Before we look forward to all the things that may change this year let’s get our bearings and review the past year.  You’ve all heard me say over and over that perspective is important and that’s never truer than when we may be facing a dramatically different financial environment.  2020 was an interesting year to say the least but I’d have to say that annuities were probably the most consistent thing and I’m going to show that by sharing a link to several newsletters last year and adding a little commentary to each.

From the standpoint of market valuation we are no different than one year ago.  When markets are at record levels, no one wants to get out, thinking that some extra yield will be left on the table.  I can’t predict the future any better than the next guy but looking back to last year I am reminded of the cyclical nature of this stuff.  A year ago no one wanted an annuity after an up and down 2019 that ended on a good note.  Does this seem familiar to anyone else?

January 4th, 2020.  Why Would Anyone Want an Annuity in 2019?

Many people feel like using an annuity will eliminate the potential for yield.  If you’re not in the stock market then how will you make any money?  Thinking like that defeats the purpose.  Annuities are meant for some of your money, not all of your money.  Protected assets insulate a portfolio so market corrections don’t have the same negative affect.  The right combination leads to MORE growth over time with less time needed to recover asset values.  Traditionally bonds have been the choice for safety but I showed you how annuities can give you even more.  And who can argue when you see proof of double digit yields?

February 21, 2020.  Double Digit Annuity Yield

We all know that the party didn’t last forever.  Last year in March brought a rude awakening for many.  Aside from a few US Senators who had the privilege of some early briefings, almost everyone was hit hard with assets in the market.  It was a nervous time for many reasons and much of that persists to this day.  Consistency is what gets you through uncertain times and there were several good lessons we all learned from the experience, not the least of which is that safety helps you sleep at night.

March 12, 2020.  Don’t Sell Stocks. Do This Instead.

March 21, 2020.  Fixed Annuities Have Never Been So Sexy

April 3, 2020.  A Look at an Insurance Company’s Balance Sheet

Only a few of the people I work with came through the year with little to no yield.  Obviously it was the timing of the purchase and the correction last year wasn’t kind to anyone.  The market crawled back and it didn’t seem logical.  Analysts kept telling everyone not to buy the dip and it makes sense considering the fact that many businesses are still struggling and our economy has a bruise that seems like it may never heal.  The Federal Reserve came to the rescue and saved corporations and retirement accounts alike.  Plan on seeing plenty of this in 2021 as well.  I am a firm believer in the fact that federal spending deserves credit for much of the economic expansion over the past 20 years.  I try to tell the kids all the time that it’s more important for them to understand than me but they just think I’m crazy.

June 18, 2020.  What’s Your Plan with All the Free Money?

Uncertainty seems to be the only thing we can be certain about.  I can’t think of a single year in the past 20 where everyone was optimistic.  It’s consistency that’s important and having a plan for the alternative, whether good or bad.  You don’t have to protect everything and you sure as hell should never risk everything.

July 11, 2020.  Consistency is the Key to Index Annuities

July 25, 2020.  How Mules are Like Annuities

Those who don’t know me well naturally think that I’m just trying to sell as many annuities as possible.  While I do have some big goals, nothing could be further from the truth.  There’s not enough time in the day for me to have a 30 minute conversation with everyone who signs up on this site, let alone spending the time it takes to work through the process for those who do come forward for more help.  My goal is to offer information that helps you, period.  It’s all about providing useful advice and being a sounding board for people when big events suggest more uncertainty may come.

August 8, 2020.  I Don’t Care If You Buy an Annuity

September 24, 2020.  Will This Election Ruin Your Retirement?

Looking back, through the summer and into the fall, life seemed to return to normal for most of us in Montana.  Much of that has to do with my semi-hermitic lifestyle.  I get to see what’s going on everywhere else but it doesn’t usually affect me the same way as those of you who live near big cities.  A wakeup call was in store for me and I got a real taste of how that damn virus disrupted so many lives last year.  Everyone in my home is just fine and my thoughts and well wishes go out to anyone who had a similar experience.

November 13, 2020.  Annuities Can’t Solve All Problems

When I finally got back on track, I finished 2020 the same way I plan to start this year.  We’re going back to the basics.  I often take for granted my evolution of thought that has occurred over the past 18 years of studying annuities.  Reviews like this are good because some of you have been reading this for a couple years but many others have not.  I no longer plan to expect people to know how I have arrived at the conclusions I have.  Annuities are meant for consistency and security.  You can accomplish just about anything with an annuity including market protection, inflation hedging, retirement income and even just overall portfolio management.  Opportunities with annuities have changed over time to offer a solution for almost every situation.  Don’t hesitate because of low rates that may be here for a while.  A different approach may be just what you need.

November 27, 2020.  Index Annuities Have Evolved

December 12, 2020.  20% More Income

I want to thank everyone on this list for a solid 2020, in spite of all the things that could have made it go the other way.  Communicating with all of you this way provided a diversion for me and I hope that it likewise gave many of you an escape from the insanity of everything else.  Many things in this world change, but I’m not one of ‘em.  As we look toward 2021 please freely offer your thoughts, ideas and any feedback so I can make this as high-quality as possible.

All my best,

Bryan

Payouts on income annuities have been low for years.  It’s a situational problem since in some scenarios a person can get a really good deal.  But for the average retiree the numbers don’t always seem to be compelling.

Early in 2020 I decided to introduce people first to the most complex use of the Flex Strategy to show just how much better the numbers can be if you use the right strategy rather than relying on an annuity alone to produce a safety net in retirement.  For anyone who has been around a while it wasn’t much of a jump to see an index annuity used primarily as a portfolio management tool.  For those who are new, however, I left out some critical points in the middle.

I’m going back to the basics so that anyone who doesn’t have enough information to make the connection will hopefully add these building blocks on their way to a complete understanding of how best to use annuities in retirement.

Over the past couple months I have run into several cases that are similar to the one I’m going to show you.  The specific premium amount doesn’t matter so much because the math works out the same no matter how much money you have.  Rather than explain the full details of this case I’m just going to show the numbers to illustrate the difference between two ways to approach retirement income.

For one couple in their late 50s we looked at using $300K to fund guaranteed lifetime income that would start in about one year.  It’s easy to find the highest guaranteed income payout for any situation and takes no more than a 5 minute search in a database.  In this case it was Protective Life that would offer the couple $13,260 annually, guaranteed for life.  Age, single or joint life and the number of years you will defer will produce different results for every person and that’s why an independent broker is important.  What works for you most certainly won’t work similarly for another person.

The table below shows what this contract would look like with growth, fees and income all taken into account over a 20 year time period.  I didn’t call the company for an illustration because I don’t plan to sell this but the numbers are plenty easy to recreate using the past 20 years of the S&P 500 along with the maximum cap rate for growth offered in the contract.  In exchange for the year of deferral, the income base is increased by 4% to $312K and a 4.25% payout rate produces the income figures, while the annual fee is taken from the account but calculated using the higher income base.

As you can see, after 20 years, fees amount to nearly $75K, total income is still less than initial premium and there’s not much money left in the account.  For these guys to not only get their money back but also capitalize on the contract they would need to live well into their 90s.  For older individuals the payouts would be higher but you’ll collect it for fewer years.  In most cases it’s six of one and a half dozen of the other.

Why do people do it?  Aside from not knowing about any other options, there are two major benefits to doing it this way.  First, bonds would only provide about half or maybe less than that for income.  While the bonds would have a residual value that is greater, a person would need additional funds in something else to match the income so that essentially says that using bonds would be much more expensive and definitely more risky.  Second, some people enjoy the carefree nature of knowing a check is coming in the mail every month and will continue for life.  It’s easy and takes a lot of pressure off retirement concerns.

Still it’s been hard for me to justify a low payout even if the actuaries and Monte Carlo simulations prove that it helps a portfolio.  Plus, most everyone else is selling it this way and if I can’t differentiate myself then there would be no point to any of you doing business with someone in Montana.

I realized there could be a better way years ago when I added up the fees on one contract and added them back to the residual value of the account.  Let’s also not forget lost opportunity cost.  If those funds had not been subtracted they would have grown also.  In the above contract, the $74,880 paid in fees would amount to an additional $90K remaining if the fee had been zero.

You may also notice that in the above contract there isn’t much growth to begin with.  2.35% maximum annual returns shouldn’t get anyone super excited about signing away a big sum of money.  Where other contracts without income riders have no fees and also come with growth potential that can be more than twice as high.

The below example shows just such a growth contract with a similar premium, no fees and a conservative blend that produces an average yield of 4.21%.  Using free withdrawals that match income payments from the guaranteed income contract you can see that the residual value matches or exceeds the initial premium throughout.

Click here to expand for a larger image

The benefits of doing it this way cannot be understated, even if you doubt the ability of the contract to yield that well over time.  If this contract yielded 0% then income payments would last for almost 23 years.  If you split the difference on yield then more than half the money would be remaining.  Of course you all should know that we can take this even one step further and make it even better but that’s not the point.

Why an annuity at all?  Perhaps any doubters can tell me which asset would be better.  As for 20% more income, use your imagination.  Clearly a larger remainder means you could withdraw more aggressively or even allocate less to the annuity in the beginning.  Either way you slice it, you get more by doing it this way.

Again, there are several benefits to using this strategy, not the least of which is more control over your money and flexibility to make changes throughout retirement.  There are all sorts of caveats, disclaimers and unique situations that make this different for everyone so comment below or respond to my email if you have a question, suggestion or disagreement.  For my benefit and yours this doesn’t need to be four times as long.

Enjoy your weekend…

bryan

Using a good indexed annuity, with the right perspective and strategy, can solve all the concerns a person might have in retirement.  This week is a shout out to Carl in Florida who bought one from me about five years ago.

Carl came to visit last summer and after several years of working together we have become good friends.  He’s not the only one but he is more vocal than most and is more than happy to tell me when his expectations are not met.  I don’t know about you but my best friends are the ones that give me the most grief.

Casey, Jim and Chunk are my fishing and hunting buddies.  None of them would hesitate to give me a hard time if I did something wrong in the field or on a stream.  And it goes right back at them if I see something that isn’t right.

Carl reads just about every one of these newsletters and he asked me a direct question after seeing what I sent out last week.  The link is at the bottom if you missed it.  He basically asked me how one person can get an average over 6% in two straight years when he’s never been able to do more than 4%.

Well, I think he is averaging over 4% so he has done better at times but it’s not his job to give me the benefit of the doubt.  Now, part of it has to do with timing as annuities all hit differently at any given time of the year.  Carl’s contract resets in July while Neil’s contract resets in October.  Each is going to perform differently in any given year.  It stands to reason since index annuities are tied to the market and the market is always changing.

But what’s more important is that several changes have happened in the annuity market since Carl bought his contract.  Diversity of index options has increased across all products which has provided more opportunity for people with newer contracts.

Back in the day, or 5-10 years ago, most products had simple options like a basic cap rate on the S&P 500.  I’ve seen a lot of old contracts that don’t have much else.  So it’s not a bad thing but in many cases the yield potential is more limited than it is with the new options.

Over the past few years, insurance companies have continued to offer new indices that offer more potential using participation and spread rates with no cap.  A new index with very little performance history doesn’t always inspire confidence so you have to be selective and it pays to have at least a couple years or real data to analyze so you can see how it tracks with the general stock market.

There are a couple reasons why this happened.  First, insurance companies want to differentiate and all of them are trying to beat the competition so partnering with an investment firm to create an index is something all companies have embraced.  Some of the indices work out and others don’t so you have to hope you guess correctly.  Second, the S&P 500 is a heavily traded index with lots of volatility and speculation involved in the pricing so options are expensive.  That brings cap and participation rates down and limits potential.  Using a proprietary index, an insurance company can much more easily predict cost so rates are higher and more likely to remain stable throughout the contract.

The benefit for consumers is that you now have more options.  Carl and Neil have the same contract but Neil’s was purchased three years later so it has a couple more options that Carl doesn’t have.  There’s the performance difference, along with the timing of Neil hitting two good performance years back to back.

Many contracts in the past were limited to a few index options whereas some of my favorites today have more than a dozen.  When I look at a new contract in its entirety, I always tell people that there’s a double digit yield in there somewhere and a solid 5% average if we do it right.  Choose wisely and be patient.  Everyone with a good contract, including Carl, has the upside potential.  Index annuities have evolved and that provides more opportunity for growth on safe money.

Have a nice weekend…

bryan

I was supposed to be out of the office for 3-4 days but when the call came saying I wasn’t allowed to come home for a while, it turned into me being away for almost three weeks.  It didn’t take long to realize how ill-prepared I was for that type of absence.  Had I known from the beginning that I’d be away so long it would have been much easier to handle.  Regardless, my family was at home dealing with Covid, so business issues were the furthest thing from my mind.

My friends drove all the way from Pennsylvania to hunt elk so there were plenty of things to keep me busy.  We got likely the worst fall storm I’ve ever seen with nearly two feet of snow, sub-zero temperatures and wind that made it impossible to even stand in one place.  The horses at times had basketball-sized chunks of ice and snow balled up beneath their feet.  Along with cutting firewood, chipping ice kept us plenty busy.  Fortunately we had a chainsaw so the firewood wasn’t much of a problem.

The heavy snow made it difficult to travel and the elk all moved out of the high country onto private land where we can’t hunt.  A meaningful hunt was replaced by survival and we stayed warm and well fed thanks to the carrying capacity of a mule.  You all know how much I love those animals.

My exile didn’t work out all that well.  Normally a mandatory two week hunting trip would be very productive but it wasn’t in the cards this year.  My creativity took a dive as well and I didn’t feel like working on my laptop in my truck, using the cell phone as a hotspot.  Business stopped for a while but what’s the big deal?

Nobody was going to lose money.  Anyone expecting a monthly check would still get it.  Annuities make life easier for you and me.

I was available via phone and email on a sporadic basis so everyone who had questions got an answer and I was able to speak with a handful of them while I was gone.  A few of those people gave me some perspective.  One person lost a loved one.  Another was laid-off and forced to retire early.  Both are examples of things that made my predicament pale in comparison.  Sure, it was one of the least enjoyable outdoor experiences of my life but other people have real problems.

Annuities don’t solve all problems and are only meant to make your financial life less stressful.  Family, health and career are all things that should come first and each of you has a couple extra things on that list that deserve attention.

I can survive under any conditions so don’t worry about me.  When the time comes for you to make lasting financial decisions, I’ll be ready to help with whatever you need.  Yes, I’m back so send your questions, ideas and comments along and I’ll get back to you ASAP.

Have a nice weekend…

Bryan

This is a question that has a different answer for every individual.  I try to keep things a lot more open than the traditional management crowd that suggests a specific blend of stocks and bonds depending upon age and retirement needs.  Some people replace stocks with annuities and some replace bonds.  Some people put almost all of their money in annuities while others put none.

Most people approach retirement faced with the decision whether to make a major change to their current asset allocation.  While a major change may be the right answer it is still emotionally difficult for everyone.  This week I had a second meeting with one man who had seen my videos and was curious about this new approach to retirement allocation.

When we first met, he sent me specifics about his assets and spending goals for a pending retirement date of two years from now.  Like every other time, I take what he writes and form a basic opinion of an appropriate course forward but that’s before we even speak.  In talking to him the first time, I learned more about his personal preference and pre-conceived ideas about how to approach retirement.  It’s never my job to change your mind, rather it’s my job to offer solutions that fit with your expectations.

I can give you the math all day long but it never means that my solution is what suits you.  That’s why communication is the key to proper planning.  I can tell you how the math works but it’s up to you to tell me how the math works for you.  When someone gives me the right amount of feedback I can more properly offer solutions that not only work mathematically but also work emotionally.

Before we spoke the first time, I had already decided that this man could mathematically put 50% or more of his assets into an annuity.  Big payday for me, right?  But I still sat down to run the numbers just so I could verify my recommendation.  My advice needs to stand up to scrutiny so I never take the math for granted and try my best to walk slowly into the eventual solution.

Before the second meeting, I ran his numbers through my spreadsheet so I could find the perfect balance of safety and growth.  His income goal is relatively high in relation to assets so he needs growth and protection at the same time.

I ran the numbers through several historic scenarios and found something very interesting.  Because he was saving a substantial sum for the next two or three years, an annuity would only improve his long-term outlook if he placed a modest amount in it now.  If I showed him putting more money in the annuity now, his long-term profitability decreased.  The right amount of protection truly did give him all the protection needed to weather any storm presented in the market over the past 100 years.  Less in the annuity created a worse result as did more money in the annuity.

It pays to take chips off the table at some point, it’s just that no one knows how to identify the perfect point in time.  I continue working and analyzing different scenarios to come up with solutions that work for you and recommendations that I stand behind.

Therein lies the challenge.  The result for this man was based purely on the sequence of returns for his investments, but depending on what period you choose, the results were roughly similar no matter what period was used.  So for this guy it made sense to put about 15% of his asset into the annuity, which would provide the security to deal with volatility while keeping the opportunity for growth that he needs.  His entry into using annuities for retirement will likely be easier than it is for most others.  A relatively small financial commitment now is a much easier way to get started, so if annuities ever become a larger part of the plan, it will be a much easier transition.

How much should you put into an annuity?  That all depends on assets, spending needs and risk tolerance.  For everyone it is different and the results at times might surprise you like it did me in this situation. Factor in all the variables and run some numbers to see if there’s a magical allocation for you.  Almost every person who has bought an annuity from me in the past has come back to buy even more.  Once you realize it’s not that big of deal then it’s easy to see annuities are a very reasonable safe asset.  It works for retirement income, asset allocation and everything else.  There is a justification for every amount but the starting point is entirely up to you.

Have a great weekend!

Bryan

I graduated from college almost 20 years ago.

When I think back to that single point in time it seems as if those 20 years just disappeared. At a college reunion last year it took me by surprise to truly feel as if those times happened just last week. Many of you may feel the same way at different points in your life because time flies by as we get older.

It helped me put things into perspective when, instead of thinking about two points time, thinking about all the points in time between. Then it’s fun to realize all the things that have been packed into that time period. In the midst of my 18 year career in financial services, I took a trip to the Olympic trials, spent more than 40 weeks fishing in Alaska and traveled all over the US by either highway or horseback.

Being a bachelor most of that time certainly helped because it gave me lower living expenses and more freedom. If the next 20 years are similar, it will all add up to a rich life and for that I am grateful.

Yes, time speeds up as we age. Each year that passes is a smaller percentage of our lives. For a child, birthdays and Christmas seem so far away but for me they seem to come and go so quickly that it’s not quite as exciting as it used to be.

Right now I’m headed for my annual fall elk hunt. It has been a year but it seems like yesterday. Time slows down if I stop to think about all the little things that happened in between. 50 weekly newsletters is a great way to help me realize how much has been fit into the past year.

Annuities slow down time because it gives you something to expect that may seem a long ways away. Owners are always waiting for a check to arrive, for performance on anniversaries or for surrender periods to end. When the world is zipping past the annuity just sits there, doing what it’s supposed to and giving you something to look forward to.

Obviously I know this because I deal with people who own annuities and it happens all the time. On an annual basis things may seem to move slowly, but it balances your life just like it does a portfolio.

As I ride into the hills today, I’ll be moving slowly and will take time to think about all that has happened in the past year. For many people, annuities have been the best part of life on the financial side. The world is changing faster than it ever has but annuities will slow it down for you and keep things consistent for those who like more gradual changes.

Wish me luck on the hunt and please be patient with any response. I’ll be able to text and email at least once per day so I’ll get back to you as soon as possible.

Bryan

Most of you should know by now that I operate differently than others who advertise online for financial services.  Last week my marketing partner, Jeremy, came here from Texas so we could brainstorm some new ideas for getting people the exact type of information they want.  Keeping this environment low pressure for you is a major priority for me and it’s important to send just enough but not too much information.

That lies in stark contrast to most others who operate in a similar fashion.  I know with certainty that if you sign up on another website you are likely to receive endless phone calls until you change your phone number or give in to the sales pitch.  All those guys want is a warm body with a rough demographic match and they will do everything they can to sell you an annuity.

I’m different because I don’t care if you buy an annuity but I do want to make sure you find useful information regardless of the outcome for me.  Over the years I estimate that more than 30,000 people have signed up to get more information from AST.  I have probably had extended conversations via phone or email with maybe 20% of those people.  We had interactions and some became clients because they called me.  The others have received the same information as you without being harassed or bothered in any way.

I keep track of all the appointments I have and run numbers to analyze whether my ad spending is worth the eventual payoff.  So far this year, of all those meetings, I recommended an annuity for just about 43% of the people who asked me for advice.  That means more than half of all people came to me, shared their information and goals and I told them that they didn’t need an annuity.  Some people who don’t need an annuity buy one anyway because they like the security and opportunity provided but most do not.

It’s safe to assume that this year matches prior years and that I have communicated directly with about 20% of the people who signed up on the website.  If I only recommended an annuity for 43% of those people it translates to an annuity recommendation for only 8.6% of the people who come here.

That’s seems pretty low-pressure to me, especially considering how far others will go to get you on the phone.  I don’t expect any sale to make my week, month or career so it won’t do me any good to shove you into something that doesn’t work.  All advisors, whether fiduciaries or not, are looking out for self-interests but I promise I’ll never look out for mine at the cost of yours.  Knowing that my pitch rate is so low should allow you to relax and be more comfortable reaching out for a fair assessment.

Just this week I emailed back and forth with a man who has been reading this newsletter since the beginning.  He was interested in buying a product that I could sell but didn’t want to.  There are some that fall outside the scope of what’s appropriate for the type of planning I do.  He understands the product and likes the opportunity provided.  I recommended he go for it with another advisor who had shown him the contract but reminded him to reach out to me any time for a second opinion on the advice he gets elsewhere.

He got what he wanted and I kept my principles intact.  That approach makes what I do more enjoyable.  I sell annuities for a living but I will never sell one that doesn’t fit.  I don’t care if you buy an annuity because it’s not going to change my life.  You should only buy an annuity if it changes your life.  As you field the constant phone calls from others, take some time to consider which approach works best for you.

Have a nice weekend…

Bryan

This one is sure to hit home with a few critics but there’s an important lesson here.  Surrender fees are probably the biggest negative that come with annuities.  Since most other investments have nothing like it, declining fees over the years are new to everyone who is a first-time user.  There is a reason they exist and several reasons why it doesn’t make a difference for the average person with an annuity.

Most of you have been saving into retirement plans and accounts for 30 years or more without ever touching the funds.  So what’s wrong with being able to pull 10% each year from an account penalty free?  Plus for portfolios with a long-term objective, it’s not common to move more than 10% of a single account for rebalancing or any other adjustments, especially while in retirement when you should be focused on other, less stressful things.

While some may think it’s a raw deal to have money held hostage by a large fee on the back end, others understand how it works and it doesn’t bother them.  Most of my clients who have had annuities for several years have never touched the account.  For those it’s just safe money without fees and some good growth on top of it.  No cares or worries at all…

Those are just a couple of the ways I’ve always explained it but I’m not sure it resonates.  It’s justified to want a better explanation for how commissions and state premium taxes affect the contract and there is more to it.  Consider that the insurance company invests in long-term bonds to back an annuity.  If you bail out early the company would have to sell assets in a potentially unfavorable environment.  Within an annuity, the insurance company bears the interest rate risk which is one of the primary threats of income planning.  The fact that you can get 10% per year without fees, penalty or risk of loss is actually a pretty good deal.

Well aside from the mechanics there are some other reasons that might make sense.  Two things I’ve seen consistently over the years actually give you more control over the outcome.  The first is the fact that most index annuities have growth in the first few years that exceeds the surrender fee.  The account goes up and the fees decline meaning a person could walk away with more than the initial investment.  This is the point where most realize they have a pretty good deal.  Because they realize it’s a good deal, no one walks away.

The second one is something I have mentioned in passing for several years.  I always told people that you can maximize the withdrawal from a potential contract and get a substantial amount of money out of it before the surrender period ends.  I was recently running numbers on an income scenario for one couple.  We thought about maximum withdrawals so retirement income could be combined with Roth conversions in the first ten years of retirement.

I looked at the illustration and did some basic math.  At the guaranteed minimum, meaning no growth in the account, this couple could maximize free withdrawals each year and at the end of ten years would have drained more than 68% of the initial contract value.  If consistent growth of 4% is achieved the withdrawals would be bigger and amount to almost 80% of the initial value plus leaving behind an even larger remainder value.

Take a second and think about how big a change you’d need to make in order to shift +/- 70% of an account over the first then years of retirement.  If you end up with an annuity you don’t like then don’t just sit there.  Doing nothing is the worst thing.  Or maybe you should just start with a good one.  There’s all sorts of opportunity with that kind of liquidity on safe assets.  I showed you all an example last week of what can happen using withdrawals and incremental investments.  There’s a link to last week’s video near the bottom if you missed it.

There are all sorts of examples and ways to improve an annuity.  Eliminate fees and use the protection and liquidity to your advantage.  Yes, I make money if you buy an annuity from me but I don’t make money for writing this letter every week.  You may have a surrender fee on the annuity but my advice is free.  As long as you get a plan that works then I’d say it’s a pretty cost effective way to plan for retirement.  All things consider, surrender fees are really not a big deal.

Enjoy your weekend…

Bryan

About a week ago, someone signed up on the website, maybe read a couple emails and watched the Flex Strategy videos.  Rather than schedule an appointment to see whether it would work for him, he went and posted a question on the Bogleheads forum.  You can only imagine the response he got from all the “experts” hiding behind an anonymous screen name and a photo.

Here’s the question: Anyone familiar with the guy at Straight Talk Annuity and his flex plan?
Fixed Index annuity with no income riders to get fees as low as possible. Maybe use it instead of bonds in combination with your equity allocation.When stocks do well withdraw from your stocks.When stocks lose you withdraw from your annuity to preserve your stocks.

I have to compliment the guy.  That’s a great synopsis.  But, of course they didn’t answer the question because they have no idea about how to distribute assets in retirement.  I mean no offense to anyone who lives off CD interest, bond coupons or stock dividends, but these guys are all about parking money and not touching it.  I like to talk about using money.

My first problem is I never met the guy.  I had no idea about his financial situation but he apparently took the videos to mean I thought he should buy an index annuity.  Well of all the people I’ve talked out of buying index annuities, it’s hard for me to believe that someone I’ve never met would accuse me of trying to sell one.

What you’ll see on this forum is a perfect example of confirmation bias.  These guys will say anything to back up what they already believe.  I started to respond to each claim but got bored.  No one ever really said anything of substance.  A quick page from a contract or illustration could refute any of the arguments.  Just remember that the question posed was drawing attention to a strategy, not a product.  I’m sharing this because it’s exactly the kind of crap you’ll run into when trying to verify things on your own.  But you have to push through and that’s why I’m doing this.

One guy kept asking for a prospectus.  Aside from the fact that I never proposed an annuity to this individual, fixed insurance products don’t have a prospectus.  A prospectus is a legal disclaimer for securities contracts.  It lets you know all the information about the company and investment offer so you fully understand that you can lose money but can’t come back later with a lawsuit.  A couple other guys thought they were smart and posted links to an annuity prospectus from both Brighthouse (MetLife) and TransAmerica which are obviously from variable annuities because those have mutual funds as the underlying investment.  Since the underlying investment is a security and can lose money then the SEC regulates variable annuities and requires a prospectus.

FINRA is the Financial Industry Regulatory Authority and does not regulate fixed insurance products.  So, I don’t expect them to have completely accurate information when it comes to guarantees in an insurance contract.  I’ll take what the insurance company offers in the guaranteed summary of values over what FINRA insinuates any day.  What FINRA did in this case is highlight how some contracts guarantee less than the initial premium in exchange for higher cap and participation rates, except they left out the part about higher growth potential.  This is a thing of the past and there aren’t many contracts that do this anymore.  It’s much like the fact that I’ve changed a lot of information on this website because annuities have evolved over time to become much more user friendly.

My proof of misleading information from FINRA and the SEC is that I took the series 65 test to become a Registered Investment Advisor a couple years ago.  I passed easily.  All of the questions about index annuities were written as if the products haven’t changed in 20 years.  I had to answer incorrectly to get them right.  And I answered all the questions about index annuities correctly, according to my results.  You can disagree if you want but you’re wrong.

The following comment is one of my favorites…

Stinky says that there is an excessive internal cost to these products.  While the investment banking team required to administer index annuities would certainly add cost over a traditional fixed annuity, the fixed rates on both products are within a half percent.  So I call this one bullshit.  At least he’s somewhat fair and doesn’t think an index annuity will kill a portfolio but I still say he’s off the mark.  You can trust the guy named Stinky if you want but let the current contracts speak for themselves… Below are a couple I shared in the last six months that show no fees, good growth potential and a surrender value that is no less than the initial investment, plus interest in both cases.

Double Digit Annuity Yield

What it’s Like to Own a Good Annuity

Time for a definition for those of you who are new at this.  The ‘surrender value’ is the amount of money you get back if you surrender the contract.

What is really funny is that the thread has evolved throughout the week.  It went from being a criticism of me to being somewhat comical.  Toward the end all the guys seem like they are trying to figure it out; talking about CDs, bonds, dividend stocks, taxes etc.  And they haven’t even come close to designing an income plan for anyone.  It’s not like there was a case study they were asked to comment on, these guys are just trying to be relevant.

The guy who asked for a prospectus added a laundry list of items anyone should look for when verifying if an annuity is legit.  I’m pretty sure that’s the same guy who says he worked at an insurance company for 40 years but obviously doesn’t understand that a prospectus is a very specific legal document that doesn’t apply to insurance products, unless it’s a VARIABLE annuity.  His list of required disclosures is more or less what I go over with everyone before a transaction occurs.  But he doesn’t know me and just assumes I’m an illiterate salesman.

There are lots of individual things I could pick apart if I wanted to start an argument.  They called me out by name and I almost went there and started to respond.  But I have better things to do and didn’t really have time this week.  If I’m going to write a response to anything I’m going to write it to the loyal readers on my list and ask you to decide for yourself.  This actually was some pretty easy material for my weekly newsletter.

Fortunately, the man who started the thread, eventually admitted that we had never spoken and only exchanged a few emails.  I think he actually bought a fixed annuity from a never-heard-of-before insurance company and it seems as though the Bobble Heads are impressed with daily account values.  Either way, there’s proof I never proposed anything since I never had the opportunity, aside from quoting a couple fixed rate annuity options.  That was enough for the Bobble Heads to jump to conclusions and assume I’m trying to do something I’m not.  If any of them had a better idea, they didn’t share it.

Bottom line:  I can prove what I say but they can’t.  One guy claimed to have evaluated three annuity contracts.  Wow!  I’ve reviewed thousands so you can choose who you trust.

Talk to you next week, where I plan to show you something that will make those Bobble Heads spin!

Bryan

Boy would I ever love it if there was a best time to buy an index annuity.  Let’s say there was a three month period in the year that always produced the best returns.  I’d work 18 hours a day and seven days a week then spend the other nine months fishing saltwater flats and riding the mountains of Montana and Wyoming.  Sadly that doesn’t exist so it doesn’t warrant a newsletter but timing in other ways causes hesitation for lots of people.

Everyone tries to time the market whether intentionally or subconsciously.  But rarely does anyone pay attention to all the indicators and make every move at the right time.  Market rallies, interest rate changes, politics and dozens of other indicators all give clues but it takes an algorithm to sort it all out, and those are still wrong a lot of the time.

Not only have I heard this a bunch recently but also it has been a common theme with people hesitant to pull the trigger on an index annuity.  Many times I’ve heard someone say, “this looks good but maybe I should wait until the market drops to get it.”  The thinking goes that if you are using a contract with growth tied to the market then a lower starting point gives more upside potential.  Buying low and selling high, right?

On the surface it makes sense but going a bit deeper, I don’t understand why anyone would want to play the market while trying to get out of the market.  It’s going to go one way or the other and most of the time the result isn’t positive.  Bigger money is always moving by way of faster computers and we all have no control over the day to day and year over year swings.

Did you ever think that maybe the ‘buy and hold’ mantra is promoted by institutions because they want you to stay in one place?  That way they can make more money by shaving pennies off of millions of shares and thousands of transactions.  It’s kind of beside the point but these things pop into my head from time to time.  Try reading the book Flash Boys by Michael Lewis for a real eye-opener.

If you are thinking about trying to time the market before buying an annuity it’s not so simple.  And in all honesty it doesn’t make any difference in the end.  An index annuity is built to time the market.  If the market drops in the first contract year then you start the second year from a lower point, giving more upside potential.  What if the market doesn’t drop?  Well you had less risk and probably locked in some gains.

2017 was a really good example of this.  Lots and lots of people thought the market would correct and decided to sit it out in cash.  The S&P 500 was up something like 23% that year so all those people who were risk averse missed out on a year where I saw plenty of double digit annuity yields.  Just remember that big gains are nice but it’s all about consistency, like I wrote about last week.  Hit the green button at the top to go to the main page if you missed it.

Index annuities are all about averages.  People often comment about how the sequence of returns might affect cumulative yield.  While that is very important in stocks and mutual funds it matters much less with index annuities.  Instead of the up, down, up the index annuity goes up, flat, up.  This product alone solves the problem of reverse dollar cost averaging for retirees.

Just look at the lost decade from 2001 to 2010.  It was one of the best times to have owned an index annuity.  The S&P 500 was down around 20% at the end of it but index annuities were positive by a healthy margin.  Volatility creates opportunity when your downside is protected from loss.  Many analysts suggest we are headed for another lost decade and using that as a reason to not buy an annuity is just an excuse.  If any of you really feel that way then what the heck are you doing in the stock market?  In another lost decade index annuities will shine bright.

Is there merit to timing the market before buying an annuity?  Maybe but in the end I just don’t think it will swing the needle.  At best it will give you an extra couple percentage points in one year but you’ll get the other side of it somewhere so I’m sure it will all even out.  If you think this is your reason for waiting I’ll bet that the real hesitation comes from somewhere else.  This would be a perfect spot for me to send you back to an old newsletter:  9 Reasons People Don’t Buy Annuities.

Enjoy your weekend!

Bryan