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

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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Allianz 222 Alternatives Comparison

After analyzing the most popular fixed index annuity last week the most common request I received was for a comparison to products I would recommend.  So rather than just asking you to take my word for it I’m going to show you why the Allianz 222 is not as good as it seems.  In comparison to a couple contracts without crazy restrictions it just doesn’t really yield all that well.

One of my new clients came to me after purchasing the Allianz 222 earlier this summer.  She is retired early at age 52 and happens to be appropriately suited for the contract’s purpose, as she can’t touch her qualified retirement funds until age 60 anyway.  Even still, projections for the contract are weak and the only strong point is the bonus.

She was gracious enough to show me her contract so I can see how the index options are allocated and will share that with you.  Since she bought it from a guy who claims to be Allianz’s top salesman then I’m assuming the allocations are standard recommendations.

I’m looking back five years to see how a contract with terms from today would have performed since 2013.  Yes, all contracts I will reference are longer in term than five years but the past five years had a lot of market activity that will test the validity of an index annuity.  You’ll see why by the screenshot below that show how the S&P 500 performed since this time in 2013.

This shows relatively moderate growth from 2013 thru 2016 with a pretty bumpy ride along the way and a steep rise up to 2018 with some volatility at the top that we all recognize from recent events.

For this post I’m going to explain the numbers that I calculated based on quotes from each insurance company.  The growth comparison is clear and supports my claims from last week.  First, let’s look at how each contract was allocated with the index options available.

The Allianz 222 was allocated as follows:

  • 25% S&P 500 Monthly Sum with 1.5% monthly cap
  • 25% Nasdaq 100 Annual Point to Point with 3.25% annual cap
  • 25%Bloomberg US Dynamic Balance Index II with 3.2% annual spread
  • 25% PIMCO Tactical Balance Index with 3.1% annual spread

Two Comparison Contracts

Great American Life Legend 7:

  • 25% S&P 500 Monthly Sum with 2.5% monthly cap
  • 25% S&P 500 Annual Point to Point with 6.4% annual cap
  • 25% S&P 500 Risk Control 10% with 70% participation rate
  • 25% S&P Retiree Spending with 75% participation rate

Midland National RetireVantage 10:

  • 20% S&P 500 Daily Average with 1% spread
  • 20% DJIA Daily Average with 1.55% spread
  • 20% S&P 500 Monthly Sum with 2.35% monthly cap
  • 20% S&P 500 Monthly Average with 80% participation rate
  • 20% DJIA Monthly Average with 75% participation rate

Okay, the numbers I am going to show you below come directly from each carrier.  These yields show the period from Jan. 1st, 2013 thru Dec. 31, 2017 because that is how the insurance companies present the numbers.  Different periods will produce different yields and each contract will change depending on what time period is being analyzed.  I took annual yields for each of the chosen indices and equally weighted them in the blended annual yield column.  Account value growth is in the far-right column and the ending account value is in bold on the last row.  This is how each contract would have performed over an identical five-year term.


Allianz 222

S&P 500 Monthly SumNasdaq 100 Monthly SumBloomberg with SpreadPIMCO with SpreadBlended YieldAccount Value
 $     250,000.00
20138.18%3.25%5.18%4.31%5.23% $     263,075.00
20142.08%3.25%2.97%0%2.08% $     268,533.81
20150.00%3.25%0%0%0.81% $     270,715.64
20160.00%3.25%1.15%2.16%1.64% $     275,155.38
201711.35%3.25%11.21%10.98%9.20% $ 300,462.80

Five year effective yield:  3.746%


Midland National RetireVantage

S&P 500 Daily AverageDJIA Daily AverageS&P 500 Monthly SumS&P 500 Monthly AverageDJIA Monthly AverageBlended YieldAccount Value
 $     250,000.00
201314.26%12.99%16.81%12.68%11.33%13.61% $     284,035.00
20143.49%0%7.66%4.16%1.29%3.32% $     293,464.96
20150%0%0%0%0%0.00% $     293,464.96
20161.51%1.37%3.09%2.42%2.59%2.20% $     299,909.45
20178.39%8.51%16.12%8.09%8.25%9.87% $ 329,516.51

Five year effective yield:  5.679%


Great American Legend 7

S&P 500 Monthly SumS&P 500 Annual PTPS&P 500 Risk ControlS&P Retiree SpendingBlended YieldAccount Value
 $     250,000.00
201316.20%6.40%15.34%8.48%11.61% $     279,012.50
20146.58%6.40%3.16%6.26%5.60% $     294,637.20
20150.00%0.00%0.00%0.00%0.00% $     294,637.20
20165.30%6.40%3.82%6.02%5.39% $     310,503.41
201715.41%6.40%13.58%5.91%10.33% $ 342,562.89

Five year effective yield:  6.503%

From an account value perspective the Midland and Great American contracts substantially outpace growth over a five year period.  For those of you who may get defensive and suggest that Allianz would do better with a different allocation I will say that each of the others could be allocated differently to produce more as well.  I didn’t cherry-pick data and could change any of the above to create better or worse returns.

So I’ll ask you, what is better?  $300K, $329K or $342K?  Over a five year period the differences are fairly dramatic.  After ten years it’s going to be an even bigger gap.  The Protected Income Value of the Allianz 222 would be higher but with the greater cash value of either of the alternatives you could buy more income than you’d get from the 222, and the important thing is you have the choice by going with an alternative.  I meet a lot of people that don’t necessarily need the income and even more still that might need it but not exactly in ten years.

Another frequent comment I received last week was in regards to the death benefit of the Allianz 222 which pays out the entire Protected Income Value out in five annual installments.  I did intentionally leave that out as it is irrelevant when you calculate the actual return.  Most agents are not inquisitive enough to look into it and just rely on the beneficiaries not knowing any better.  The death benefit is just window dressing and the 222 is not the only contract that pays the income value out as a death benefit over five years.

So, many of you asked for a recommendation and there it is.  I have to be competitive so I had to find contracts that would grow best and with growth you can beat any bonus or income guarantee available.  When you add an asset management strategy that shows you how to use it then it gets even better.

Many advisors will tell you otherwise but none can do the analysis to prove it.  If you have any questions or would like more detail on any of the above points please call or make an appointment and we can talk about it.

Have a great weekend!



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How Personal Risk Tolerance Affects Retirement

Over the past couple weeks we have talked about the indicators that allow you to decide when to time your exit from market-based securities.

The idea is to give you some level of control so that you can decide when and how you retire rather than having market performance decide for you.

So we had three factors that will help determine when timing is right so that you can make decisions that are based on long-term goals instead of wild swings in the market.

First, we looked at how length of time until retirement gives you an idea of what level of risk is appropriate.  The closer you get, the less risk you need to take.  On average, it takes the stock market around three years to recover from a bear market.  You don’t want to tread water in the years before retirement so you need to shift assets to safety before you run the risk of declining portfolio value that will cause you to alter retirement plans.

Next, we talked about the main indicator that everyone needs to consider and that is income needs in relation to portfolio value.  The amount of income you need for necessary and discretionary spending in retirement gives you an objective benchmark.  Consider your income needs first and once you have reached the level of assets needed it is reasonable to protect enough assets so you can maintain expectations regardless of what happens in the market.

And finally, personal risk tolerance will cause you to adjust either of the first two.  There are those who don’t mind swings in the market, knowing that the market will always recover and continue to grow.  There is an equal number of people who don’t care for risk at all, don’t trust the market and would rather preserve assets and see continual, incremental growth over time.

If you prefer more risk in return for greater growth potential then you might be inclined to stay fully invested in the market all the way up to your retirement date or even beyond.  And if you have enough in your portfolio to sustain income withdrawals in retirement then too much risk might require a spending adjustment during volatile markets.

Those who don’t take the risk can use the same indicators and sacrifice growth for the peace of mind that comes with predictability.

But, it’s not my job to tell you how much risk to take.  Rather, I try to explain how protecting your portfolio the right way can result in continued growth and accumulation throughout your retirement years.  The proper strategy can give full protection and greater growth for those who are conservative as well as less volatility and more predictability for those who continue to chase growth at all costs.

Eliminating losses is an obvious way to enhance wealth accumulation because it allows you to maintain a higher starting point during times of recovery.  Appropriate asset allocation becomes more important as you approach retirement because systematic withdrawals enhance the effect of volatility on asset value.

Your personal risk tolerance will tell you whether to use the indicators mentioned over the last couple weeks.  Capping the three part series this week has been really good timing.  At the close of business Friday, broad US markets were down about 4% this week.  If you don’t mind risk then it won’t bother you to see a slight drop in asset value.  But if it changes the way you view retirement then you need to take a different approach.

As you get closer to retirement, a certain level of assets need to be protected so that you know income needs in retirement can be secured.  Personal risk tolerance will determine whether you want to push for more or play it safe.

When do you plan to retire?

Have you saved enough to make it work?

These are two of the most common questions I get from the thousands of people on this email list.  Only you can provide the answers and I’ll do what I can to help.

Talk to you next week…


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Timing the Market Part II: Income Needs in Relation to Portfolio Value

It’s the comment I hear most often.  “I’m trying to decide if I have enough to retire.”

Considering that for every time I get a question or comment there are several other people who are staying silent, I will assume that many of you need to answer this question.

It can be a hard decision to make.  Whether you have enough to retire is an objective calculation based on your needs and wants.  But it’s not always easy when you have a major emotional investment in the work you’ve put in to get here.

Last week we looked at how the length of time until retirement can give you an indication of to what extent you should be invested in the stock market.  Now I’m going to expand on the second of three factors that will help you determine the timing that is right for you.

Taking into account your income needs in relation to portfolio value is probably the most important consideration you should make.  Once you have enough and are within a few years of retirement then it’s time you need to protect some assets, regardless of what the market is doing.

It starts with basic math.  Find out how much you would like to spend on an annual basis and take that as a percentage of your total assets.

The higher percentage of income you need, the more assets need to be protected and the sooner you need to eliminate risk.  And the lower the percentage of income you need, the less assets need to be protected and the less you need to worry about making quick decisions.

Here’s a quick guideline for income percentages…

5% annual withdrawal– requires that you protect a substantial portion of your assets and maintaining too much risk in your portfolio may require you to delay retirement.

4% annual withdrawal– creates an optimal blend where you need a fair amount of protection but you still have enough flexibility to maintain a strategy for continued growth and accumulation.

3% annual withdrawal– you should have no problem meeting both necessary and discretionary income needs.  If income is secured optimally then a large portion of your portfolio will be available for whatever investment strategy you want to pursue.

The more you have the less you need to protect.  The relation between income needs and length of time until retirement will give you a clear indication of when you should exit the market and with what portion of your total assets.

Once you have figured out what percentage of assets you need to withdraw annually you’ll know when it no longer makes sense to take too much risk.  Remember, at five years you should start shifting assets toward safety, at three years you need to develop a strategy and within the last year you should implement that strategy.

In relation to the withdrawal rates above, protect yourself according to whichever category you are now in.  If you are still a ways out from retirement you’ll at least have a plan in place and can use the remaining work years to bump up to a more flexible position or even decide to retire early.

Everyone has different numbers, goals and expectations.  How you finally decide when to time full participation in the market will depend on your personal risk tolerance.  If you are an individual that doesn’t mind risk or market fluctuation then you’ll be more inclined to cut it close on both of the first two factors.  We’ll get into the details next week and that should tie it all together for you.

Enjoy the rest of your weekend…



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Read Part I:  How Long Until You Retire?

Product Spotlight: Allianz 222

I come across this product more than any other and it’s no surprise.  The 222 is the highest selling annuity on the market.  It carries a serious bonus that has recently been as high as 30%.  In addition it gives you an extra 50% of any interest credited annually.  Sounds amazing, right?

Well, it is amazing if that’s all you’re told and that is about as much detail as most agents offer.  The problem is that bonuses always come with restrictions and that is rarely explained when this contract is presented.  Restrictions are fine in exchange for something of value but in this case those restrictions limit the suitability of the product for the majority of people.

I have talked to hundreds of people this year who have been pitched the 222.  Of those, one person was suited for its purpose.  That means it was inappropriate for everyone else, but it was still being pitched by “fiduciaries” and “CFPs”.

So, what restrictions come with the bonuses?

First of all, you need to understand the difference between the account value and the protected income value.

Account value– Equal to the premium you invest plus any interest earnings over the term of the contract.

Protected Income Value– Equal to the premium you invest plus the premium bonus, plus interest earnings on the contract that are increased by an additional 50% annually.  The resulting value is used to calculate the amount of guaranteed lifetime income you will receive.

Easy, right?  The account value is your money and the protected income value is nothing but a factor used to calculate retirement income.

Don’t take it from me.  Let’s look at how Allianz explains it on their website.

The premium bonus and interest bonus are credited only to the Protected Income Value. To receive the PIV, including the bonus, the contract must be held for at least 10 contract years, and then lifetime income withdrawals must be taken. You will not receive the bonuses if the contract is fully surrendered or if traditional annuitization payments are taken. If it is partially surrendered the PIV will be reduced proportionally, which could result in a partial loss of bonuses…

Allow me to summarize the key points that I would consider to be restrictive.

  • All bonuses only increase the potential income and do not affect your account value
  • You have to wait 10 years to receive the benefit of these bonuses
  • Lifetime income payments are required to benefit from the bonuses
  • Partial surrenders prior to 10 years will create a proportionate reduction in the protected income value (for example, 10% free withdrawal will cost you 10% of your future income)
  • If you take your money and do something else you will not receive any of the bonuses

It’s pretty clear to see that the bonuses are not just free money and unless you are buying this 10 years before retirement then it is not appropriate.  If you need to take RMDs or withdrawals of any kind before 10 years then it is not appropriate.

There is one little positive selling point I have left out so far.  The guaranteed income rider that comes with all the bonuses is free.  There are no fees on the contract.  So, some might say it’s worth doing because your money will still grow and you can walk away without a bonus in 10 years and at least it didn’t cost anything.

Yes, that is possible but let me explain why I think that’s a waste of time.  I cut the above quote from Allianz short and saved the last part for right here:

… Because this is a bonus annuity, it may include higher surrender charges, longer surrender charge periods, lower caps, higher spreads, or other restrictions that are not included in similar annuities that don’t offer a bonus feature.

I love that they use the word “restrictions”.  This is here to justify low caps and participation rates the contract offers and the result is minimal growth.  This is true with all bonus and income annuities.  If they give you more of one benefit then they will take it from somewhere else.

It wouldn’t take long to find several available products with no fees that have twice as much growth potential at the 222.

The underlying growth of the contract being low is what disqualifies this from being used for anything else but income after year ten.  The growth rates are low because Allianz adds 50% of the interest earnings to the protected income value.  This is a performance based guaranteed income contract

People have a hard time understanding this but there is one similarity that everyone can grasp.  Social security kind of works the same way.  The longer you wait, the more you get.  With the Allianz 222 you get more income if you wait ten years.

These critical points are almost never explained to the person buying.  It is not the fault of Allianz because we have seen they clearly explain the product right on their website.  It’s the fault of opportunistic agents and advisors who are not doing any research.

The Allianz 222 should not be the highest selling annuity in the market.  The ten year requirement disqualifies it for more than 90% of the people I meet.

Have you been pitched the Allianz 222?  Please reach out if you have received any conflicting information.


Bryan J. Anderson


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Part I: How Long Until You Retire?

To start this series let’s take a look at the first factor that will tell you how to appropriately time the market when planning for retirement.  Selling stocks at a high point sounds great but people tend to hang on a little longer than they should.  We are at a historic high right now but few people are selling and many who have been sitting on the sidelines are jumping in to the market.

If we add a few more variables to the decision process then you’ll see why it’s not just about getting the highest price, it’s also about making moves the fit well with your long-term goals.

The first thing to consider is the length of time you have until retirement.  There’s an easy rule I came up with that will help you keep things in line and on track.  You can call it the “5-3-1” rule if it needs a name or and I’ll explain it as we move along.

Specific portfolio moves should happen at five years, three years and one year prior to retirement.  This of course has a little wiggle room depending on the other two factors but we will put this building block in place first.  This is a general rule based on my experience dealing with these matters so please understand there is variability in each depending on your personal situation.

At Five Years:

You need to have 40-50% of your assets protected.  This will be different for everyone depending on factor #2 but for now it’s a good rule.  You’ve had a couple decades or more to chase growth and by now you should be able to tell if you have enough to retire.  Prudential calls the five year preceding along with the first five years of retirement the “retirement red zone.”  This is when you can least afford to weather corrections or bear markets.

You should be topping off savings, protecting your gains and preparing to turn on the income during this time period.  Big decisions like upsizing or downsizing a home, or even planning to move to a new place with lower taxes and nicer weather take lots of time.  If any of this is part of the plan then you need to stabilize your assets because it will give you more assurance that the market won’t take you off track.

At Three Years:

You should identify a strategy that will produce income, manage required distributions and sustain a long-term growth strategy that will help you meet inflation, discretionary spending and a legacy if you choose.

This is an important point in time because it’s when many people actually do the calculation to verify they have enough saved to retire.  Therein lies the reason to select products and identify strategies.  Different plans require different asset levels and you need to know your plan so you can confirm you have enough to make it work.

At One Year:

Your retirement strategy needs to be in place.  All the preparation done in the previous three years should be finished and all decisions made in regards to the right path.  Product selection and final asset allocation done a year in advance will give you plenty of time to consider all options and settle on what you feel is best.  In conjunction with this is the decision as to when it’s most beneficial to take social security.  Payouts will be close to set so you’ll have the clearest picture of what’s possible.  With a final strategy in place you will have more time to tie up loose ends at work and make a plan for how to spend your free time when you’re done working.


This is not something that I created out of thin air.  The guidelines for the timing of retirement are the product of conversations with hundreds of people just like you. But everyone is different and real timing of the market that allows you to keep long-term plans on track depends on personal factors.  Each of the above points in time may move forward or backward depending on who you are and what type of goals you have.

Some people buy annuities several years before retirement.  That works just fine since most people are shifting away from risk well before the final date.  Others wait and don’t do anything until the day of retirement and still others leave things hanging for several years.  This will be determined for you based on the other two factors.  Income needs and personal risk tolerance will help you narrow it down even more.

Next week I’ll expand on the second factor which is income needs in relation to portfolio value.  This plays directly into the above timeline.  When you have saved enough it’s time to start protecting assets, identifying options and finding the best strategy.

Focusing on this formula will help much more than watching a specific stock index and wondering whether it’s going to correct or keep climbing.  That’s a speculators game and you’re better off avoiding it altogether.

Talk to you next week…



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When Is The Right Time To Buy An Annuity?

Managing retirement assets is stressful and it’s very difficult to not make emotional decisions.  Very few people are able to rely on objective analysis and it’s no surprise.  The old saying that fear and greed are the driver’s behind most decisions is absolutely true.  Given that all of you have seen some serious swings with investment accounts in the past 30 years I understand why it’s hard to time some of the biggest financial decisions you will ever make.

2018 has been something of a microcosm of the last 30 years.  It started with the stock market reaching a record high but before the end of January came a correction that skimmed more than 10% off the value of the Dow and the S&P 500.

Many were reminded of 2001 or 2008 and expected the route to continue, if not for fundamental reasons then definitely because it was about time for it to happen.  This extended recovery we’ve seen since the banking crisis of 2008 has had people jumping back into the market at every point along the way.

I’ve talked to people who stayed the course from the beginning and saw a nice rebound while others sold and sat on the sidelines, envious of the yields that could have been.  I always tell people, “in ten years we’ll know exactly what we should have done.”  It’s my variation of an old adage and I use it to remind everyone that all you can do is go with the best option today.

So this year has been interesting.  The market rose to new highs, corrected and scared everyone only to slowly recover and approach or exceed those record levels today.  Since we’ve seen it come all the way back I am reminded of some decisions people made early in 2018.

After creating an income plan for one gentleman, I asked him for any concerns about buying the annuity.  He replied that if the market rose another 15% he would regret not staying in the market with all his assets.

This person had a nice-sized portfolio and modest income needs so it wasn’t a critical move either way but I had to remind him that buying an annuity doesn’t mean you are taking all possibility of growth off the table.

Here are the details:

Portfolio value was just shy of $1M

Protecting enough to secure income would have cost $200,000

If he didn’t buy the annuity and the market rose 15% his portfolio would have been worth $1,150,000

With a 50% participation rate on the annuity and the same increase in the market he would get…

15% on $800,000 and 7.5% on $200,000

Total portfolio value of $1,135,000

So when the market gains 15% he gets 13.5%

Noticing he wouldn’t be giving up much yield he decided to protect what was needed for retirement income.

Fortunately, it was done in time to avoid the correction in late January so rather than limiting his gains, the annuity insulated the portfolio from greater loss.  What is needed for retirement income is protected and the rest of the portfolio can continue to grow forever.  Regardless of what happens in the stock market he will be able to pursue the kind of long-term growth that will build a serious amount of wealth through retirement.

When is the right time to buy an annuity?  When you’re ready to remove the stress of uncertainty.


Have a great weekend!




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The Case for Annuities in a Retirement Portfolio

If you are going to consider using annuities in a retirement plan it’s necessary to start by improving on traditional advice.  If an annuity isn’t the better option then there’s no reason to buy one.  The only reason I sell annuities for a living is because I know there are many instances where an annuity is the best choice.

For comparison purposes let’s start with a fairly standard portfolio example.  Generally speaking this is going to consist of a pre-chosen blend of equity stocks and bonds.  Traditionally people have been advised that a 4% withdrawal rate is sustainable so assuming no major volatility issues, a $1M portfolio should be able to produce $40,000 income annually with inflation adjustments.

Bonds provide steady income, stocks and mutual funds provide some dividends and the growth from the equity side is supposed to offset inflation.

We can use current interest and dividend rates to see how a mix of 40% bonds and 60% stocks will produce the income needed.

Five year bonds are paying 3.5% interest and the average dividend on stocks in the S&P 500 is around 2.5%.

40% of the portfolio in bonds will produce $14,000 interest annually.

60% of the portfolio in US-based equities will produce $15,000 in dividends annually.

This is a portfolio that is not particularly risk-averse and well positioned for growth on the equity side.  But the mix will leave someone $11,000 short of the initial income goal.  Making up the difference will require selling into principal and growth on the equity side will be needed to offset inflation and maintain a growing balance over time.

Selling into principal compounds risk and damages portfolio growth over time.

If you sell bonds, you have interest rate risk that could devalue the withdrawal, plus it will decrease future income payments with less principal.

Selling equities is fine except when the market is down in value.  Selling stocks when down in value only compounds losses and also decreases dividend yields with a lower balance.

“Interest rate risk and low rates on the bond side and market risk on the equity side make it complicated to manage income and achieve optimal growth.”

Over time the market will rise but if the timing is wrong on any withdrawals it will only be more difficult to keep pace with the income difference and any necessary inflation adjustments on spending.  This is the issue that causes long-term problems and has puzzled academics and industry analysts for years.

The insurance industry has an answer for providing the income needed but producing $40,000 income annually will cost $700K or more.  Income would be covered for a lifetime but only $300K of the portfolio would be left for inflation protection and discretionary spending.  For some, the peace of mind is worth it but I think that’s far too expensive and the kind of emotional leap that is hard for many to take.

I have always found that to be a hard way to sell annuities because I don’t especially like to prey on the various fears retirees have.  It takes a major shift in the portfolio to accomplish this as well.  The annuity expense is not the only problem.  You would also have to relinquish a significant portion of growth potential.

There happens to be a better way that addresses the issues with the standard stocks and bonds portfolio approach and also eliminates the substantial cost of the annuity.

Start by replacing bonds with an indexed annuity.  The first benefit is that you are not making a significant change to the overall portfolio.  Similar growth potential exists on the equity side and I’ll show you why the indexed annuity improves the safe allocation.

Rather than use the bonds in a portfolio to produce income, use the indexed annuity as a place to draw income when the market is down in value.  10% of the account can be drawn annually without penalty of interest rate risk.  And to beat a bond it only needs to grow at 3.5% or better, which is fairly easy to do.

If you consider the $15,000 available annually from the equity side of the portfolio that means a maximum withdrawal of $25,000 from the annuity.  Withdrawals can be increased on the annuity side so that dividends can be reinvested in good markets or bad in order to maximize growth or enhance recovery, depending on performance and personal goals.

Having developed a basic model to test the various options I can tell you with confidence that what I call the Flex Strategy produces substantially more growth on a portfolio than traditional management or the standard approach with a lifetime income annuity.

Targeting short-term indexed annuities without income riders will eliminate fees and enhance growth on the contract.  When the term is up the portfolio can be rebalanced to maintain the desired character for growth and income.

This is an excellent way to produce systematic or discretionary income but that’s not all.  When required distributions come at age 70 it is also the optimal way to manage a portfolio when you have to take withdrawals.

The details of this example are intentionally general in nature.  Average yields for both bonds and dividends can be increased by taking on more risk with lower rated bonds or by accepting less growth on higher dividend stocks.  The interest and dividend figures are also void of management fees so I call it a wash.

If you were able to manage it all yourself it takes a substantial amount of work and experience to accomplish total interest and dividend yields that exceed 4%.  If you are looking for a more care-free retirement then the annuity option would give you all the benefits needed.

Please feel free to comment or give me a call if you would like to see models using your numbers.

All my best,



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More Advice From the Mainstream

Comments and questions from the blog posts give me valuable feedback so I can refine my recommendations and create new ideas for retirement planning strategies.  Some comments are thoughtful, inquisitive and insightful while others leave me scratching my head in confusion.

After last week’s newsletter we received a call from another advisor who accused me of only trying to sell 7-year annuity contracts so I could sell another contract in seven years.  Now I didn’t specifically mention that in last week’s post so he must have been reading some of the past stuff and decided to focus on a minute detail.

First of all, the main objective of this website is not to sell an annuity to everyone who signs up.  The goal is to provide information and useful retirement strategies that help people find value in the various products and financial vehicles available.

Second, when I do offer recommendations I put a fair bit of explanation behind it.  So focusing on the end result while ignoring the process of analysis that it took to get there is fairly short-sighted.  My fifth-grader has to do better on her homework than that.

I try to make things easy for you.  Over the past several weeks we’ve covered some simple topics that have technical implications.

We talked about how interest rates over different terms indicate different levels of economic certainty and dictate how you should approach the allocation of safe assets.  Short and long term rates are nearly identical right now so staying more liquid and flexible with a shorter commitment makes sense to me.

Then I gave you a retirement planning checklist that gives you a step-by-step list of considerations that need to be made when planning for retirement.  The point of that is to give you something useful no matter who you do business with.  It illustrates the fact that planning for retirement is a much more simple process than many advisors make it out to be.

And finally, last week we brought you a common question from a retiree and the standard type of advice you might receive from the average advisor.  Most of you are here because you’re in a typical situation and it helps to compare different plans and see what others are doing who have the same concerns.

None of this specifically states a belief that an annuity is the only way to get something accomplished.  Different people choose unique ways to solve problems.  I happen to believe that annuities have clear advantages over other assets and I clearly explain my point of view.  None of it means you have to agree with me and you are free to choose any strategy that you like best.

As for how I recommend annuities, 7-year contracts are the best value proposition in the market.  Terms for that time period are as good as or better than terms for longer periods.  I wrote an entire blog post explaining the fundamental analysis behind it.  Why go longer if it offers no additional benefit?

Shorter is always better and I actually use several contracts that are as short as five years in term.  I also like three to five year fixed annuities when appropriate for a given situation.

When I put these contracts into a plan I have proved over and over again that you can produce more income and accumulation in retirement with the proper strategy.  I keep the details close to the vest.  It’s my intellectual property and free information has its limits.  Without my help that means you have to connect the dots but I’m trying to make it as easy as possible.

The advisor who called was obviously not able to do that.  I’m concerned for his clients but that’s not my problem or yours.

Here’s the deal:  would you like to buy a 12-year contract with a bonus, income rider and annual fee that takes 20 or more years to break-even?

Or, would you rather buy a 5-7 year contract with no fees inside a strategy that protects assets and increases net worth in retirement?

What happens after seven years?  Well you can keep the contract, buy a different one, move the money somewhere else or buy a motorhome and come visit me in Montana.  It is going to depend on what the market looks like at that time and I have no way of knowing.  It will always be your money so you can do whatever you like.  But if I create a plan that works well, of course you’d be likely to continue doing business with me.

If not, you are fee to do whatever you want.  If you buy an annuity from me I want it to work so well that your retirement is as easy and care-free as possible.  The motivation goes no deeper than that.

As always you can call or email if you have any questions.  Just let me know how I can help.


All my best,




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Retirement Planning Checklist

Below is a basic list of items to consider when working to formulate an income plan for retirement.  Much of what makes up this list requires a more detailed explanation as to why you might run into trouble when taking advice from someone else.

I’ve heard of some advisors telling clients of mine they don’t have enough money to retire when that’s not the case.  And more often than not I see a lot of advisors use funds from the wrong type of account to fund an annuity so special attention needs to be paid to allocation, not only with respect to your portfolio but also your blend of qualified and non-qualified assets.

Most plans that center around annuities require a far greater investment in the annuity than is appropriate.  This is one of major reasons for the negative press annuities receive.  The result is that many people avoid annuities when there is actually a strategy that can be used to strengthen a portfolio, adequately protect assets for income and increase wealth through retirement.  And yes, you can do that with annuities.

If you plan to do this on your own or with the help of a local advisor, you need to be able to verify that person knows what he/she is doing.  At the end I’ll tie it together with some final advice and hopefully this will offer some support to those of you planning to do business elsewhere.

Here is the list…

  • Total assets in relation to needs
    • Basic question that shows at a glance whether income goals are attainable
      • Annual income needs should be 5% or less of investment assets and savings
    • More accurate if planned discretionary spending is included (new vehicle, daughter’s wedding, home repairs etc.)
  • Percentage of total qualified money
    • How much of your assets are in IRA/401(k)?
    • Calculate approximate required minimum distribution when you turn 70, even if you’re not yet 70
    • This can and often times does dictate a specific income plan and may cause you to draw more than you want or need, thus paying more in taxes
    • 80% of plans I see have come with strategies and products that have not adequately accounted for required minimum distributions
    • Keeping this in mind from an earlier age can help minimize tax liability or present an opportunity for a laddered Roth conversion
  • Current Account Allocation
    • Where are you in relation to the traditional mix of 60% equities and 40% bonds?
    • What percentage of assets would you like to protect?
      • No wrong answer – some want to protect it all and some don’t want to protect anything
    • How much you should protect depends on how much income you need.
    • In most cases it is advisable to have the same allocation percentage for both qualified and non-qualified funds
  • Safe Assets and Income
    • Safe allocation from above should provide majority of income
    • Some choose bonds – low cash flow and require performance and withdrawals from remainder portfolio so this carries a fair bit of risk
    • Many use annuities – guaranteed income but typically comes at a high cost
      • In most cases annuities require you to allocate a far greater percentage of your portfolio to safe assets
      • Locks up money and makes an inflexible plan
    • Other ways to use annuities – deferred fixed contracts using withdrawals for income
      • Saves on fees and makes asset more flexible with shorter commitment
      • Creates opportunity to change and rework plan as time passes
  • Optimal Portfolio Balance
    • Enough protection to ensure portfolio withdrawals can be taken in all markets without the risk of selling undervalued assets
    • Enough growth potential with additional assets to offset inflation and continue wealth accumulation through retirement
    • Traditional approach of stocks and bonds use dividends on securities and interest on bonds to produce income.  Without management fees this will produce roughly 4%
    • With management fees income from interest and dividends is too low to cover necessary and discretionary spending so selling principal is required which carries substantial risk when markets are volatile and interest rates are rising
    • Optimal balance and a blend of the right assets eliminates these risks

When you create an income plan to cover retirement spending or manage RMDs it takes a specific level of care and consideration.

First you need to have enough money to retire.  This mostly depends on how much income you need but planning for additional expenses is important as well so you can get as close to the total estimated need as possible.  One person I recently met with had every planned car purchase and home improvement project planned for the next 20 years.  It doesn’t mean it will happen that way but it gave him the opportunity to test the viability of various income plans and prove that his portfolio would survive even in the most dire scenario.

Next, you need to make sure that any qualified money in your IRA/401(k) is specifically considered as part of any income and allocation plan.  Lots of people have been sold annuities that cover income needs in their 60s that won’t work as well once RMDs are added to the equation at age 70.  And likewise, many advisors propose annuities that require deferral past age 70.  In either case RMDs were not considered and one person had a larger than expected tax burden while the other purchased an annuity that never provided the intended benefit.

Next, consider your current portfolio allocation and how it relates to your optimal blend of assets.  If you have saved adequately and have reasonable income expectations then you can usually design an income plan without making any major changes to your portfolio.

And finally, learn to evaluate the different options you have for protecting assets and creating income.  Done correctly you can do both at the same time.  I am not partial to any one contract but I am being honest when I say that guaranteed income contracts in this market do not offer a way to maximize potential with assets.  While they may be safe you could be short-changing yourself.  I do believe deferred growth contracts are better for both protection and income and deciding what you use is a personal choice.

There are several ways to create a reasonable retirement plan.  There is a “best” way to do it and not everyone understands that.  With the financial services industry working the way it is you are likely to only see standard options so my objective is to first make sure you don’t make a mistake and second to give you ideas to improve your chances.

Best of luck as you look to make the right moves for your future.  I am here to help and answer any questions you have.  Feel free to call or email any time.


All my best,


Bryan J. Anderson

Annuity Straight Talk


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