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

Fixed Annuities Have Never Been So Sexy


When I started this website it was all about fixed annuities.  A good fixed rate will solve any problem in retirement and beat the projections of every long-term guarantee.  Running the numbers and learning how to analyze solutions provided the inspiration to start spreading my message.  Unfortunately it wasn’t long before rates started dropping.  Multi-year guarantees that started over 6% steadily decreased and in just a couple years it was hard to find something over 3%.

The rate wasn’t the only thing that changed.  In order to keep a competitive yield in contracts, insurance companies had to limit liquidity.  Most quality fixed annuities came with a full 10% free withdrawal but that changed and now most offer interest only withdrawals and some come with no liquidity at all.  It works fine for parking some money but you can’t do any sort of dynamic planning with it.

Before someone calls me on it I need to tell you that 10% free withdrawals are still available in some fixed annuities.  The problem is that you’ll sacrifice yield to get it.  New York Life will give you the full free withdrawal and a whopping 1.5% over seven years.  That rate is an educated guess as I didn’t take the time to look it up.

Since fixed annuities were the first contracts I ever sold there will always be a special place in my heart for them.  In the early years I got people into contracts with a 7% guarantee over ten years.  In the mid-2000s those people were comfortable and happy.  Others with market exuberance before we hit the financial crisis would consider 7% guaranteed to be a big mistake and some of my clients second guessed the decision.  But 2008 happened as such things always do.  A return to reality is inevitable, we just never see it coming.  That’s when a guarantee makes the most sense.

The really cool thing about those contracts is that after the initial guarantee period there is a minimum guaranteed rate that comes after it.  For the early contracts it was 3% and we had no idea in the beginning that would be a competitive rate after the surrender schedule expired.  We came out of the recession ten years ago and woke up in a whole new world.  With fewer and fewer options for risk averse people, most decided to hang on to the 3% contract.  It was fully liquid and could be taken at any time without penalty so staying put made sense.  How many of you would take that rate with no restrictions?

This is one of the main reasons why I’ve never replaced an annuity I had sold in the past.  The base contract was better than anything available since so there’s no reason to mess up a good thing.

There have been plenty of times in the past 8 or 9 years where others would scoff at the idea of a measly 3% but the last month reminded us all to not be greedy.  Things have evened out and the fixed annuity caught up because it never lost money.  The old fable of the tortoise and the hare is the lesson here.

On the other side of 2020 is going to be a different world.  We have no idea how long this will take but I do know it will take new ideas to prosper from it.  There is going to be some incredible opportunity going forward and those who were prepared will get the most out of it.  People rushing to safety after the collapse are like the same people fighting over stuff at the grocery store right now.

If you were prepared then pat yourself on the back.  This year will be a whole lot easier and you can worry about more important things like spending time with family in uncertain times.  That’s what I’m doing.  With my back up against the mountains I can look out and see everything going on without being directly affected by it.  In a time when the CDC tells us not to get within six feet of another person, maybe the guy who does business remotely from Montana finally has the advantage.

I wish you all the best as we navigate the unknown over the next few months.  Rest assured knowing that as things change I’ll adapt to provide ideas so you can be on the front line of the recovery.  If you get bored with your social distancing routine then give me a call.  I’d like to know how everyone is doing and the phones still work, at least for now.

Do your best to enjoy the weekend and look below for related posts from the past…



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One of my favorites because this was so easy:  Why I like Annuities

Don’t forget three months ago when many thought the rally would never end:  Why Would an Annuity Make Sense in 2019

I’ll be damned if this doesn’t make a pile of sense right now:  The True Cost of Volatility

This one shows that last August most people were fairly uncertain.  My oh my how that has changed in such a short period of time.  A Wild 2019 and How Annuities Fit

That’s it for now… I love you all!


Don’t Sell Stocks. Do This Instead.


You should all know by now that I’m one of the few annuity proponents that has always said that you need stocks to achieve growth.  No matter your risk tolerance it has always been more appropriate to compare annuities to other safe allocations and I’ve mostly picked on bonds because of the risk associated with price volatility.  Fluctuation in values in addition to market risk fail to offer the safety needed for true consistency for withdrawals along with the growth needed to pay for retirement.

I started talking about this in 2015 as interest rates approached historic lows.  Increasing rates from then until the recent top at the end of 2018 proved me right.  Over three or four years, many bonds and bond funds lost as much at 15% of their value.  But things turned around and started to settle again.  Rates dropped through 2019 and news of a bond rally accompanied the continued bull market in stocks.  What bonds lost from 2015 was gained back so if you stuck with it you’re about even, plus the coupon payments, of course.

Recent volatility created a rush to US Treasuries and the associated demand dropped interest rates to nearly unthinkable levels.  It created an even greater rally in bonds and provided growth that slightly offsets losses on the equities portion of a portfolio.  If you had it right then your total portfolio will be down far less than if you were in 100% equities.

Clients of mine who did this years ago avoided the ups and downs.  Stock and mutual fund holdings provided excellent growth and annuities as a bond replacement yielded well without the volatility, providing for a more stable increase.  If that’s not what you’re looking for then I’m sorry for wasting your time.

For those interested, consider the type of opportunity this presents now.  Bond holders have done well but what happens when things turn around.  We will get through this and rates will climb, maybe not to hyper-inflation levels right away but even going back to levels seen three months ago would create losses on those supposedly safe assets.  If things stay the same for a little longer there’s going to be little value in the interest earnings from other safe assets.

Now is the perfect time to take gains from bonds and bond funds to stabilize your portfolio and what better way than with a safe asset that will give healthy returns along with a market recovery.  It presents a strategic opportunity to take advantage of recent volatility.  Rather than sitting around and pining about what could have been, recognize that you have the chance to be on the winning side of this trade.  Getting into an index annuity at the bottom of the market and following it back up is an added bonus.

Don’t sell your stocks, sell your bonds.  Every wholesaler who wants me to sell annuities keeps reminding me that rates are dropping and suggests I put pressure on people to lock in rates now.  While that may be true, none of them give me a true justification as to why it’s important.

Call me or make an appointment below if you’re ready to take advantage…



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Ideas for Times Like These


There must be some value in all the things I’ve written about on this website.  After all, I live in the world you are trying to figure out.  My job is meant to help people plan for times like these.  Loyal readers have heard it a hundred times and clients/friends know exactly what I’m talking about.  Everyone puts focus on the stock market when interest rates are the far bigger story and I’ve tried to convince people to no avail.

For me it was obvious about a year ago when a real estate agent tried to talk me into buying an overpriced house.  He told me that rates would never be lower and could only go up so the timing was as good as it would get.  I laughed and said, “mark my words, rates are going lower and there will be a better time to buy.”  No matter who was right, it taught me a little bit about popular sentiment.

Interest rates have been shrinking since I started in this business.  My mentors at the time were giddy at the thought of a 30 year mortgage at 6%!  Now we may be going below 3% which is great for a borrower but you guys are all lenders.  At low rates you go short as a lender and long as a borrower.  It’s simple economics and I truly hope that fact hasn’t escaped you.

Who cares about what could have been?  I want to give you some ideas that help.  So if you are justifiably concerned about how recent events might affect retirement then I’d like to offer some thoughts on how to go about allocating assets.  Basically, you need to do something now!

Dividend stocks have always provided steady values and consistent cash flow.  And everyone else your age knows that.  Could that rush have increased prices to an unrealistic level?  What happens to those consistent dividends as the economy slowly grinds to a halt and profits shrink?  This one is probably going to be like the February unemployment numbers.

Bonds have added a little juice to most portfolios over the past year.  Lower rates lead to increased values but the opposite will happen when things turns around.  My guess is that anything over 2% for a high-grade corporate bond will be pretty good in the coming months with serious risk to value when the economy stabilizes.  That sounds like a great idea for a big chunk of protected retirement assets…

If you want a CD then buy it now.  The yield may not look that impressive but it is likely better than anything you’ll earn over the next year.  Don’t ever forget that the majority of the developed world has negative interest rates so stop being so picky.

Go to cash if you don’t know what else to do.  Don’t be greedy and spend too much time wishing you would have sold last month.  I’m sorry if I wasn’t more direct then, but some people just weren’t satisfied with an all-time high.  Whether you left something on the table or not, things will get worse before getting better.

Since this is not about annuities, I’m not going to tell you again that you can get a 0% floor with a double digit upside, more liquidity than bonds and safety that beats everything else.  If that’s not good enough, go ahead and stick with another assets based on a .70% ten-year treasury.

Last week during the first stage of the meltdown I went and spent a couple days with my dad on his farm.  He’s getting things ready for the upcoming season and one thing we needed to do was replace a tire on his ditcher.  If you don’t know what that is, it’s like a plow you pull behind a tractor to clear out irrigation ditches in the spring.  That damn tire had threads popping out everywhere and was completely worn through on the sidewall, with inner tube fully exposed but still holding air.  I don’t know why we replaced it because it still did the job after 40 years or so.

Most times all it takes is for one little piece to work the way it should so that everything else runs fine no matter what the conditions.  It’s never too late for a change so think about that as you wonder if your tire is feeling a little ragged right now.

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People Who Don’t Listen to Me


This job comes with its fair share of criticism but rather than complain I reserve the right to remind everyone when I called the shot.  I didn’t specifically see this week coming because I prefer the casual approach.  I thought it would be more consistent and gradual and have only been hinting at it for the last couple months.  And you never know, it may not be over yet.  When a ten year bull market runs into a black swan event like Covid-19 the results have the potential to be much more violent than anything we’ve ever seen.

Safe is cool about every ten years and it was about time to see it again.  This week I got an email from a longtime reader of this weekly post.  The message was simple, “Damn if annuities don’t look pretty awesome right now.”  Yes they do, and it goes beyond not losing money.

For the last few months many people have constantly been in search of something better.  “Sure I’d like to protect some money, but I’d better get near market returns or I don’t want it.”  After a 30% annual yield, expectations are high.  It’s as if that happens every year but we all know better.  2019 presented a special opportunity.  It honestly moved millions of people into a completely different financial realm.  But those who want all of the market sure as heck got what they asked for.

So the first thing I’ll say is don’t worry because you’re right back where you started.  You didn’t really lose money.  You never had it in the first place because you have to sell the asset first.  Stocks and bonds aren’t money.  Trading may be a great way to get money but there’s a transaction that needs to take place before you can buy a sandwich.

I feel for people.  I care about what I do and am happy to know that as bad as things may seem, most of the people I have talked to are still just fine, even if a bit bruised for the time being.  Rather than rub salt in the wounds I’m going to remind everyone of something I’ve been recommending for the past year.  Not everything lost big this week.  Bonds made a little money and one stock in the S&P 500 is actually up 8%.

There may be a few other bright spots but I want to show everyone what happened with my top recommendation.  It’s not a contract, rather an index.  It was up steadily all last year and it didn’t beat the market but continued higher at a more modest pace.  It wasn’t good enough for some people but those who took it will be happy they listened to me.

The good news:  S&P 500 is still up 6.1% from one year ago.  You all have more money than you did a year ago.

The bad news:  S&P 500 is down 8.56% year-to-date.  Many of you have less money than you did two months ago.

Life isn’t so bad, right?

My top recommendation from the past year has been the S&P MARC 5 Excess Returns index.  Basically it’s a blended index with a combination of securities, commodities and fixed assets.  It is managed to move to safety when volatility is high and toward growth when volatility is low.  It works really well to produce steady returns and puts a 5% average yield well within reach.  A lot of people said, “no, I don’t want that.”  My favorite response is, “I’m busy and don’t have time to deal with this right now.”

The good news:  S&P MARC 5 is up 13.74% from one year ago.  That wasn’t looking too special a couple months ago but we’re talking about annuities and protecting money is what’s important.  Good yield is a bonus.

The bad news:  S&P MARC 5 was down a little this week too, but it’s still up 2.46% year-to-date.  Oh wait, that’s not really bad news.

And you can get it with a 90% participation rate and no cap.  A lot of you know that because I already told you but with rates changing it won’t be there for long.

I’ve always been into scoring as many points as possible.  My version of the old sports adage:  the best defense is a good offense. You need to understand things are not yet all that bad and if you want to protect money you can still make money at the same time.  With fixed rate yields sure to drop along with treasuries, it puts bonds in a precarious situation and good luck finding safety and yield anywhere else.  There has literally never been a better time to do it right.  It doesn’t matter what you did, it’s what you do now.

You can listen to me or not.  That’s up to you.



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Double Digit Annuity Yield


Everybody wants it.  Salesmen promise it without regard to reality and I always say it’s possible but don’t expect it consistently.  Honestly I’ve seen it happen several times and the likelihood depends a lot on crediting methods or the index tracked, not to mention a pretty hot stock market.

This is not the highest I’ve seen, just the most recent and performance is always a popular subject so I’m sharing a statement from a renewal last month.  The owner purchased this contract in January 2019 and just completed the first year, during which the market did really well as you know.  But a year ago everyone was pretty nervous so we didn’t know to put all the funds in the S&P 500.  Instead we split it up with a hedge on the gold allocation and some diversity with a balanced mid-cap index.  All performed well so the blended yield came out well ahead of our reasonable projected average.

Here’s the statement, redacted of all personal information:

I’ve had some people complain that earnings are never expressed as interest on these statements.  Maybe some do but not the ones I use.  So unfortunately we have to do a little math.  The contract was purchased with IRA funds for a total premium of $166,669.48.  This gentleman was over age 70 so an RMD was taken before the year was up.  $8,546.56 in withdrawals did not earn any interest because it was taken before the end of the crediting period.  So interest earnings of 16,008.59 was credited only on $158,122.92.  This results in total interest earnings of 10.12%.

Interestingly, his surrender value is over $161K.  With the RMD taken into account his earnings more than offset the surrender charges just one year into the contract.  He could walk away today with more than he put in the annuity just one year ago.  But why would he?  Yes the market did better over the period but the annuity is locked in value.  If the market keeps going the contract will yield again and if the market drops he won’t lose a penny.  He certainly doesn’t have to worry about losing a few percentage points of value just because an infected bat attacked a scientist in China, or whatever explanation is making the news today.

It’s about security and consistency and getting the highest yield on your safe money.  Simple as that.  Plenty of people passed up the opportunity but those who didn’t were fortunate to have money protected and still achieve a healthy gain.  I’m not going to blow a bunch of smoke this week.  You all know how to get a hold of me.

Until Next Time…



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What’s Your Risk Reduction Plan for 2020?


This year started just like the last ended.  The stock market continued to climb early in January and the prospect of the bull market reaching new highs in 2020 was a real possibility.  I’ve talked to several people who had a lot of fun watching assets grow substantially during the second half of 2019.  What a change from the prior year!  Last January, most people were lamenting the losses of solid 2017 gains.  And so it goes with the stock market.  However cliché it may seem, the comparisons to a roller coaster are appropriate.

Even after all the talk last year about the economy slowing down there are several indicators suggesting the expansion could continue.  A new negotiated trade deal with China, the USMCA with Canada and Mexico and Brexit finally set to happen before you all read this.  Wall Street likes certainty and these are just a few of the uncertainties that caused skepticism in regards to whether the economy would continue to grow.  Regardless of where you stand on the benefits or risks of current events, having things settled gives the business community confidence to operate without fear of rules changing.

Now this is not the place to talk about all the economic indicators or make assumptions on how current events will affect your assets but I do want to remind people that most corrections happen because of things that hadn’t been predicted.  The virus in China is the perfect example of something no one expected that causes enough panic to roil markets and stall economic expansion.  Uncertainty has and always will be the greatest threat to stability and continued growth in the markets and economy.

The key to succeeding in retirement is not to predict these events but to insulate yourself from the fallout.  You all know where I stand on the issue.  I sell annuities and you signed up to receive information about how to use them.  That’s not what I’m going to write about this week.  Some of you have annuities and some of you are still thinking about it.  Many of those still thinking about it may never make the change but that doesn’t eliminate the need to protect assets.  So I decided to give you a couple ideas for asset protection that don’t involve annuities.

If you’re new to the site and would like to read about my justification for using annuities just click the green button at the top that says “Newsletter” and you can go see just about everything I’ve written on the subject.  For the rest of you, it doesn’t matter if you’re the type that will never use an annuity or person who already has one but wants more protection without the commitment.

One by one I’ll go through all the options and let you know what might be a good idea and what might not.

Money Market or Savings

There’s nothing wrong with simply taking some gains and waiting on the sidelines for a while.  I’ve seen plenty of people, motivated to make a move but paralyzed by over-analysis who got stuck because market positions deteriorated before a decisions could be made.  If you are worried about a long term market correction but have no confidence in a an option that requires a commitment then pull some money out of equities and keep it secure for a while.  Even a stop loss can be how you get there if you don’t want to try timing it.  Retirement accounts might look good but you honestly don’t have any money until you sell the holdings and sometimes you beat the market by staying out of it.



This has always been the favorite way to reduce risk in retirement and regardless of what I say that probably won’t change any time soon.  But I’ll try again.  There’s nothing wrong with protecting money and getting steady interest with bonds but you need to understand the risks and/or limitations.  Values fluctuate with interest rates so individual bonds must be held to maturity as selling with rising rates will create losses that defy the reasons for protecting money in the first place.  Bond funds are the number one culprit because you have no control over buying and selling.  A lot of news was made last year with the bond rally.  It only happened because rates dropped making asset values go higher.  It was some relief for those who rode the rates up from the lows of 2015 and saw steadily shrinking values along the way.  With rates back down and bond values back up, there’s not much opportunity.  Interest payments are consistent so that’s a benefit but rising rates could make bonds a longer commitment than you think.

Hedging Strategies

Options trading in most ways is actually even more speculative than staying exposed to the stock market.  But people who want to keep chasing growth can use puts, covered calls and other options strategies to create profit that can offset losses during a correction.  The problem here is that I think a lot of people who don’t know what they are doing give this a shot anyway.  For most it’s like playing poker at a table full of pros.  Successful options trading take knowledge, experience and skill so be diligent, humble and do your homework before executing the first trade.  I have a close friend who made his fortune trading options for an institutional firm on Wall Street.  He laughs when I tell him about anyone who thinks they can just open up an account and start playing the game.  It’s not impossible and I do know people who have successfully entered this market but it isn’t for the faint of heart.  And just like anything else it costs you something to do it so you have the weight the cost against potential gains to determine whether the risk is worth it.

Dividend Stocks

Here’s a recent trend that is probably the best way to stabilize assets and stay in the market.  Lots of asset managers, in light of low bond rates, are recommending dividend paying stocks as an alternative.  Blue chips have a long history of consistent dividend payments.  The asset value doesn’t grow much but it typically doesn’t drop much either.  Last week I read a report that indicated 40% of all growth in the stock of S&P 500 companies came from dividends in the last ten years.  It doesn’t mean you have to get into individual stock picking as there are plenty of low cost funds with diversified holdings of quality dividend stocks.  It will take a little research but this one’s not that hard and there are plenty of deals out there to be had.

I could keep adding more but then I would veer off toward things like true diversification and modern portfolio theory.  I sure as hell didn’t want to bore you by talking about CDs.  The truth is that any idea that protects money and keeps you in the stock market takes work so you have to pay someone to do it or set aside plenty of time to make sure it’s done right.  It all comes at a cost and none of it is without risk.  It just has to be done with a cost you can afford and a risk that’s acceptable.

If you have any other ideas you think are worth mentioning leave a comment below.  If it’s a good alternative to using annuities in retirement then I’d be happy for the extra education and you may be helping others on the list as well.  Don’t be shy and let me know what you think.

Until next week…



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Why it’s Hard to Find the Best Deal


I’ve seen dozens if not hundreds of people over-analyze product selection.  If a strategy or idea is accepted, many people stall out when trying to decide which product is the best option.  Since I favor the approach of asset protection and maximum growth it’s possible that I’m responsible for creating this roadblock for some because growth is a projection rather than the more objective task of simply finding the highest income payments.

Over the past week I’ve started conversations with a man who is in the midst of deciding whether to take his pension via lifetime income or a lump sum.  Aside from the complexities of making that decision it’s interesting to see the route he has taken to get answers.  He may not know it but the options he has seen underscore the difficulty some may have in finding the best solution.

First of all the pension is more or less secure but a little clause in the contract that many people disregard states that the company, at its sole discretion can reduce benefits in the future if the pension payments become unaffordable.  So it’s up to the recipient to either accept that risk or avoid it by walking away with a lump sum in the beginning.  It makes sense to want to have more control over the outcome but you have to at least be able to match the income.

His current investment manager, with no affinity for or experience with using annuities, recommended taking control of the lump sum and buying mostly fixed income with bonds and a small portion set in stocks to provide growth.  It’s a typical recommendation but nothing in the investment game is really built to provide both safety and maximum income.  Systematic withdrawals from a bond portfolio would fluctuate with interest rates and there’s little chance of matching the pension benefit, especially if withdrawals need to be reduced in order to protect the principal balance.

The next step was to call Fidelity Investments, the custodian of his investment accounts and inquire about any annuity options they can offer.  This is where the problem starts.  Fidelity is a major institution that has contracts to sell annuities for a select group of companies with the only options being single premium immediate annuities.  Fidelity is in the business of aggregating investment assets so the company doesn’t have much motivation to send funds out to insurance products.  So you’ll see a limited number of options that is likely to be appropriate in only a few specific circumstances.

I don’t know if this guy ended up at a dinner seminar or if he found it on his own, but he had also been exposed to my favorite product, the Allianz 222.  There’s no doubt some moron out there that would try to sell him this contract but it’s an easy disqualification with the 10 year deferral since income needs to start soon.  Regardless, many of you have been exposed to the flood of information that comes your way when you start typing things like ‘annuity’ in a search engine.

Most people you find will be like this man’s investment advisor or Fidelity Investments.  There will be no knowledge of or even a hatred for annuities, or there will be options limited by contracts between institutions.  It doesn’t just exist in the investment management area as insurance-based advisors are often limited by contract with insurance marketing organizations.  I wrote about it last year and it’s a real issue that you’ll face.  You can read the past article below…

How Commissions Affect Annuity Sales

The average advisor sticks to what he or she knows.  A captive advisor doesn’t have much choice with available products.  The hotshot in your hometown doesn’t need to branch out much because there’s less pressure and competition.  I don’t have the luxury because I’m swimming in the biggest pool.  I am forced to search all the options to stay competitive.  If I can’t get what you need then I will send you elsewhere.  There are people who read this every week that have had that experience with me so if that’s you then I’d appreciate a comment below so everyone else knows I’m not making it up.

When you find guys like me from an internet search, it can be hard to decide which the best route is.  In many ways we all do the same things and have the same products at our disposal.  It’s how we choose to use them that makes the difference.  In addition, doing business always comes down to the three principles of know, like and trust.

It takes time for us to get to know one another.  We have to get along if we’re going to work together and those who don’t like me are free to go elsewhere.  Most importantly you have to believe I know what you’re up against and that in spite of the difficulty I can produce the best option and ideas for your situation.

Don’t forget that I’m here to help bring simplicity to this seemingly complex market.  Take the time you need to make a decision but know that my message will stay consistent.  If you’re going to use an annuity in retirement, make sure to use a product and strategy that gives you the most in return.

I want you to make money, have freedom and flexibility, stay in control of your assets and never have to worry about running out of money.  Seems pretty simple to me…

Enjoy your weekend!



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Comparison of Two Retirement Plans


Last year at about this time I got a call from Roger and it inspired me to make his situation the subject of a newsletter.  A few years prior he had put a plan into place based on advice from a CFP and had started to question the plan.  He found this website and wanted my opinion.  There wasn’t much I could do for him except cross my fingers and hope it all works out regardless of the limited potential he now has.

You can read that story here:  I Can’t Believe a CFP Designed This Plan

I was thinking about it because I am three weeks away from a client review for a couple that started about the same time as Roger and the two situations were roughly similar back in 2016.  The difference between the two plans will underscore the importance of blending safety and growth potential.  The events of the past year have made me grateful to have clients that are adequately protected but still able to capitalize with substantial profits.

So let me tell you about Lee and Barb.  I met them in early 2015 while spending the winter in Puerto Rico.  They were each 59 years old and had planned to retire in four years when they could collect social security.  With a combined $900K in two 401(k)s and a projected income need of $30,000 annually I determined that retirement was possible.  In order to hit the goal they had to protect assets but they also needed growth for discretionary spending and inflation protection.  The asset to income ratio was right on the line but there was no choice but to blend protection with growth potential.

If you remember back to early 2015 you might recall plenty of uncertainty in the markets and economy.  It was only two years after the S&P 500 had recovered from the calamity of 2008 so there was a mix of people who were relieved to have stayed in the market and those who got out at the wrong time and had been too scared and unsure of what to do.  It was the perfect time to add some assurance but keep open the possibility for continued growth.  That was about the same time Roger’s CFP had him put everything in cash and annuities.  If I only had a time machine…

Lee and Barb had their assets in a 50/50 mix between corporate bond funds and market index funds.  Aside from a short visit with a Ken Fisher rep the only other plan they’d seen was a recommendation to put $600K into a deferred index annuity with an income rider.  Boring, right?  That contract would have perfectly hit the income goal in four years so it was suitable but I felt they would be leaving too much potential on the table and I also knew that an annuity would work well with far less investment in the beginning.

The solution was simple and the reasoning obvious.  Swap the bond funds for and index annuity with no income rider and no fee for maximum growth.  It actually took less than half with $400K going into the annuity.  The remaining assets could float with the market and in four years, withdrawals would come from the annuity if market assets were down and just the opposite if the growth side had done better.  With a seven year annuity contract, in a worst case scenario, they could pull income via free withdrawal for three years until the contract was surrender free, at which point all assets would be rebalanced depending on portfolio weight at the time.

The first year was pretty weak on both sides.  The market was more or less flat with the annuity growing about 1% and the market doing about the same.  However, in early 2017 the market was well into another good run and the annuity came in for a 5% yield and the market investments were up about 15%.  Things were looking good for Lee and Barb and they considered taking some gains and protecting them but with no real need I didn’t think it was necessary.  The market continued to race forward and in 2018 the annuity had another modest return in the neighborhood of 5% or so but the market assets had grown to nearly $700,000 after an exceptional 2017.  Lee decided to retire early and Barb made a plan to follow him in a year, which was also earlier than planned.  In doing this they activated part of their long-term plan and shifted $200,000 to more stable blue chip stocks with a history of consistent dividends.  This would reduce risk a bit more and provide for some diversification and consistent income to take pressure off other parts of the plan.

It was a good call to go a little more conservative because the market had some losses in 2018 and they held steady with the rest of plan given no reason to overreact to the modest correction.  I’m excited to talk to them again in a few weeks.  If things hold the market side of the portfolio will be valued at more than $900,000 after a historically exceptional 2019 and the annuity is looking at a yield of close to 8% which will lock in a value of about $480,000.  Without a specific calculation I can tell that’s a blended yield of roughly 12% over four years.

I remember writing about Roger’s story last year and saying something about how I would have done things differently four years ago and it occurred to me that this was a great example of why it’s important to stay consistent.  Obviously it’s not the annuity that gave Lee and Barb all the great performance but it was the annuity and the overall strategy that allowed them the opportunity.

If you were to do things the same as Lee and Barb I can’t guarantee the same results over the next four years but I do know if you do it right you’ll see that happen at some point.  Any other annuity strategy would have cost too much to achieve the above results and some advisors would even have you put so much in there that you’d have no real growth to look forward to.

I’d rather see you succeed than me so my goal is simple.  Prove that you need to protect just enough for a backup plan while leaving plenty available for maximum potential and flexibility in the future.  With rates staying stubbornly low, it takes just a touch of creativity to find an alternative that doesn’t lock up your money for the long term.

Enjoy your weekend!



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Long Term Care and Annuities


It’s a major selling point of many contracts and an easy sales pitch.  “You’ll get a long-term care enhancement if you need it so it’s a win/win!”  Insurance companies didn’t become the most stable financial institutions by giving things away so if you really want long-term care than you need to look at all the options.

This is not a product type I’ve put much emphasis on selling because I’ve already run the numbers and determined the cost is not worth it in most cases.  But the prospect of needing professional care later in life has pervaded the minds of all retirees if not because of marketing efforts from the insurance industry then because some have seen their parents go through a difficult situation.

First I’m going to talk about hybrid products that offer additional benefits for extended care situations.  Most commonly this is an index annuity with income rider.  In the best case, the contract reads that you can double your income for up to five years if you can’t perform two out of six activities of daily living (ADLs).  If you don’t know what those are, in simple terms, those are the six things you’d rather not have someone else do for you.

Index annuities with care enhancements are fine but you need to understand you are giving up a little in terms of growth, income, fees or all of the above in exchange for the protection.  The reason I say it’s not usually worth it is because all contracts I know of remove the care enhancement once the cash value of the contract goes to zero.  Income payments will continue but with lower growth and fees the enhanced benefit is gone for most people around age 80.  That’s exactly when you’d need it most so that explains why it might look pretty good.  Most people won’t ever get it.

No underwriting is required and you can use an IRA or cash to buy it because it comes attached to many of the popular products that sell the most.  The downside is the benefit comes as additional income so it’s all taxable, whereas true long-term care is tax-free.  But it is something if you don’t have the money for anything else.

If you really want the insurance then you need to look at other options so I’m going to explain briefly what’s available.  My first long-term care seminar was probably 15 years ago and the wholesaler said something that has stuck with me since.  In his words, “purchasing long-term care is a business decision.”  Would you rather spend your money on the care later or the insurance now?  I’m not trying to convince you one way or another, just asking you to think about it.  There is no right or wrong answer.

Below are your other options.  All provide for tax-free care benefits but must be funded using after-tax money and all require some form of medical underwriting to be issued.

Long-Term Care Insurance Policy

Most people who have these got ‘em well before retirement.  Policies can be issued as early as age 40 when premiums would be really low, but premiums can increase over time.  I’ve heard from several people who feel handcuffed by the rising costs over time and with so much invested already the decision to cancel is extremely difficult.  In light of that possibility, policies were created that guarantee a level premium payment over a specific period like ten years.  Once finished with the payment terms the policy remains in-force for life and no more payments are required.  This is a good option for anyone with extra cash in the years leading up to retirement.  It’s not cheap but this is a very effective way to provide for a future care situation.

There are some pitfalls that are important to consider.  The father of a person who I’ve been speaking with for the past few months had long-term care insurance when he entered a care facility.  His father passed away before the elimination period ended and never got a benefit after paying for the policy for several years.  Because of that experience, this gentleman is not too excited about the prospect of buying an expensive policy.  Like I said, it’s a business decision.

Permanent Life Insurance

If you are afraid of paying a hefty price for something you may not use then this can be a safer option with a far greater range of outcomes.  Most companies issuing permanent life insurance policies now allow for death benefits to be accelerated to pay for long-term care expenses.  Since it’s an insurance death benefit then it also comes out tax-free.  Ten year payment policies require no payments after ten years, come with a residual cash value that can be used for income later in life or a death benefit that passes to your heirs.  There are several options if you don’t exercise the care provision.  Money is not lost in either case and you earn a modest interest rate on your money over time.  For these policies I recommend whole life over indexed universal life because the cost is lower and the guarantees are much stronger.

True Long-Term Care Annuities

Yes, there are annuities that are specifically built to provide long-term care and many of you know about these already.  You can even use a highly appreciated annuity if it was purchased with after-tax funds.  I’ve known several people in the past that took advantage of the opportunity to transfer and provide insurance rather than paying income taxes on the appreciation of an old annuity contract.  The best contract currently on the market provides 2.5 times the premium amount in qualified care benefit.  That means if you put in $100K then you have a guaranteed $250K insurance benefit if you ever need.  And if you don’t, the contract can be annuitized for income later or the residual balance will be passed to your heirs.

All of the above are a decent option for anyone with extra cash flow or some money laying around that can help offset a potentially major cost late in retirement.  There are obviously several additional details involved in each but the material basics are mentioned.  This post literally could have turned into a separate report worthy of a dozen pages or more.  In my opinion, the life insurance is the best option because it doesn’t require a large sum in the beginning like the annuity and has level payments with more alternatives than the long-term care policy.

Again, it’s a business decision and a required consideration of any viable retirement plan.  If you would like clarification on any of the above information or have a story to share about your experience then please comment below or respond to my email.  Those of you with personal experience may be able to help someone else put the subject in perspective.

Have a great weekend…



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Why Would an Annuity Make Sense in 2019?


Annuities barely get a passing thought when the market approaches record returns.  Short-term exuberance is addictive and very few people can remove emotion from investment decisions.  Well 2019 was a year that paid off for everyone who stuck with it.  Trade tensions have eased and the economy seems to keep growing steadily so it may continue for a while.  Then again, there’s some real political risk after Thursday night’s news from Iran but that’s an entirely different subject.

Yes, the market was great in 2019 but it was not easy to get there as many people were continually nervous along the way.  It seems as though pain is much easier to forget than I used to think because this time last year plenty of people were lamenting the end of a bull market and moderate portfolio losses through 2018.

I remember a year ago I told plenty of people to stick with the market after big losses but I’m not quite as confident this year since many of you have the opportunity to take some nice gains out of play.  2018 wasn’t great and 2019 was.  So what is the average of those two years?  After all, retirement planning is a long-term proposal so short-term gains or losses are not where you should focus.

I started thinking about this a couple weeks ago and sat down last night to run some numbers.  In a post about volatility a few weeks ago I brought up something a lot of people know.  It takes a larger gain to make up losses and since 2018 was negative that should decrease the actual yield after a stellar 2019.  And of course I wanted to test to see how an index annuity might have affected the outcome.  Now, two years is still too short-sighted but it’s a good exercise nonetheless and the difference will no doubt be more pronounced in the long run.

So I took the level of the S&P 500 at the beginning of 2018, 2019 and 2020 to test the value of different portfolio mixes to see what performed best.  In 2018 the index was down 7.7% and in 2019 it was back nearly 29%.  Starting with a direct investment in the S&P 500 the results are below.

As you can see, after the drop in asset value, rather than being up big the yield was good but a fair bit more muted.  The two year effective yield comes to 8.967%.  Not a bad average at all but far from knocking it out of the park.

Let’s see how the same thing would look with an index annuity and 50% participation rate…

Instead of risking it in the stock market, had you protected it with an index annuity it would have caused you to come up $4,396 short in portfolio value.  But it’s more about what you went through to get the respectable 6.931% effective yield.  A year ago most people couldn’t stomach the losses experienced and I don’t know exactly how many stayed in the market.  Plenty of others who had annuities were bummed to make little or nothing but no one lost money and there was much less stress involved.  Let’s take it one step further and see what a blended portfolio would have done with a 50/50 mix of annuity and stock market.

Half of the risk resulted in cutting losses as well and staying in position with a portion of assets to capture more gain, resulting in an improved yield of 7.954%.  That’s pretty good considering half the risk.  Since you all are in or near retirement then it makes sense to see how withdrawals would affect the outcome.  Remember, withdrawals from the market in down years will compound losses so it’s more necessary to protect assets in order to maintain growth potential.  Take a look at the final table below where I assume a 5% withdrawal for income in each scenario.

Please allow me to summarize the important points below:

  • Taking a withdrawal from market-based assets alone causes a total portfolio drawdown of $6,434, which includes the lost opportunity cost of the growth on the withdrawal. Over several years this will create an exponentially negative affect.
  • Using only an annuity gives you a higher starting base for the second year and results in a smaller difference of -$3,679 ending account value. Remember that without a withdrawal the difference between the two was more than $700 greater.  This gap will become tighter over several years and will quickly turn positive on the annuity side in times of extended or consistent market turmoil.
  • A balanced portfolio again reduces risk but also provides for more growth. The withdrawal was taken only from the annuity side, allowing the market assets time to recover and capture as much gain as possible.  This gives a growth advantage over the annuity-only strategy and further reduces the difference between balanced and market-only to just $1,434.  Over time this will also swing positive to the side of a balanced portfolio but it happens more quickly and the difference is far more dramatic over periods of high volatility.

What does this tell you?  Cutting risk in half more than offsets the limits of only a partial gain.  It’s simple and I don’t understand why more people don’t see it that way.  Of course the effects are compounded in a scenario where you may be taking systematic withdrawals.  Whether you need the income or not it makes sense for anyone who would rather spend retirement on hobbies and family rather than worrying about running out of money.

Stress is bad for your health so why worry about it?  Make the decision to blend your portfolio correctly and enjoy a higher standard of living because of it.

Not all annuities achieved double digits in 2019 but some did.  If you got every piece of the market or more than you probably don’t need my help or you just got lucky.  In reality, emotion caused many to enter or exit at the wrong time and lots of you even paid someone a handsome fee for the pleasure.  Get realistic and give me a call if you’d like to see the no risk, no fee approach to growing your money.


Happy New Year!




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Final Wisdom: Annuities and 2019


It has been an interesting year and quite the opposite from how last year ended.  In December 2018, the market was down and interest rates were up.  Now the market is up and interest rates are back down.  Since most of you are checked out for the holidays I decided to skip the heavy content and give you a recap of the most valuable advice I can offer.  This will essentially sum up what I consider to be the foundation for making good decisions and creating a successful retirement plan.


Pursue Maximum Potential:

Whether you are just trying to protect and grow your money or looking for some lifetime income payments, go for the option that gives you the most.  It may sound simple but you’d be surprised at how many people leave money on the table by not looking around a bit.  Income annuities are easy to figure out.  I can get top of the market payouts in about 15 minutes.  Growth annuities can be a little more difficult to identify as there are many factors that affect the potential.  It takes experience and disclosure of all material details to identify the most efficient opportunities available.

Avoid Fees:

This is the monster in the closet.  Fees can be charged against any type of investment or retirement product and it can make a big difference in the bottom line.  Several weeks ago I showed you how fees erode your assets over time which makes it harder to achieve success.  It’s not just the fee you pay but the lost opportunity for growth on money that’s gone.  The best strategies minimize or even eliminate fees to give you the greatest chance for success.

Stay Flexible:

Maintaining control over your assets is the key to taking advantage of new opportunities in the future.  Being able to make changes throughout retirement will give you an advantage over other strategies in terms of market performance, interest rates changes, inflation, longevity and legacy.  No one likes to turn over control of their money so don’t.  Stay flexible and you will profit and succeed because of it.

Timing is critical:

Most people can’t successfully time the market.  Proof is only in hindsight anyway.  While you should be selling while others are buying or buying when others are selling, too many people still get lost in exuberance or panic and follow the crowd.  It’s quite true that fear and greed drive the majority of financial decisions.  So forget the market and make your decisions based on timing that is specific to what you need.  Set a timeline for the years leading up to and into retirement.  Make moves when you need to do something.  I think when is more important than how much.  Regardless of what happens with markets or interest rates, make a plan based on your needs.  If you’re still nervous then please see the point above about staying flexible.

Tackle one issue at a time:

Some people approach retirement while trying to deal with every single issue at the same time.  It’s one of the greatest obstacles you’ll face.  Social security, asset protection, market risk, annuities, long-term care, health insurance, RMDs, legacy etc.  If you try to do it all at once then rarely will it all get done correctly.  I can’t say which one is most important for you but deal with things one at a time.  Make a list with the most important things coming at the top and check them all off as you move down the list.  It will save you time and produce better results.

Get on the same page as your spouse:

This is one thing I don’t always hear directly from an individual.  But an educated assumption tells me lots of people stall out because a husband and wife don’t agree on the path forward.  Well I’m not a marriage counselor so I can’t tell you exactly how to handle it but to some extent I’m guessing a compromise will sort it out.  Some couples have one person who makes all the decisions and others work on big decisions together.  However it works for you is fine, just make sure you don’t spend too much time chasing something your spouse won’t approve.

Don’t forget your priorities:

In regards to tackling one issue at a time, keep your priorities on the forefront at all times.  Too often I see someone lose sight of the reasons for making a move and get stuck on the complexities of one part of a plan.  Always remember why you’re doing it and keep everything in the context of your goals.  Focusing on contractual details too long may lead you to something that doesn’t work as well.  Details are important but not at the cost of losing sight of the reasons you started looking in the first place.  Believe me, it happens.

Don’t follow the crowd:

This is entirely up to you.  Most asset managers don’t beat the market.  Most retirement plans have underperformed as well.  Traditional retirement advice is fine in theory but success takes a creative approach.  Computer simulations and Monte Carlo tests will reduce your portfolio to a dot on a scatter plot.  The real world works a bit differently so keep the traditional advice in mind but I recommend taking a slightly more creative approach to getting there.


If I had the time to write a book then I could probably tell you some funny stories about each of the above points.  Meeting all of you is definitely the best part of my job because I get to learn something from every encounter I have.  There are some great stories out there and I want each of you know that in here you are part of a large group of successful, intelligent and good people.  My position is a blessing and I don’t take it for granted.

If I left something out that you feel is important then please send me an email or make a comment below.  I want to thank you all for a fulfilling 2019 and as we finish this year and prepare for the next, no matter what plans you have, please remember I’m here to help.


Have a Merry Christmas!




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Good, Better or Best Way to Use an Annuity?


There are all sorts of good things a person can do with annuities.  Some annuities work better than others, depending on your goals.  But there really is only one BEST way to use annuities that will help solve nearly all the problems in retirement.  I’m not trying to convince everyone to like the products.  Each person is entitled to an opinion but if you signed up on my website and continue to read this weekly post then you might as well hear me out.

For some people it takes time for the solution to sink in.  Others quickly notice the difference between standard application and a creative strategy that produces superior results.  Most often, people who have purchased an annuity in the past finally understand exactly how an annuity fits in a portfolio and recognize the benefits of my approach right away.

Last week, one such person sent me an email to that effect.  Dan signed up on the website last Thursday and by Friday evening sent me a note to thank me for giving a clear explanation of the products and helping him avoid an additional and unsuitable product.  With his permission I have posted the email below…

Greetings, Bryan;

I Googled the 222 and your three segment videos came up.  Listened to all three of them and decided that since I’m 72 years old, 10 years is too long to wait.  In 2015, I signed on to $ 250,000 or so of Security Benefit, “Secure Income Annuity”, in three contracts including one IRA.  I’m satisfied with this arrangement, guess I need to be at this point.

So, my wife and I have approximately $ 90,000 in 401-k’s; I still work part time and mine is parked in Money Market for the most part until after the next 10%+ correction when I would normally place it back into the S&P equivalent, Fidelity FXAIX.  A local purveyor of insurance products and nice evening dinner explained the Allianz 222 without mentioning it by name until we went for an interview.  She knew just how to sign us right up that afternoon.  It all seemed a little too quick so I requested the brochure which she turned over somewhat reluctantly.

What you are saying is so true.  If in addition to performance and stability, you want to retain discretion over your investment, a simple limited duration fixed index annuity is a great tool.  This is especially true for folks who just want to be able to expect decent income but are not interested in picking and watching their way through.  My 401-k has been successful because I study when to move it all the time but only make up to a couple moves a year at this point.  I have trading and hedging strategies for my Schwab based investments in the market.  Don’t do anything with bonds.

I wish to thank you for the straight scoop on these investments.  They surely have a place in the portfolio of retail investors such as myself.  And, as you say, I know there is a right way to handle them.  If I were 10 years younger, I would surely be wanting to have the half hour of your time.

You helped clarify my suspicions regarding appropriateness of this product for me at this time.

Thank you so much.


My broad reaction to a message like this is to feel good about spreading a positive message about annuities.  Only buy what’s right for you and stay away from the products that don’t work for your situation.  Dan is happy with what he’s got, has a good strategy for growth investment but someone tried to sell him another contract that didn’t apply to his situation.  I’m glad that he found me and was able to avoid throwing some money at a contract that wouldn’t benefit him.

To speak in specifics I can tell you that Dan seems to be the type of guy who is good at figuring things out.  I can look at the wording and overall message and tell you that he knows exactly what I’m trying to help people accomplish.  Going piece by piece through his message will give you several indications of how best to approach investment and income planning in retirement.  Securing what you need will open up opportunities for greater long-term growth, but you should maintain a calculated approach when taking on risk.

Most importantly I want to remind everybody that my top priority is to help people make good decisions.  I’ll make a living from those whose timing and ideology matches mine.  But for the rest of you I am always available to lend a critical eye to what you are considering.

If Dan and I had met ten years ago we likely could have done some pretty good things together.  But he’s done just fine on his own and there are plenty of you out there that might look back in ten years and say the same as him.

Christmas is approaching and I wish you all the best!

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2019 Annuity Index Performance Comparison


In many cases, once a person decides he or she likes the idea of using an index annuity they always want to find the best annuity for maximum performance.  As much as I tell people the strategy is more important than the product, there are plenty of people who dig a deep hole by comparing options and talking to several agents.

Aside from a handful of products, most annuity contracts are similar.  Surrender terms, free withdrawals and rider options for a fee can be easily compared but the growth potential is different in almost every contract.  And it’s the growth potential that may give you the difference that sets one apart from another.

I have the list of products I like.  It’s based on my experience of working with several companies and performance and rate adjustments first-hand over several years.  But I’m not limited to using those contracts and every now and then a new client wants to try something different, either to verify my recommendations or potentially find a better option.  It’s what many smart consumers do so I will always do my best to accommodate.

This happened recently with a person I’ve been talking to throughout the year.  She is working on a retirement plan and has decided to use an index annuity but is waiting for the right time.  She asked about several companies in addition to the recommendation I made and it seemed like a good time to explain how this can work for everyone else.

Below I’m going to give you performance figures for indices that can be found inside several of the top selling contracts.  Since 2019 has been a great year in the market then it’s a good chance to look at how these popular index options compare against each other and the stock market in general.  Since most general explanations of index annuities use the S&P 500 I will disregard that for this example so everyone can see that a variety of additional options and opportunities exist.

Let me first offer two disclaimers:

  • Each of these index returns will be limited by a cap, participation rate or spread and in some cases a combination of two out of three. Since those are changing constantly I’m not going to go into details of the actual contract yield.  Let’s just see how each index performs.
  • Most index annuities offer annual resets, meaning that’s how often you lock in gains. Some of the below options exist on a two or three year reset so there’s an extended period of time to either achieve more growth or have it wiped out by a downturn in the market.

Below you will see first the company, then the contract surrender term options and then the available index with annual performance from the past 12 months.


Midland National – 8 and 10 year surrender options

S&P MARC 5% Excess Return Index 13.49% annual yield


Great American – 5 and 7 year surrender options

S&P 500 Low Volatility Daily Risk Control 10% Index 8.13% annual yield


Nationwide – 5, 7, 9 and 12 year surrender options

JP Morgan Mozaic II Index 6.58% annual yield


Allianz – 7 and 10 year surrender options

Bloomberg US Dynamic Balanced Index 10.31% annual yield

PIMCO Tactical Balanced Index 8.06% annual yield

Blackrock iBLD Claria Index 9.86% annual yield


Lincoln National – 5, 7 and 10 year surrender options

Fidelity AIM Dividend Index 8.63% annual yield


Athene Annuity – 7 and 10 year surrender options

BNP Paribas Multi-Asset Diversified Index 10.47% annual yield

Morningstar Dividend Yield Focus Target Index 4.7% annual yield

Janus SG Market Consensus Index II -10.02% annual yield


Fidelity and Guaranty – 7 and 10 year surrender options

Barclays Trailblazer Sector 5 Index 12.94% annual yield


The above indices represent some of the more popular options that are most aggressively pushed by other agents and marketing organizations.  The annuities themselves may not have much difference but the performance potential will be tied to the index options you have.  Going back to my disclaimers, each of these will be limited by cap, participation, spread or even a reset that goes longer than one year.

If you want to shop based on index alone then this is a good start.  There is a subscription database available for an annual membership of around $800 if you want to invest some money in it but even I have yet to find that worth the subscription price.

Why?  Because true product selection goes a little deeper.  I put a lot of weight on interactions I have with certain companies.  A client-friendly user interface with excellent customer service and solid renewal rates is what makes your experience with annuity enjoyable and profitable.  If one contract does well then it’s likely that another will also.  So why not stick with the strategy that works and a company that treats you like you just gave them a big chunk of hard-earned money.

My reputation is on the line as well so I’ll never recommend anything but what I know works.




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The True Cost of Volatility


Gains in the stock market are great but losses create stress. It’s high times on Wall Street right now and any painful experiences of the past are distant memories for most people. Even so, volatility is the top concern for a majority of people who are exploring the possibility of using annuities in retirement.

Most people think about volatility in terms of losing money. There’s more to it than that. Losing money is temporary but there’s a long term affect that can cause more damage and reduce the probability of success in retirement. Volatility also reduces long term yield so the more you have the less your assets grow over time.

It may seem obvious but have you ever really looked at the numbers? I mean, everyone is likely familiar with the idea that a 50% loss in one year requires a 100% gain in the next year to break even. As bad as that loss would be, the worst part is that bad luck followed by great fortune only gets you back to the starting point so you would have gone nowhere over a two year period.

I’m going to share with you a basic exercise to drive this point home. I’ve been doing this with people since the beginning of my career and it’s a simple way to show you how more volatility reduces the final yield. Refer to the table below to see several examples of a two-year time period with alternating returns. Add the yield from each year together and divide by two. Every example averages 10%.

Curiously, as more variability is introduced to the yields, the result drags down the ending account value. The highest value comes from a steady 10% each year and the lowest value comes from 30% growth followed by a 10% loss. The explanation lies in the difference between arithmetic and geometric average. Basically, one provides an average of the yields and the other gives the actual yield on investment.

Managing risk properly leads to greater yields over time by reducing volatility to improve performance. It matters even more in retirement because systematic withdrawals compound losses and limit gains. If you want to visit the archives you can look at something I wrote in 2011 about Reverse Dollar Cost Averaging. The game changes when you retire and start living off your assets. Your strategy needs to change so you can play the new game effectively.

In my last post I showed you how the opportunity cost of management fees drag down performance. Volatility makes it even worse. I had promised to offer the solution but felt it necessary to include this as well since the eroding effects of volatility can cause even more damage.

Next time I’ll put down some hard numbers that show clearly the benefits of reducing fees and managing risk properly. It’s all about making the most out of what you have. If anyone feels like jumping the gun then give me a call and I’ll show you how it works before sending it to anyone else.

Until next time…

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How Fees Affect Investment Performance


Volatility is probably the biggest concern of most people I meet, but fees may be just as bad for total performance.  Paying fees for any type of investment or manager is palatable for some and not for others.  There are several ways a fee can erode investment gains but the highest cost may not be what you think it is.  Since I’m a proponent of no fees if at all possible it might help to explain exactly why that’s the case.

I want you to get the highest yield possible.  It’s as simple as that.  Most people don’t follow the analysis to the point where they can see just how much fees end up costing over time.  It’s the concept of lost opportunity cost.  If you were able to save or recapture the fee, how would that amount of money grown over time?  Compounded annually the total loss is exponentially larger than the annual fee itself.

Let’s take a look out how this works.  Below are some tables that show a sample investment of $100,000 growing over the past 20 years, ending December 31, 2018.  The yields are pulled from the S&P 500 and include dividends.  This would closely represent what you could get with a low-cost index fund.

As you can see, the investment nearly triples after all the ups and downs that equates to a little more than 5.5% rate of return.  Now the yield would be higher or lower given a different starting and ending time so I don’t want any comments from anyone who wants to argue about performance.  I just calculated this off publicly available data.

In the next chart I’m going to add a 1% annual fee to the same yields to see how it would affect the total.  This is a fairly reasonable combined fee when you add mutual fund or management fees.  Some are even much higher so you can decide for yourself whether you are in a better or worse position than this.

The 1% fee may not seem like a lot.  It’s just $1000 dollars per year, right?  But when you factor in the lost opportunity cost of that extracted amount it decreases the total performance by more than $50,000!  A dollar paid in fees is gone and cannot grow with the rest of the money.  On $1M portfolio this would amount to over half a million dollars!

What’s interesting is that if you add up all the annual fees the manager would have made $25,943 but the true cost was more than twice that amount.  That lost opportunity cost.

This is a quick exercise to show you why any fee you pay has to return more value than the cost.  For instance, if you pay total fees of 1% then the manager or fund should be returning better yields than the market.  Otherwise you may as well just open an online brokerage account and buy some cheap index funds.

Along with volatility, fees can really hold you back from achieving suitable investment returns.  Next week I’m going to show you how to reduce both without losing yield.

Have a great weekend!



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Case Study: Wealth Accumulation with Annuities


I talk a lot about how my strategies are different so this week I’m going to show you a real-life example.  Not all recommendations were my idea in the beginning.  I learn as much from my clients as they learn from me.  As cheesy as it may sound, teamwork is the key to financial success in retirement.

Frequently this year I have been mentioning a new idea for conserving assets while maintaining growth potential through retirement.  Annuities dramatically reduce the probability of failure and that’s been shown with academic studies and economic analysis by people who don’t even sell the products.  There is no debate as it has been proven over and over again.

What I consider to be the best retirement strategy available has grown from seeds planted by many different clients over the past 17 years.  During a recent review of one couple’s plan I was pleased to see just how well the plan had worked so far.  And this strategy is one of the most important seeds that was planted several years ago.

Neal and Barb are a wonderful couple in their mid-70s.  They are the kind of people that make me feel better about the world.  We met a little over five years ago as they were trying to plan for a very specific financial request.  Aside from a nice lifestyle, Neal and Barb have a family cabin on a lake in the mountains as a meeting place for all the children and grandchildren.  The goal is to provide funds to pay for maintenance and expenses for the cabin in perpetuity so the whole family can enjoy this meeting place for years to come.

Neal correctly assumed that his Roth IRA would provide the best shell for accumulating assets since there are no distribution requirements and it has the best tax treatment one can get.  He didn’t want to take risk so he was interested to see if annuities could provide a solution.  Most of their assets were inside traditional IRAs and at the time each Roth had a relatively modest account value.

Together we chose to use an index annuity with flexible premium option so funds could be added.  These guys live within their means and when each turned 70 had RMDs from the traditional accounts that they didn’t need.  So, each year Neal and Barb diligently added additional funds to each Roth contract.

After skipping the first year, they essentially made consistent Roth contributions each year.  Both accounts started at a relatively small combined value of about $46,000.  As of today both accounts have a combined value of over $134,000 and it’s going to be a fair bit higher as they are positioned for a nice additional interest credit at contract anniversary in the next couple months.  So, they’ve almost tripled what they started with and in only five years. 

Calculating the interest is difficult as you need specific dates of investment to produce the actual return.  I did this since I can look at the account and the actual yield on each contract is just over 4%.  For a conservative investment I consider that to be very reasonable.  There are other options available with risk if you’d like more yield but that’s a personal decision.

I’ve told a lot of people that you can do accumulate plenty in a Roth IRA by starting contributions in retirement.  A couple of weeks ago someone almost shuttered when I mentioned the idea.  But if Neal and Barb did it with just annual contributions in five years then imagine how it would look over 20 years. And larger amounts can be added via transfer or Roth conversion so there really is no limit to what can be accomplished.

Now I’m not here to say that everyone needs to adopt a strategy like Neal and Barb, but it does shed light on something that I think all people can use.  Flexibility with assets in retirement cannot be understated.  There’s nothing wrong with playing offense in retirement.  Safety first with the ability to move funds between investment options will greatly reduce risk and also provide for the type of long-term yields that will have you increasing wealth in retirement.

Consistency and discipline is all it takes.  Every one of you already possesses both qualities, otherwise you wouldn’t be here.  Aside from that, all it takes is the right products to put yourself in position.

Have a great weekend!



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What if an Insurance Company Goes Bankrupt?


Tons of people ask this question and those who don’t are probably thinking about it.  Annuities are supposed to be safe so what happens if a company fails?  Most people understand that every state has a guaranty fund for insurance contracts but there’s a lot that needs to happen before that even comes into play.  Aside from any insurance that may be available in your state there are several layers of protection that annuities provide.

Insurance companies operate quite differently than banks in that they have a 1:1 asset to liability ratio.  Banks are much more highly leveraged with the victims of the 2008 financial crisis being so thinly capitalized that some were in the neighborhood of 1:36.  That means if a mere 3% of their liabilities were in default it would wipe out all of their assets.  Foreclosures began to happen and it didn’t take long for the water to recede and several banks to be figuratively seen as swimming with no trunks.

On top of a very conservative leverage ratio, insurance companies are required to hold a certain amount of cash in reserves to prevent short-term funding issues related with the normal business cycle.  Banks need the FDIC and I wouldn’t put any money in there if they didn’t have it.  An insurance company’s first line of defense is that they insure themselves.

A little fun fact:  New York Life has more in company reserves than does the FDIC.  That’s right!  One single mutual insurance company has more liquid cash available than the corporation built to protect the entire banking industry.

An insurance company has a general account and a separate account.  When you buy an annuity, your money is used to purchase a block of conservative assets held in the general account.  The separate account holds riskier investments.  If the company fails it’s typically not because of problems with the general account.  Most often it’s because of failed investment in the separate account.

When AIG ran into trouble with collateralized debt obligations (CDOs) in 2008, many aggressive agents urged annuity holders to surrender their contracts and go with a more stable insurer.  That turned out to be a phony pitch.  The company itself and state regulators sent letters to contract owners warning them of the scam and stating officially that annuities were not in danger.  The general account had not been compromised but some separate investments had.  AIG annuities were never affected.

Also, I think there’s some misunderstanding about what it takes for a company to actually fail.  First, the company is put under state receivership if cash outflows exceed cash inflows or if the operating surplus turns negative.  It doesn’t mean the company failed it just means that its financial strength has been compromised.  In the same sense, you’re not bankrupt just because you only make the minimum payment on a credit card.

The insurance commissioner in the company’s state of domicile will take over control of a company when certain conditions of financial distress have been met.  The first step would be for the state to sell off underperforming assets.  Any losses incurred would be subsidized by company reserves.  Stable parts of the business will remain on the books if the company is to be rehabilitated or sold to another company for profit that would further help to recoup losses from the bad investments. It’s a long process that obviously requires more detail but through it all, annuity payments and insurance claims are all paid.

When people ask what would happen if a company goes bankrupt my quick response is that they are likely to see another insurance company buy the block of business.  Their annuity would then be backed by another carrier because annuity pools are usually a profitable part of the business.  This happened in the mid-90s when Conseco was put in receivership.  Don’t quote me but I think it was Metlife who purchased the annuity business so everyone with a Conseco annuity got a new cover page and correspondence sent from a different company.

The worst case I recall of insurance company failure was Executive Life of New York (ELNY) in 1990.  The process of rehabilitation and liquidation took state regulators 23 years to complete.  It wasn’t until 2013 that a final settlement was reached.  Throughout that time, annuity payments were made, contracts were cashed out and claims were paid as the regulators managed investments, sold pieces of the business and slowly worked through company reserves.  It might have been a pain in the butt for some but everyone got their money.

In 2013, regulators took all remaining reserves, funds from all the state guaranty associations and several large contributions from the insurance industry and formed the Guaranteed Annuity Benefits Association (GABC).  GABC is a non-profit company that holds a series of zero-coupon treasuries for the purpose of making good on all remaining lifetime payments and liabilities for the former ELNY.

That’s a rare example but through it all you’ll be hard-pressed to find someone who has lost money in an annuity, unless you’re talking about a variable annuity.  Those are risk-based funds held in the company’s separate account, but that’s beside the point.

To sum it all up, there are four components to the safety of an annuity.  First, insurance companies back every liability, dollar for dollar, with an income producing asset.  Second, additional reserves insulate the company from the ups and downs of the regular business cycle.  Third, profitable asset classes, like annuities, can be sold to other carriers in times of financial distress.  And finally, if all else fails and once everything has been liquidated the guaranty associations from several states steps in to soak up remaining liabilities.

It’s the kind of thing that happens so infrequently that I’m telling you about the one great example from nearly 30 years ago.  How many banks have gone down since then?  How many billions of dollars have been lost in mutual funds, real estate and bonds since then?  And if you take my advice to go short-term with a solid company then you’ll never even get close enough to sniff this kind of trouble.  It takes years to unwind an insurance company and an annuity gives you more collateral than you can get with any other asset.

I have no problem with anyone who wants to limit their investment to the maximum coverage offered by a state guaranty fund.  But proper due diligence will show that annuities provide far more protection than even a money market fund.  Have you ever read the fine print in that contract?  You’d be surprised to learn just how much risk you’re taking by sitting in other assets that seem to hold value.

If you rely entirely on a state guaranty fund for safety then you haven’t done your homework.  It’s fine for a backstop but there are plenty of lines of defense before it gets to that point.

There are several points in this paper where greater detail can be provided.  My intention is to make it readable, provoke thought and provide a base of knowledge for understanding why annuities are truly the safest asset you can own.

Call me next week or comment below if you have an issue with my assessment. Or, you can Make an appointment…




Why I Like Annuities


There may seem to be an obvious explanation but then again maybe not.  It’s not at all because of how much money can be made, although more than one person has declined to do business with me simply because each thought I would be making too much money on the deal.  Being able to make a living justifies the effort but the reason I like annuities goes much deeper.

Many of you know I went on an elk hunt a couple weeks ago.  It’s been quite a while since I really took a break and this is the time of year I like the most.  Getting the mules out on the trail and exploring a beautiful and remote part of this state is about my favorite thing to do.  If I can fill the freezer it’s all the better.  My wife lives on organic food and there’s nothing cleaner than grass-fed elk meat from the Rocky Mountains.  Annual success gives me all the hall passes I could ever want.

It can be hard to leave for extended periods of time because this business is a one-man show.  Nothing gets done when I’m not here so most of the time I take a vacation, the computer comes with me and I leave my calendar open and keep working.  But that’s not possible with elk hunting when I need to stay out of sight, downwind and quiet at all times.  Talking on the phone is forbidden.

If you are ever able to get deep into the mountains and high in elevation you’ll often find a pretty decent cell signal in some of the more isolated areas of the country.  Each morning we would start the climb out of camp and after the first 1000 feet of elevation I’d be able to check my email as the sun came up.  Then the phone would be turned off and I’d check it one more time before dropping back down to camp for the night.

Buggs Bunny at sunrise, during a quick email session

If anyone needed something I’d be able to quickly answer questions or just let them know I’d take care of it in a few days.  Aside from those emails and a few text messages I was cut-off from the outside world.  I watched no TV and read no news.  When we got out of the woods I learned that I had been gone at a pretty good time.  The DC soap opera was running hot and economic indicators had continued to trend toward the negative.

None of that mattered and that’s why I like annuities.  In spite of all the accusations, finger pointing and negative reports not a single one of my clients was negatively affected.  While I was never as available as usual, nobody was in a worse position than before I left.  Monthly income payments continued to flow and account balances were protected regardless of all the noise and drama.

Isn’t that more or less what you all want?  There are all sorts of ways to use annuities and the greatest benefit is that annuities are probably the most consistent asset available.  I’ve not seen even one fail to deliver on a promise, no matter how bad things may seem.  Annuities do what they are supposed to do so I and my clients don’t have to talk about the negative.  We talk about why we are both glad they don’t have to worry about the same issues as lots of other people.

Baby Mule patiently waiting for me to hit ‘send’

I like annuities because my business is protected just like a client’s portfolio.  In turn I get to spend more time testing creative strategies to find ways of getting more yield.  I like annuities because I spend zero time putting out fires.  It’s a much more positive experience and in my opinion leads to greater health and happiness.  Whether that works for you is a personal decision.

As you all continue to search for the right approach to retirement, always keep in mind the most important benefit of annuities.  Regardless of politics or economics, annuities are safe and allow you to focus on your passions and hobbies in retirement.  Contract details and all options aside, consider what you’d rather spend your time doing.  Those who don’t care for financial stress might find the annuity to be a pretty reasonable choice.

Enjoy the rest of your weekend…



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How to Get out of an Annuity


Much of the work I do and the strategies I have created are based on debunking popular myths about annuities.  Not all contracts do what Ken Fisher warns against and most people trashing the products are only trying to sell magazines or another financial product.  Everything has a negative side so you have to keep an open mind and consider the motivations behind any source.

Several weeks ago I wrote about liquidity being one of the biggest myths about annuities.  Sure, some of them have restrictions and I’ve consistently advised you to avoid lofty promises and focus on fundamentals.  Doing so will uncover the contracts that give you no more than the benefits you need and a simple plan free of complexity.

There’s more to the liquidity issue, so much more in fact that looking at it from a different angle might reveal a conservative strategy with excellent long-term growth potential.  In case you didn’t know, I like to tinker with numbers.  Playing with ideas and testing scenarios for me is just like a kid who is addicted to video games.  But I like to think that the results are much more productive.

The idea behind this comes from several sources.  I learn something from everyone I meet and each experience gives me the opportunity to serve the next person.  People who have worked with me for years get the added payback in the form of improved ideas and strategies.  Staying on the cutting edge and being able to pivot and change over time is probably the most important aspect to consider when planning for retirement.

The biggest inspiration for all of my ideas comes from the people who call to say they bought an annuity that isn’t working out.  Either the performance isn’t that great or in the worst case the contract has components with a purpose that was not properly disclosed to the purchaser.  Situations like these give rise to the sentiment that someone feels “stuck with an annuity.”

Unless you buy something completely dysfunctional, no one should ever feel stuck with an annuity.  The 10% free withdrawal gives you more than enough to draw spending money or to even ladder your investment out to other opportunities.  It may not seem like a lot but have you sat down with the numbers to see what it actually looks like?  I have, and you may be surprised at the results.

For years I have been dealing with people who expect rates to rise.  Never mind the economics required for an inflationary environment, rates are low, have been higher in the past so it stands to reason they are going higher again, right?  Maybe, but that’s no reason to be sitting around earning nothing.  If you accept a long-term rate lower than what you’d like, you can take the free withdrawal and ladder into the rising rates.  The result is a higher long-term average than what you’d get by waiting for a mythical interest rate.  And in the past, many have found out that the low starting rate was better than anything in the later years because rates kept dropping.

That idea is nothing new.  Other people have been talking about that for a while but like everything else I took it a step further.  Several months ago I realized that most retirees are taking on more risk than they’ve ever had.  It has nothing to do with asset allocation but it has everything to do with retiring right now with more assets than you’ve ever had and a stock market that is at its highest point ever.  The implications of having more assets exposed is also greater because you are also thinking about not just growing but living off of those assets.  The game has changed completely and the stakes never higher.

So, everybody wants a better yield but nobody wants to take risk.  Here’s an idea: instead of laddering into higher rates, protect some money with an annuity and use the free withdrawal to ladder incrementally back into the market.  It takes a substantial amount of risk away from a portfolio now but also proves that dollar-cost-averaging back into the market creates some excellent returns.  What’s interesting is that I’ve run the free withdrawal reinvestment scenario across several time periods and results are similarly impressive in all examples. 

In good market periods you would have done better by leaving it all at risk and in bad market periods you would have consistently purchased at depressed values, which would enhance your yield.  In either case you will see yields that far exceed what any annuity can do alone and it’s exactly the kind of performance that everyone has been saying they want.

All annuities offer protection, even the ones I don’t recommend buying.  If you feel stuck with a contract, don’t just sit there and do nothing about it.  Of course if you use an annuity that performs well then the whole idea could be a good way to move forward into retirement while protecting all you’ve earned without sacrificing future potential.

I definitely have numbers to support this theory.  It’s something I’ve kicked around for about six months now and it’s been tested in hundreds of different scenarios.  But I can’t give away all my work for free so if you’d like to see what it can do then drop me a line and we can run it with your parameters.

Enjoy your weekend!



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Making the Decision to Buy Annuities


There are a lot of times when a person doesn’t make a financial move they should have.  Every single person I talk to has a story about a missed opportunity.  That’s not as bad as when someone makes a financial move they should not.  In the world of annuities that happens too often and that’s the reason why so many negative opinions of annuities exist.  If everyone made the right moves for the right reasons there would be no good or bad financial products.  But we are human so that’s never going to happen.

About a week ago one couple came to me after just getting a new annuity contract and realizing it was nothing like what they thought.  The salesperson didn’t disclose all the information and after looking at the contract and reading one of my reports they realized they were in for a long, low-yielding ride.  All these guys asked for was protection from market risk and a relatively short time period with some liquidity if needed.  Now they are facing a 30 day free look period and trying to decide if they should change plans.

I showed them the opposite type of contract that was exactly what they said they wanted.  No bonus but much better growth potential and a time frame that was far less than a lifetime commitment.  I ended up getting a lot of resistance that the previous salesperson surely never got.  At the end of it I decided the best thing for these guys is probably a money market fund.  For all I know they’ll keep that junky contract and join the ranks of people that hate annuities.

It really made me wonder why they ever bought an annuity in the first place.  It’s the perfect example of people doing something they should not.  As often as this happens it doesn’t happen nearly as often as people not doing something they should.  Prime time for asset protection is right about now.  With the market coming within inches of its all-time high once again I suppose the only thing not cooperating is interest rates.

Playing the interest rate game is more or less the secret to planning a successful retirement.  It’s also the basis for the recommendations I make.  If nothing seems quite good enough then consider the fact that several major economies in the world have negative interest rates.  As bad as your options seem there’s a chance it could get even worse.  With certain economic indicators starting to trend toward a recession there’s a strong argument that it’s more of a likelihood than a chance.

I’ve learned a lot from a close friend in Manhattan.  He’s sharp guy who made a lot of money as an institutional swap trader on Wall Street.  If anyone knows interest rates it’s this guy.  He’s a professional at analyzing trends, reading charts and forecasting models.  He has taught me a lot and given me the foundation for much of what I try to tell you all.  This unique relationship is the reason why I do things a fair bit differently than most advisors.

I run my ideas by him to see if they pass the test.  His critique and suggestions allow me to polish these ideas into what you see.  If things change I’ll adjust so you can take advantage of those changes and stay ahead of the curve.  Listen to me when I tell you not to do something.  Give me time to explain it if you don’t understand.  I’m here to help and I put more work in than most of you realize.  The goal is not to sell an annuity to every person.  The goal is to first keep you from making mistakes.

Making the decision to buy annuities needs to be first based on avoiding what doesn’t work.  Understanding why one thing doesn’t work gives you a base of knowledge that will help you find what does work.  I’m going to continue doing things my way because it’s what I believe.  Pay close attention and at the very least you’ll avoid the potholes.

I’ll only be in the office for a few days next week before I head to the mountains for a fall elk hunt.  If you’d like to chat about it then make an appointment and I’ll give you a call.

Enjoy your weekend!



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