted contracts is not quite as easy to pinpoint but it’s important to understand.  Any fixed payment stream, whether increasing or not will decline in value because of inflation.

In the example above, the inflation adjusted payment stream is scheduled to be $710 monthly in 20 years.  What if interest rates increase substantially because of massive inflation?  The payment will still be $710 regardless of what happens with interest rates.  Sure it will buy more than you could get with $548 but it cost you plenty in lost payments to get to that point.

So what’s the answer?  Well you need growth that exceeds the rate of inflation and locking into a low rate makes it impossible.  Continued participation in the stock market is a really good way to offset inflation but the risk of volatility can hurt you even more.

And that’s the purpose for using annuities, to provide income free from market risk.  But using an annuity the right way is the key to beating inflation.  It doesn’t involve locking into low rates for a lifetime payment no matter how it’s structured.

Balancing a portfolio to reduce risk and keeping all investments flexible and short-term in nature will enable you to continually re-balance and put money to work in a rising rate environment.  Flexibility with assets is the only way to beat inflation.  If done right you’ll have the safety you need, growth you want and the ability to take advantage of higher rates in the future.

If you have any questions about how to make it work then feel free to call or make an appointment.

Have a great weekend!


Bryan Anderson


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Why People Don’t Buy Annuities

Well it may surprise some of you to know that I don’t sell an annuity to everyone who calls. Rational or not, plenty of people choose to not use annuities in a retirement plan or they just delay the decision because big commitments are hard to make. I spend a lot of time reviewing notes from my meetings. It helps me identify trends, improve communication and enhance strategies based on changes in market conditions.

Over the years I have met with hundreds of people who have been doing exactly what you’re doing, trying to make sense of the options and find a plan that works. So I put together a list of the main reasons why people don’t buy annuities. Some choose to avoid annuities altogether and others decide to do business elsewhere.
Whatever the reason I figured it might help for you to realize that lots of other people have dealt with the same dilemmas. If you can identify with any of the situations below then I’ve offered a little reasoning that will hopefully help you move forward when the time is right.

1.)Market volatility:

Lots of people have a specific portfolio value goal and until the benchmark is met, no changes will be made. This is especially true these days since October 2018 was the worst month for the S&P 500 in seven years! It’s hard to look at a decreased portfolio and sell securities when down in value. Don’t forget that the stock market is still at a very high level and the last two years have produced excellent returns. A slight draw-down after such aggressive growth is quite normal so recent turmoil shouldn’t cause any great concern. The question is always where will it go from here? The market may resume its climb in the next couple months or it may drop even further. By all means chase the growth you want but don’t take on unnecessary risk that may negatively affect your retirement.

2.)Waiting for interest rates to rise

I’ve been hearing this since I started my career 16 years ago. But rates steadily fell and only recently rose slightly. The truth behind rate movements is that it takes a long time to see a substantial increase. Delaying retirement decisions based on interest rates is not rational. Rather, interest rates should help you decide what kind of strategy is more appropriate. In today’s market the value is found in short-term products and this means that traditional products and advice are fundamentally flawed. Most of the arguments I receive come from other advisors and it shows that most don’t do anything but regurgitate an institutional sales pitch. Stick with advice relevant to current conditions that give you the opportunity to make changes over time.

3.)Information overload:

Everyone experiences this when shopping for annuities. Opinions are diverse and most advisors try to justify their own biases. Misrepresentations and lack of experience is the source of much of the information you will receive. The science of asset distribution is very new so new products don’t always fit with the old way of thinking. The numbers never lie and sound strategies are backed by fundamentals. This is a hard barrier for many to cross so don’t worry if you need a little extra time to sort things out.

4.)Life is hectic:

Pre-retirement can be a busy time. Moving to a new location, kids in college or grandkids visiting are just a few of the things that make many feel as though there’s just too much going on to concentrate on finances. I meet a lot of people who go into retirement not knowing what they need from a portfolio. If so, the decision of whether to protect money or let it continue riding the market hasn’t been quantified. Protecting money and putting things in place for retirement doesn’t always mean buying an annuity. Interim steps can be taken so you don’t risk more than needed and allow you to save the big commitment until you have more time to focus.

5.)You don’t know what you don’t know:

All sales presentations are made to sound great. The majority of people start searching for answers after they see the first pitch. You don’t specialize in this area so it can be difficult to know if you are really making the best move. Asking for a comparison to all approaches is a good first step to solving this problem but that can also be hard when you don’t know what questions to ask. Take a step back and look at all safe money options, which are not as diverse as you think. Compare based on yield, time horizon and liquidity to find the one that offers the benefits and flexibility that you need.

6.)You want to work with someone local:

It takes a big leap of faith to make major financial changes in retirement no matter where the advisor is located. My goal is that you get the best plan for your needs and if you can get that locally then go for it. But it’s no reason to accept a less than ideal product or plan. Using technology to your advantage can open you up to more products, better strategies and a level of convenience that no conference room can provide. In the end it’s up to you but you need to understand that I’m still in business because I often beat the competition.

7.)You and your spouse can’t agree on a plan:

Communication is the key to success. You may like one advisor and plan but your spouse likes another. Different plans come with different benefits and if you can’t agree on which is better then you probably don’t have the best deal. This offers you an excellent opportunity to define every goal you have. In all likelihood you are both right, you just don’t have all the information and the best option in front of you yet.

8.)Alternative investments seem more exciting:

Earlier this year I had an interesting series of meetings. One particular gentleman came to me with a very specific goal of retirement income. He had seen one proposal and liked it but wanted to know if I had something better. I showed him a variation of the Flex Strategy that fit his situation and as usual my numbers were quite a bit better than what he had already seen. Thinking I had a new client, we spoke again just a few days later. He thanked me for my time and said he had decided that instead of buying an annuity he planned to invest the money in a family mining business in South America. Wow… talk about opposite ends of the spectrum! If protecting assets is not your primary reason to consider annuities then you should probably save the effort and spend your time analyzing different speculative investments.

9.) Trust

People run into this roadblock all the time and it relates to all of the above in some way.  It’s the same reason why it took my wife more than a year to decide what kind of new car she wanted.  Salesmen in every industry are skilled at convincing you his or her product is the best option, even though it may not be.  In the financial services industry there’s a difference in the type of advice you receive.  One is based on the suitability standard which means a recommendation needs to be reasonable for your situation.  The other is the fiduciary standard which says the recommendation has to be in your best interests.  That doesn’t make it any easier to decide who is telling the truth.  I see as much fault in many fiduciary plans as I see in plans based on the suitability standard.  The only answer to this is learning to trust yourself.  You need to analyze the options in front of you and choose the strategy that fits your best interests.  I’ll do my best to justify any recommendations and disclose all contingencies but in the end it is up to you to decide.

Most of the time I hear one of the objections above it’s the last time I talk to a person. I can only speculate as to the outcome but I assume that most don’t make any serious changes while some regrettably fall for the dinner seminar pitch. There are plenty of reasons why people don’t buy annuities or even just why they don’t buy annuities from me. If you fall into one of the above categories or have a different reason for not using annuities in retirement I’m fine with that. I just want to be sure you make decisions based on solid analysis.

Enjoy your weekend…


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