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

Old Index Annuities Can Still Grow


This is just a little something that may help those who have one of the biggest index annuity objections.  Many don’t like the fact that interest rates, meaning cap and participation rates in contracts can change from year to year.  Never mind the economics that explain option pricing, popular thought suggests that insurance companies are just out to line the company’s pockets with your money.

I’m going to give you some details from a seven year contract that I sold eight years ago.  That means for the past year, this contract owner was free of surrender penalties but decided to keep the contract because it still had potential and had done reasonably well over the years.

Based on market timing the owner locked in a nice gain.  In spite of the fact that the insurance company could have adjusted rates over time, excellent potential still existed so long as you know how to use the components.

Below you can see the index allocation and associated weight of each in the contract for the past year.  The money was more or less equally weighted to three S&P 500 options that include two based on annual point to point and one based on monthly point to point.  All grew but one was a little better than the others so it carries a greater weight today.

At each anniversary, the owner can change the weight of each allocation to pursue a more conservative or risky strategy.  Remember, risk doesn’t mean you can lose money.  Rather, it means greater upside potential with the risk of only getting 0%.

Now take a look at the credited rates for each index allocation.  Yes, the annual point to point options have come down a bit in capped potential but the monthly point to point is still high enough to create excellent yield in the right circumstances.

After allocation weight and associated index yields are factored, the contract had a blended yield of 7.42%.  Not bad for safe money with protected gains and no fees.  Don’t forget that the owner was not bound by penalty from moving the money.  She kept it because she liked it and was rewarded with another nice yield.

It’s neither magic nor scary, but easy to understand if you have an open mind.  Rates in an index annuity contract can and will move in either direction depending on interest rates and options pricing.  Old index annuities can still grow and this is proof.

Enjoy your weekend…


(800) 438-5121

Guaranteed Success in Retirement


Attending webinars is a big part of this job.  I probably have time for about two per week but there are dozens more available on topics relating to all sorts of retirement products and strategies.  There’s definitely an opportunity in this business to be a professional student and I have to be fairly picky with my attendance so I have time for the more productive stuff as well.

Last week I was invited to a presentation on a new type of retirement calculator it ended up being a very good use of my time.  The methodology behind the calculations is what most impressed me and it’s similar to how I’ve run hypothetical scenarios for people but the output is much more detailed.  This new way to analyze outcomes for retirees compares quite favorably to strategies of the past and there is one major benefit answers one common question in very objective terms.

Where did strategies of the past go wrong?  In the early days, financial managers and calculators used what is called straight-line forecasting.  Starting with your assets and add a spending, inflation and growth rate.  Income increases along with asset value over time and if it worked that way in the real world then it would make a lot of people very happy.

The problem is that markets don’t produce consistent returns year after year.  Yield is random and sometimes negative so it’s foolish to just assume something like exactly 8% every year in retirement.  So people started using Monte Carlo simulations to create random returns.  Computers can kick out several thousand random examples in a matter of seconds.  The results are graphed and you get a probability of success.  The problem with this is it also has no bearing in reality so it’s impossible to draw any useful conclusions from it.

The new solution is called Aftcasting, which is similar to what I’ve been doing but again with much more detailed than I have.  This uses real-world market performance, interest rates and inflation across an actual sequence of events in the past.  There are no assumptions in terms of growth rates or inflation, it’s just how things would have actually happened if you had retired in a given year.

For the past few years I have been running a basic form of this where I take someone’s numbers and run the plan over the worst 20 year period in the market.  For instance, had you retired just before the Great Depression, how would your portfolio have performed?  This new software will run a retirement plan over every 20 year period since 1900 to show how many times throughout history a plan would have failed.

Once all inputs are added, the software produces the number of times a plan would have failed, depending on the date you retired going back more than 100 years.  Real performance, real interest rates and real inflation.  Whether it’s something that everyone wants to use is beside the point, because there’s one major benefit that would appeal to just about everyone I’ve met.

When the original output is read, if the plan doesn’t have an acceptable success rate, the user can click a button to ‘optimize the portfolio’ and the calculator computes the exact blend of safe and risk assets to use in a person’s portfolio.  I hope everyone realizes how beneficial that is to know how to blend assets just the right way to retire comfortably and successfully in just about every year in modern history.

No more trying to guess who’s right and which person to trust.  It’s an absolutely objective answer to how much money you should protect in retirement.  Which type of safe asset to use is still a decision you have to make but at least you can test the output of different options to see if one asset in particular gives you an advantage.

This is going to be a great new tool for providing comprehensive information to those who are serious about getting answers to retirement.  If you really want guaranteed success in retirement, I have yet to see a better way.  As I familiarize myself with the new calculator I will be sending out more information as to how it will be available to you.  Because it’s not my software I can’t advertise or make demonstrations publicly but I will use it to help anyone who is done kicking tires.

Call or email if you have any questions.


Pros and Cons of Expert Annuity Advice


Late last week someone emailed to ask for my take on an article about indexed annuities from John, the Vice President of Research at Morningstar.  Given the writer’s experience with financial markets, I was curious to see whether he’d give annuities a fair assessment.  But it turns out that he doesn’t know a whole lot about them or just didn’t feel like doing the research this time.  He should have paid me to write the article instead of having one of his interns do it.

The advice itself shows that John doesn’t like indexed annuities and he should have just said that.  It’s called confirmation bias and I have a feeling that nothing I could say would change his mind.  In reality we are talking about two different things and if you correct a few things in the article then it’s nothing more than an opinion piece.

I’m going to give you several quotes from the article and tell you what is correct and what is not correct.  You can take the true with the false and make up your own mind.  The result is that you should probably listen to guys like John sometimes and other times listen to people like me.

“Also known as fixed-index annuities, equity-indexed annuities, and registered index-linked annuities, these are insurance contracts that combine features of both bonds and equities.”

This is incorrect.  Registered index-linked annuities are an entirely different product that fall outside the scope everything I write about on a regular basis.  Also known as buffered index annuities, this product deserves an entirely separate article if not its very own website.  This is irrelevant to the question that inspired the Morningstar article.

“…these are insurance contracts that combine features of both bonds and equities. As with bonds, indexed annuities pay interest; as with equities, their payments increase as the stock market rises.”

This is correct.  It is a balanced asset with elements of both safety and growth.

“Although the returns of indexed annuities are linked to the stock market, they are constrained. For example, an indexed annuity with a 10-year life might guarantee that, for each year in the contract, the investor will not lose more than 5% of principal no matter how poorly stocks perform.”

This is incorrect.  While the yield is constrained, a fixed index annuity CANNOT lose money.  When he mentions the hypothetical 5% loss that applies only to registered index-linked annuities.  That’s how they go the name buffered annuities; you can accept certain losses in exchange for higher cap and participation rates.  That’s why I don’t use buffered annuities.  Apples and oranges…

“However, in exchange for that protection, the issuer limits the investor’s gains. The annuity’s performance therefore moves in a narrower band than does the stock market.”

This is correct.  And I believe that’s the whole point anyway.  A mutual fund can go plus 20% or minus 20%.  A fixed index annuity can go zero and something like plus 10%.  It is a narrower band and that’s what people like about them.

John next brings up the SEC Investor Bulletin on indexed annuities which I’ve had a problem with and written about for years.  The SEC is not a credible source of information on fixed index annuities because they do not regulate the product and have nothing to do with implementation and oversight in this market.  Does anyone remember my test to become a Registered Investment Advisor a few years ago?  I had to answer a couple questions about annuities incorrectly to get them right on the test.

He gives us five points from the SEC and it should have been two points.  Three of them talk about pricing controls and two talk about protection from loss.  There’s not much interesting in the list except for the one below that brings up a good point.

  1. “Rate cap.–The annuity’s maximum annual payout. For example, if the annuity’s rate cap is 7% and its participation rate is 70%, then all stock-market appreciation above 10% would accrue to the insurer, not the policy owner.”

This is incorrect.  Yield above any cap or participation rate does not accrue to this insurer.  This is widely believed to be true because many consumers think that insurance companies are out to screw people.  The truth is that insurance companies use other financial institutions to run the options side of the contract.  Any profit over and above your cap or participation comes from additional options and accrues to the outside institution.  Curiously enough, Morningstar is one of those institutions that runs options on index annuities for a couple insurance companies.

The remainder of the article is more like an opinion piece and as mentioned before, it’s clear John doesn’t like index annuities of any kind.  Below is a quick list of the remaining arguable points.

“Indexed annuities differ sharply from index mutual funds.”

This is true and that’s the whole point, even if for different reasons than he feels important.

“Unfortunately, investors cannot research indexed annuities to determine which are the best values.”

This is true but mutual funds are anything but easy to research for the general public.  I pay for access to a database to research both mutual funds and annuities and you can too.  Information about stocks and mutual funds may be considered publicly available but you have to know what you’re doing to find the good stuff and even Morningstar charges a subscription fee to get the detailed information he says is readily available.

“In that respect, as well as several others, indexed annuities resemble their cousins, structured notes.”

This is not true.  Structured notes are a completely different animal.  There can be far more risk and far less liquidity depending on the option and it takes an incredible amount of expertise and you don’t get that for free.  If you wanted to build a structure note with the same amount of principal protection, liquidity and yield potential I doubt you’ll get one that’s got more upside than the average index annuity.

“The strength of those guarantees, of course, depends entirely on the creditworthiness of the issuer.”

This is true but there is no debate.  A highly rated insurance company is among the most stable financial institutions in the world and many have hundreds of years of consistency of making good on promises and guarantees.  If you want safety, strong insurance companies come first and there is no second place.

Index annuities are not the only asset, therefore should not be compared to every other asset.  It might make good ad copy to compare index annuities to mutual funds but it doesn’t make sense.  Those are two very different things.  If you are looking for maximum investment performance then you must accept the risk of losing money.  If you want to protect assets then you must accept a lower return.

There is a context for using annuities that is completely missed in the article.  If you are simply trying to compare assets to find which is better then you’ll find nothing but arguments from people who disagree.  No one is correct without defining a goal.  I can’t say that John is wrong because we are talking about two different things.  He needs to slightly adjust five or six sentences to make it factually correct and then it’s nothing more than just another opinion piece on index annuities.

If you disagree then go ahead and let me have it in the comment section below.


Where Do Index Annuities Fit?


Uncertainty is one of the greatest roadblocks that stands in the way of creating a solid retirement plan.  It comes in many forms that don’t always relate to the direction of equity markets, interest rates or general economic forecasts.  Yes, uncertainty does affect every person’s ability to know when to make changes but it also affects the decision on which financial products you use in retirement.

Many people have decided not to make changes now because the market is high, rates are low and we have a new political party in control of Washington D.C.  While it’s not for me to tell anyone when to make moves, I can help simplify the options for product selection so when your time comes the decision of which products to use has already been made.

I typically stay away from sales literature created by insurance companies.  It’s general in nature and oftentimes will give you nothing more than a few photos of a barefoot, silver-haired couple walking hand in hand on a private beach.  In reality there is some good information but rarely does any of it offer specific details that would prove validity for a given situation.  Most people are underwhelmed by product brochures so I don’t waste the paper or postage.

But every now and then I see a nice graphic that simply illustrates something that will help people make sense of the options available.  That’s where I’m at right now after seeing the chart below that shows an all-around list of every investment option out there, besides commodities.  Many times people will see a sales proposal or plan and while it looks good, they don’t really know if it’s the best option.  As the saying goes, you don’t know what you don’t know.

The full scope of financial products and opportunities is not quite as extensive as most people believe.  Sure there are different variations of stocks, mutual funds, bonds and annuities but in a general sense the list is quite simple.  Below is a list that shows you where index annuities fit in the landscape and the blue line in the middle differentiates assets with principal protection versus those that can lose value.

Full page photo

So it kind of looks like a staircase.  At the bottom left is the safest, most tangible asset but you don’t get much out of it besides the security of being able to physically hold on to it if you want.  Stick it in the bank and it may not make much interest but you’ll get something and it’s still fully liquid.  Earn a little more interest and lock it up in a CD but liquidity takes a hit and rates are too low to make anything meaningful.  Fixed annuities are usually an improvement in yield and liquidity but if you want the highest yielding safe asset and enough liquidity to continually rebalance a portfolio, meet income needs or even manage RMDs then it has to be a fixed index annuity.

Anything above the blue line puts your principal at risk.  Yield depends on external factors for risk-based assets so it’s arguable whether the risky assets will actually return more money.  Sometimes risk will pay off and sometimes it won’t.  That’s why it takes a careful blend of risk and protection based on your needs, expectations and available assets.

Index annuities are just another asset and I think everyone ought to have at least some money in there.  If you disagree and still want to protect some assets then now you have a general list of your alternative options.  Best of luck!


Annuities by the Numbers


Well it turns out that there is something of a fourth installment of my series that I was supposed to have finished last week.  I’ve told enough stories and you all are probably tired of it.  Let’s add some numbers so I can show you how my learning, evolution and solutions stack up to a real time example.

I showed something similar several weeks ago but this is a new case that generally represents the fundamental reasons for looking at a different option.  Most people who adopt my strategy do so because the market doesn’t offer the amount of income expected.

Don has been on my email list for a few years and now that retirement is a few months away he needs to shop for some income to cover expenses when he stops working.  His request was simple.  He and his wife had earmarked $230K and wanted to produce an additional $1200 per month in order to comfortable enjoy retirement.

With both people being 65 years old my gut instinct told me that he would be close.  It’s no great achievement to find the highest guaranteed income payments if you’re in my shoes.  Most consumers would need to visit multiple advisors in order to verify the best options, without any way of knowing for sure whether they had the best.  But for me it takes one email and a five minute database search to confirm the best deal for any situation.

So I looked it up and my best guess was not even close.   The money Don had earmarked for income would only produce $950 per month and it was an index annuity with guaranteed income rider that beat out everything else, including SPIAs.  It doesn’t seem like a very good deal, does it?  Well I have spent the past few weeks explaining how it has been a career habit of mine to find ways to get more income and an alternate strategy is never more useful than when rates are low and you need an alternative to meet expectations.

First of all you need to calculate a break-even for the income stream.  In this case, Don and his wife would take income for 20 years and two months before finally receiving aggregate payments that equal his initial purchase price.  The couple would be 85 years old before finally beginning to profit from the contract.  After the break-even point is when the insurance kicks in.

Let’s take it back to my roots and see how a fixed annuity would do.  Right now you can get about 3% so if he did that instead and used free withdrawals to take income, after 20 years he would have $103K remaining in the account.  If you bump the yield up to 4% there would be over $150K left and at 5% he would barely invade the principal.

In order to get much more than 3% you would need to use an index annuity.  Knowing that the basis will last for 20 years, any growth will put you on the positive side while keeping control over assets the whole time.  If you can approach 4%-5% then you would have the opportunity to increase income to the desired $1200 per month.  Another thing with doing it this way is that if rates rise when you get older the combination of flexible assets and higher payouts could potentially put someone in position to switch strategies and take the guaranteed income later.  It takes growth but it’s only possible when you keep control of the money.

This isn’t for everyone, rather it’s an option for those who can’t find what they want, or for anyone who wants more control over the funds.  What’s interesting in this case is that when Don told me about the assets he plans to combine to buy an income annuity, I found out that one of the assets is an index annuity he has owned for a while with a few years left before it was surrender free.  He was going to surrender it, take a small hit and purchase an income annuity.  When he told me how much was in the account vs. what he originally put into it, I calculated the average yield to be over 5.5%.  He’s already part of the way there without realizing it yet.

He shouldn’t surrender his current annuity.  He should buy another one since he already knows to expect the kind of performance needed to get to his desired level of income.  But I don’t know what he will end up doing.  For some, the peace of mind provided by guaranteed income is worth taking less and there are all sorts of factors that make the decision different for each individual.  Yes, there are substantial benefits on either side of it so what you do will depend on your own personal factors.

Sometimes my numbers don’t work.  Single life payments, older starting age and even deferral years will make the guaranteed income contracts more appealing.  But in most cases it’s close so I always run the numbers to at least verify the best path.  When payments are much lower than expected but people are still interested in protecting some assets then it works well to use an annuity with good growth potential and the flexibility to make changes as time passes.

A few times every year someone comes to me and just wants the highest income payment.  There’s nothing wrong with that and for those who want more income, more control and more options then I have that covered too.

Have a great weekend…


Part III: Annuity Solutions


The first six or seven years of my career in financial services was not always easy but it was simple.  I learned the basic fundamentals of good planning and figured out how to look at things critically in order to find solutions for those who were able to think outside the box.  In the early years, everything I was taught focused on accumulating assets for retirement but my independent research uncovered new ideas for distributing assets in retirement.

Every time an annuity wholesaler came to our office they would emphasize the lack of consensus in regards to retirement income.  I consider it to be something of an annuity arms race.  Every company out there is rushing to create new products that appeal to the populace so you will happily entrust them with your life’s work.  I knew that ALL annuities are built on the same foundation so it stands to reason that you can do about the same thing with any one of them.  The problem:  most new contracts are built for a special purpose.  The more specific the objective of a contract, the fewer additional options you have.  More options means more control.  Keep it simple.

I can’t necessarily say that it was a mistake to start this website but it didn’t come without sacrifice.  The compliance department at my broker dealer wouldn’t approve my website because there was a dollar sign in my logo.  Compliance standards and regulatory changes are well-intentioned but the result is that it forces most advisors to treat grown adults with kid gloves.  The regulatory bodies don’t think you can handle big decisions.  And to be fair there are plenty of scumbags that are held in check by the rules.

The sales process is an even bigger problem.  The industry push to sell products to your generation is strong and there are plenty of solutions that meet the regulations but land outside the scope of good common sense.  In the past two weeks I’ve met another four or five people who got a few years into a contract before they really knew what they had.  There are hundreds more from the past and I just give them a little information and send them back to have a very difficult conversation with whomever sold the annuity.

Almost exactly twelve years ago I was online with the first version of this website.  Because of ridiculous technicalities with the SEC, I could stay with the current firm or go independent with the website, but not both.  It was a hard decision but as good as those guys were, we had our differences in style.  Plus I was learning as much on my own as I had learned from them so it was time to be a big boy and leave.  The first few years were extremely difficult because of the complex nature of the independent sales business.  It opened my eyes as to what the average consumer faces when exploring this market.

Rates dropped and it was hard to find value.  Fixed annuities were still competitive when analyzed the right way but those who didn’t want 7% a few years before, definitely didn’t want the same thing at 4% in 2010.  Index annuities became competitive but I stayed away from them because I had something else.  We made a living selling structured settlements for a few years.  Discounted purchase prices created effective yields far higher than could be found in the primary market.  I was beating traditional guaranteed income and in a big way.  Different elements are at work in that market and there’s relatively little product available so when institutions found the asset class it drove the prices up and yields down.  It’s based on supply and demand more than prevailing interest rates.

My friend Doug who had purchased several structured settlements, called one day and said he wanted to try something different and asked about index annuities.  I was hesitant at first and started a free trial for a database that showed me all the products.  It was a whole new world to me because I could finally do my own research and uncover where so many had steered me wrong for several years.  I had always been trying to beat income projections because that’s all everyone told me to sell.  But no, there was opportunity for growth in several contracts and plenty had zero fees.  Why was no one talking about this?  Don’t get me wrong, some people were doing that but marketing from the industry was certainly not pushing in that direction.

I picked a contract for Doug that looked like a reasonable deal and he bought it.  After the first year he made a little over 5%.  The rates didn’t drop in the contract and the company didn’t magically add any fees.  Most of what I had heard about them was misguided.  The next year he made about the same yield with the same results.  It was a good, simple contract for safe money with reasonable growth potential and he could get money out of it if he wanted it.  Many people were not suited for structured settlements and with those rates dropping we were running out of other options.  People were still calling about index annuities and I had several ways of analyzing outcomes so my goal was to tell everyone how much can be accomplished with a simple contract that grows.

It was a natural fit because of how my career had started.  All who came to me had been pitched a guaranteed income contract and I compared it to a growth contract using free withdrawals.  It wasn’t for everyone but many liked the idea of having more discretion over the funds.  Some wanted protection and didn’t need income while others needed income and wanted more control.  Again I was in the position of simply trying to show people how to get more for their money.

It all comes down to your biggest concern…

Income- how about 20% more?

Market volatility- how about stability and more growth?

Inflation- bonds aren’t going to do it.

Fees- don’t pay ’em if you don’t want!

Legacy- combine all of the above in the right strategy and it’s an afterthought.

In the past ten years or so I’ve seen the good and bad in the annuity industry.  I have consistently shown people how to create protection and income in retirement while spending less.  From the beginning of my career 18 years ago the message is still the same.  Get the most for your money.  Products have changed but fundamentals have not.  Once again, it’s simple.  If you use an annuity to protect assets in retirement, how do you want to get your money back?  Some people want it done for them while others want control.  It’s up to you.

There is an annuity solution for every problem in retirement.  It comes down to nothing more than you deciding how much money you want to protect.  From there you can grow it, spend it or leave it for the kids.  If you do it the right way you can grow more, spend more or leave more.  Those who want control usually find the answer pretty easily.

Have a great weekend…


Part II: My Annuity Evolution


Like I said last week, it was all fixed annuities for me in the beginning.  It may sound boring but if those same rates were available today then I’d spend every hour of the day completing applications.  The pain from a market correction in 2001 was real and several people understood the value of asset protection but the market rallied back in a big way and greed made just as quick a comeback.  As silly as it sounds now, it was really hard to sell a true 7% guaranteed rate to most people.  But for those who didn’t care for risk, it was an easy choice and solutions were simple, just like my career in the first few years.

Sometime around 2006 a wholesaler came to our office and started talking about variable annuities with a guaranteed income rider.  From that point it became one of the most difficult products to understand and it still is.  Most people by now can explain the difference between an account value and income value but thousands of people before got the two mixed up and ended up regretting a purchase.  This is where Annuity Straight Talk came to life.

When the wholesaler talked about the contract he put focus on the fact that no matter what the market did, the income value was guaranteed to increase at 7% annually.  The account value would float up and down with the market but the contract owner could take lifetime income from the ever-increasing income value, regardless of what happens in the stock market.  After the market correction in 2001 this sounded pretty dang good to anyone thinking about retirement.

I was confused because my fixed annuities guaranteed 7% growth.  Which 7% would you rather have?  Do you want growth on your money or growth on a phantom value?  The superior value of the fixed guarantee seemed obvious to me but it would take a little more math to bury the argument from all angles.

The only real argument anyone could give me was that the phantom income value offered guaranteed lifetime income whereas the fixed annuity did not.  Well I knew that wasn’t true because EVERY SINGLE annuity can be commuted in value for lifetime income, whether you have an additional rider or not.  And you can buy guaranteed income at any time in your life through an immediate annuity.  To that point I had only sold one SPIA and the payouts were much higher than what was offered in the variable annuity.  It stands to reason that if you can literally grow your money just as well as the phantom value will grow then you can get more income when you need it.

Back to the library I went to look through the books one more time and run the numbers from every possible angle I could think of.  My idea was mathematically better, not to mention the additional benefits of zero fees and far more control over the money.  I was just a kid so the older guys didn’t listen to me and started churning out variable annuity contracts.  They were selling and I was advising.  I didn’t make as much money selling fixed annuities but I did feel better about myself for disclosing all the information to prospective clients.  My solution produced more income so it wasn’t hard for a critical thinking person to understand.

Fast forward several years and I can tell you there is one major advantage to maintaining flexibility and control over your safe assets.  Everyone who has gone this route is not spending what they thought they would in retirement.  Some people dialed it back and don’t need as much and others found they needed more.  A flexible solution that can produce more income or none at all if you don’t want it seems like the logical path for every material reason you can imagine.

I had lunch with one of my mentors a couple weeks ago.  He’s a tremendously decent human being and I love him like family.  He made a lot of money selling variable annuities with guaranteed income.  Wanna know what he’s doing with them now?  He’s replacing them all with fixed annuities because most of the people who bought them don’t need the income and don’t like the fees.  It’s a similar story for millions of people across the country who bought an annuity in the past 15 years.

From 2006 to 2008 I stuck to my guns and kept doing what I felt was right.  Money kept rolling into the office from variable annuity sales and I wanted no part in it.  That’s not to say all variable contracts were bad.  To the contrary, many of them have done quite well over time but the market crash in 2008 put many of them in trouble.  Hartford nearly failed, AXA started offering buyouts for the variable contracts and Ohio National stopped paying management fees to advisors who sold the contracts.  All of them underestimated the actuarial cost of the guarantee when the account value dropped by 40%.  The credit bubble was a black swan event that no computer simulation could predict.

2008 made me look like a rock star and I had my best year ever.  Even so, the sales pitch for variable annuities was a hard thing to battle.  The seasoned agents had more money and influence in our community and I’ll admit it’s not easy to convince people to ignore trends.  I had to cast a wider net so I started a website.

Around this time, index annuities became very popular and of course I was skeptical.  As interest rates changed, however, I was running out of options to maximize income but I had learned a lot about the context of different planning situations.  It truly was an evolution in my thought process and if you understand the basics it will open up much more opportunity for you in retirement.

Stay tuned for part III next week…


Part I: How I Learned about Annuities


My wife and I don’t agree on politics, so we don’t talk about it.  I’ve always been up for a good argument or debate but she doesn’t like confrontation.  Whenever the topic comes up it’s unintentional.  She asked me how I became such a conspiracy theorist.  Well that makes me sound like a bit of a whack job.  Since when has questioning the popular narrative been such a bad thing?

I explained to her that my current belief system really started to develop around the time I was 20.  Initial inspiration and ideas certainly came from other people but my opinions are my own.  To get to where I am today, I read just as much information that would prove my beliefs wrong as I did information that would strengthen my position.

My career is no different.  Popular thought supports one course of action but I’ve always challenged mainstream ideas.  Some I have been able to verify and others I have proven to be completely wrong and inadequate.  The basic reason is that circumstances and opportunities are always changing so solutions to age-old problems need to be able to change with the times.  For 18 years the inquisitive mind has never failed me.

I got into the financial services business because I had a successful uncle that we all looked up to as kids.  He had beautiful homes, several businesses and waterfront on Flathead Lake.  Plus he was a really nice guy.  I asked him once how he made it all happen.  He basically told me it takes a combination of knowledge and imagination along with the courage to take action at the right time.  It wasn’t exactly the concrete answer I was looking for and we didn’t talk about it again for several years.  I thought he forgot I ever asked the question but he didn’t.

When I graduated from college with a finance degree he took me aside one day and reminded me that I had once asked how he became successful.  Again he didn’t give me the exact recipe but said meeting his financial advisor, Andy, might give me a better idea of how to get started.  So he made an appointment for us to meet and in a few days I was sitting in a conference room with Andy, a guy who had become pretty successful in his own right.

Rather than learn the secret path to success, Andy taught me the common building blocks successful people put in place.  He told me that if I could provide value to others then I myself would become valuable and indispensable.  It was more of a job offer than anything but the opportunity would allow me to build my own structure based on the path of business leaders that came before me.  In 30 years, I would be sitting where he is and my friends and clients would be just like my uncle.

So I started my career in financial services and spent most of my time selling life insurance and setting up IRAs for people my age.  At the time I was used to living off $2000 per semester so it didn’t take much to increase my standard of living.  Sometime in the first year a family friend called me and said his mom’s 2nd husband just passed away and she had some money laying around that she wanted to protect.  He asked, “do you sell annuities?”  Knowing better than to turn down a good opportunity, I confirmed it could be taken care of and my friend set an appointment with his mom for a few days later.

I had heard of annuities and knew that the older guys in the office sold them regularly.  I brought one of the experienced agents into the deal because I didn’t have time to become confident enough to present the right solution.  Needless to say it was a pretty easy sale of a fixed annuity and I ended up getting a commission check for about 3000 dollars.  Wow!  That was more money than I had ever seen at one time before.  Obviously my interest was piqued but I didn’t have a whole lot of other friends with widowed moms and money in the bank.

But I had to learn more about the asset so I could handle the next opportunity on my own.  At the time I literally had to go to the library to learn about annuities.  Immediate or deferred, fixed or variable, so many options that it required volumes of notes to organize all the product choices and that’s before we start on strategies for using annuities.  In many ways it was the gestation period for this website.

Many of you know that I was a fishing guide in Montana and Alaska during my college years and on a part-time basis for several years after that.  Most of the people who can afford to take an expensive fishing trip are successful and I got lots of advice as well as several long-term friendships from the experience.  Long days floating down a remote river was excellent training for keeping conversations going with people of retirement age.

Some of those guys did business with me and a few of them were just throwing me a bone because they liked me.  It gave me the opportunity to learn what’s good and bad about annuities.  I made sure they all got something simple and effective, without the catchy stuff that complicates the contract and restricts movement of the money.

In the beginning it was simple.  Fixed annuities had it all.  Variable annuities only worked in some very specific scenarios that didn’t apply to most of the people I knew.  When index annuities and guaranteed income riders became popular, it threw a wrench into everything.  Without the base of knowledge I already had, it would have been much more difficult to make sense of it all.  Like everything else in my life, I didn’t believe the new products could match the value of the older, simpler contracts.  No matter what the institutions, wholesalers and senior agents said, my gut told me there was a better way.

It took some time to figure it out but when it hit me, I knew I was on to something.  It’s not hard to understand.  Make more money, avoid fees and have control over your money.  The standard approach may be popular but you have to decide what level of flexibility you want as times change.  Do you want to be able to change as well?  Next week I’ll get into the second part of my evolution.

Have a great weekend…


Review of Annuities and 2020


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,


Allianz Benefit Control


More than a dozen people have asked me about this in the past month which tells me that many multiples of that have also seen it.  Allianz has always had the largest distribution system for index annuities and that’s why so many people see the products, not because there is an incredible value for consumers.

In this case it’s no different.  Many of you will recall the Allianz 222, which spent a few years as the top-selling annuity, of any type, on the market.  My aversion to this product was not the product itself.  In the right circumstances it was just fine but I heard from hundreds of people who bought without having been explained the proper use and inherent restrictions in the contract.

For anyone who doesn’t know, the 222 requires a ten year deferral to capitalize on all the juicy bonuses in the contract.  Many agents represented otherwise so a lot of people got into it not knowing that their circumstances would require them to use funds in the annuity in a way that works against the purpose of the contract.  There are people who are happy with the 222 but there are just as many or more who are disgruntled because it was never meant to do what was falsely promised.

Enter the Allianz Benefit Control (ABC) to solve many of the problems.  The ten year deferral requirement of the 222 eliminated it from being suitable for most people I’ve met.  The ABC works exactly the same way except you can take income with bonuses included in any year of the contract.  Given that, it seems this would make it a suitable product for more people.  Plus, neither contract has a fee for the guaranteed income rider so that catches the attention of agents and consumers alike.

Both contracts are considered to be performance-based guaranteed income contracts.  A base level of income is guaranteed for life and increases for each year of deferral by a factor of the growth in the account.  Rate of payout is based on your age when income starts and the bonus only increases the amount of income you receive.  One contract makes you wait ten years to factor in the bonus for income and the other lets you use it at any point in time.

In order for a performance-based income contracts to produce substantial income, the account has to grow so I look at the index options along with caps, participation rates and spreads to see what kind of potential the contract has.  This is where anyone can see what type of potential the contract has.  Short of giving you a detailed list of each index option I’m going to give you a clear indication that this contract really won’t go anywhere.

All viable index crediting options in the contract charge an allocation fee of .95% annually to use them.  Cap rates max out at 2.5% and all other index options with a spread or participation rate have not credited more than 2.5% at any point in the past ten years.  Once you factor in the allocation fee then it’s easy to see this contract will not grow any more than one and a half percent in the best of years.

Growth is extremely important for more than just maximum income.  Allianz offers a feature that doubles the income for long-term care but you don’t get it if the account value goes to zero before you need it.  Income payments decrease the cash value of the contract and if growth does not replenish what was taken then you’ll run out of residual value quicker than you would with more growth.  It leaves you with no additional benefit when you need it most.

Yes there are better options if this is something that interests you and there are some instances where the ABC provides the highest payout.  I say it over and over again but am not sure it sticks.  If you’re going to use an annuity to protect assets or provide income in retirement, go with the product and strategy that gives you the most in return.

I have nothing against Allianz personally but never felt their product line gave me a competitive advantage.  If that changes I will be happy to represent the new products.  And if someone shows you an Allianz contract that I can’t beat I will happily give you my blessing to do business elsewhere.  I’m only trying to give you the whole picture so take it for what it’s worth and make an appointment if you’d like to shop some alternatives.

Merry Christmas and Happy New Year!


Make an appointment here…

20% More Income


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…


2020 Annuity Index Performance Comparison


This started last year as an exercise for one person who wanted to see all growth options in one place.  It can be hard to decide which annuity to use when so many people will tell you that one product is better than the others.  Not a whole lot has changed but a few things have so I decided to make this an annual deal where I show performance figures for indices used in some of the more popular contracts.

It was a rough year for markets and whether the S&P 500 is at an all-time high makes no difference to most portfolios.  People who participated in broad-based market indices were more consistent than those who invested in individual stocks.  Federal bailouts funneled money to large companies that were exempt from shutdowns and many small cap companies underperformed dramatically.  So the overall stock market may look good but it didn’t necessarily spell success for everyone.

Just like individual stocks and mutual funds, index annuities this year produced performance that was all over the map.  For my clients I feel fortunate to have had most in risk controlled indices that turned out nice returns for all except a few people who reset contracts at the bottom of the market in March.

The main point:  safety good yield is possible if you know where to look. Without further ado, here’s a little light reading for your Sunday morning.  Last year’s article is linked at the bottom if you’d like to go back and compare this to 2019.

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 8.67% annual yield

Fidelity Multifactor Yield 5% Index 4.69% annual yield


Great American – 5 and 7 year surrender options

S&P 500 Low Volatility Daily Risk Control 10% Index 5.09% annual yield

SPDR Gold Index 23.74% annual yield


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

JP Morgan Mozaic II Index 1.12% annual yield


Allianz – 7 and 10 year surrender options

Bloomberg US Dynamic Balanced Index II 6.44% annual yield

PIMCO Tactical Balanced Index 5.29% annual yield

Blackrock iBLD Claria Index 5.32% annual yield


Lincoln National – 5, 7 and 10 year surrender options

Fidelity AIM Dividend Index 1.83% annual yield


Athene Annuity – 7 and 10 year surrender options

  • Old Indices: Phased out for new contracts issued in 2020
    • BNP Paribas Multi-Asset Diversified Index 3.79% annual yield
    • Morningstar Dividend Yield Focus Target Index -5.06% annual yield
    • Janus SG Market Consensus Index II -4.81% annual yield
  • New Indices: Have only been available on new contract issued after February 2020 (both include partially back-tested performance data)
    • AI Powered US Equity Index 4.47% annual yield
    • NASDAQ FC Index 23.59% annual yield


Fidelity and Guaranty – 7 and 10 year surrender options

Barclays Trailblazer Sector 5 Index -0.13% annual yield

Balanced Asset 10 Index 9.63% 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 will 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.

For me it’s interesting to see how some of the highly touted index options of the past have actually performed in the real world.  Lincoln and Fidelity & Guaranty came out with big claims of a hot new index and each of those fell flat.  Athene completely revamped index options for new contracts because of poor performance and it looks like they have at least one new good option, but the new ones haven’t even been around for a full year so it will be interesting to see how actual performance looks going forward.  If there are any other indices you’ve heard about but don’t see on this list, just drop me a note.  I’ll dig into it and offer an honest opinion.

Check out last year’s article here:  2019 Annuity Index Performance Comparison



Index Annuities Have Evolved


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…


Case Study: Annuities and Volatility


Two years ago the S&P 500 hit an all-time high, just shy of 3000 points in the fall of 2018.  It was a level that seemed almost unthinkable.  Bulls were arrogant and bears were skeptical or maybe just jealous because they missed out on the rally.  By the end of the year sentiments had switched because the market lost more than 15% to bring things back to reality.

I met Neil right around the time when the market topped out.  He had sold a business and wanted to put some of the funds in a safe place and draw cash flow for a few years.   As soon as his wife could collect social security he wouldn’t need to draw near as much from his assets so all he needed was a short-term solution.

This is the case with lots and lots of people.  Early retirement, delayed pensions or trying to maximize social security require much more cash flow in early years than later.  This makes the traditional approach with income annuities irrelevant and the solution is quite simple, even if most people don’t use it.

Neil was also talking to a person who thought he should use a variable with all the fixings so he could have lifetime income and market participation forever.  With the fees being around 3.5% and Neil’s aversion to market risk I thought it was right to give him another option that was safer.

The numbers are what is important in this case.  Neil wanted to set aside $400K and needed to draw $3000 monthly for the first two or three years.  It’s a really aggressive withdrawal rate of 9% and I don’t recommend anyone banking on that for the long run, no matter what type of luck you have with investments.  But for a short term deal it works just fine and I have many clients who are on an accelerated withdrawal plan for a few years at a time.

The variable annuity would have been really risky.  The income guarantee in the contract would not meet his short-term spending goals so additional withdrawals would be needed.  Taking extra money from a guaranteed income contract is possible but it waters down the income benefit and defeats the purpose of paying the fee.

My instinct was to avoid fees entirely, protect the money, withdraw what was needed and make sure the contract had adequate growth potential to replenish the basis as much as possible.  Needless to say we looked at a lot of numbers and he went with my approach.  Here we are two years later so I thought an update would be worthwhile.

Neil has pulled $72K from his annuity contract and at anniversary his account still had roughly $378K left.  When cash flow is accounted for, the internal rate of return for this investment is more than 6.5% average over two years.  Safety, liquidity and growth potential.  But how would the variable annuity have done?

I like to look back in time and test past recommendations to see how my advice performs.  It helps me get closer and closer to appropriate recommendations for anyone in the future.  Well, including fees and market performance in a stellar two year period, the variable annuity would have had a remainder value of $389K.  I’m a little behind but my deal isn’t costing Neil 3.5% per year and it has no market risk.  And at the low point earlier this year, the VA would have been just under $300K at one point, which is enough to make anyone nervous.

If he would have avoided annuities altogether and used an asset manager to invest directly in the market he’d have $408K left.  It’s not bad but there are also fees and market risk.  Ken Fisher charges 1.25% or more for his smaller accounts so that’s the fee I used for those numbers since Ken says that he’s cheaper than everybody else.  I’m not sure that’s true but he gets away with saying it publicly.

It also took some terrific market performance for either market investment to compete.  I guess the lesson is that when the market does well, the annuity does well and when the market doesn’t do well the annuity decreases the volatility in your portfolio.

For the record, it doesn’t have to be all or nothing one way or another.  Neil has more money than what he put in the annuity.  You should all remember that I advocate balance.  Safety AND growth but if your safe assets have enhanced growth potential, then you do better in the long run.  Bonds can’t do it.  CDs and money market funds can’t do it.  Index annuities are clearly the best option.

For an asset that gets no love, I’d say it did pretty well to stay within sight of what a top manager might be able to do during an extended market rally.  I don’t know of any other safe asset that would have been in the ballpark.  Lots of people had this option a couple years ago and passed on it for one reason or another.  If you bought a different annuity I hope you did just as well or better.  If you didn’t buy an annuity I hope you got into the market and didn’t bail during rough times.

What does the future hold?  Well I believe that this market has been purely propped up by stimulus funds and I’ll bet we get more of that no matter who ends up being president.  When the CEO of Walmart suggests more stimulus is needed then you know he knows that sales would be sluggish without it.  Aside from a few hiccups here or there the market may well do just fine in the next year.  Of course it’s risky but you know who to call if you want a protected downside along with some of the upside.

Happy Thanksgiving to all…


Annuities Can’t Solve All Problems


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…


A Clear-Cut Case for Annuities


Bryan Anderson: A Clear Cut Case For AnnuitiesNot everyone gets to choose when to retire.  Quite often I meet people who have been forced out of the workplace for any number of reasons.  When this happens, retirement decisions have to be made when people are not mentally prepared.  This year it has been a much more common occurrence because of Covid layoffs and a shaky economy.  Sure, the stock market is doing fine but that doesn’t mean we are all as financially healthy as we were a year ago.

No one likes to have major decisions forced upon them.  It’s one thing to feel sales pressure but another completely to feel as though you NEED to do something.  No one likes to be told what to do and when someone forces a major financial decision on you, it’s within reason to be skeptical.

There is almost never a clear-cut case to use an annuity.  I define clear-cut as an unequivocal justification for using an annuity to meet a specific goal.

This week I had the privilege of speaking with one woman for the first time.  She was laid off from her job a couple years ago, way earlier than she had planned, and has had a difficult time of finding the right job because of Covid-19.  She is nearly 64 years old and is now approaching the age she had planned to retire but the past couple years did not allow her to approach it on her terms.

In her mind that put her retirement plan in jeopardy so she has been out meeting with local financial advisors to help her figure out how to do it.  Initially she had planned to collect social security at either 64 or 66 but after living conservatively off of savings for a while, the drive to maximize social security has increased.  Many people are the same, looking for maximum assurance because of a lack of confidence in available advice.  Could that mean that many advisors won’t give you answers because they have the same questions as you?

It’s only a matter of simple math so it doesn’t take long to determine whether a person can retire, but it does take time to educate a person against mainstream information and restore individual confidence.  In this case the answer is simple.  It turns out that this lady could take social security in a couple months and that alone would cover almost all of her living expenses.

Aside from that she has a very reasonable amount of money saved in both Traditional and Roth IRAs so has no demonstrated need to tap into either.  Any of the spending she might do from retirement accounts would only be on a discretionary basis. If she spent around 5% of her savings each year she would have more than enough to survive and be happy until well into her 90s and likely beyond.  Since spending 5% of her assets each year is not in her plans then it seems as though she has plenty of options.

This is a very basic example that does not represent a clear-cut case for annuities but it’s a real example.  She hasn’t been working for two years and may feel as though things didn’t happen on her own terms but it doesn’t mean that everything she wants isn’t possible.  This didn’t stop another advisor from recommending she defer 60% of her assets in an income product requiring ten years of deferral.  In what world does that make sense?

She may need additional “discretionary” income now but I can’t even imagine a scenario where locking up assets for ten years or more would be beneficial.  There is no need in ten years, the need is now.  Deferring income for several years when she doesn’t need it in the first place will only extend the current stress she is feeling.  There is no reason to do that when retirement is a financial homerun, as it is in this case.

Many of the retirement commercials you might see on TV show you a seemingly successful person or couple who have worked hard and saved plenty but are still stressed about whether they can retire as planned.  That is misleading to say the least.  It makes it sound like retirement planning is really difficult but if you have worked hard and saved plenty then retirement is easy.  I’ve got a 7th grader in the house and her math homework is harder than that.

There is no clear-cut case for annuities, but there are several reasons to use them that will make retirement easy.  Too many people spend time focusing on what annuities can’t do that they fail to realize all the things annuities can do.  You don’t have to defer income for ten years, you don’t have to take income at all.  There are lots of ways to use annuities and it all comes down to protection.  What do you want to insure?  Income, market volatility, inflation, control of assets or legacy?

I wrote about it last year if you forgot or were absent:  Annuities Are Not Just for Income

Those things are mutually exclusive so focus on what’s most important to you and keep it simple.  Annuities are a choice and in many cases better than the alternative.  Don’t make your decision too complicated and let me know if you’d like to boil it down to specific terms.

Enjoy your weekend…


How Much Should You Put into an Annuity?


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!


Will This Election Ruin Your Retirement?


SPOILER: I really don’t think so.

Regardless, dozens of people have commented that they either need to do something before or after the election.  There is a fear from both sides that things in this country will go south if the preferred candidate doesn’t win.  Will taxes go up?  How will health care change?  Will the federal government have more control over us or less?  These are all intentionally general because I don’t want to try convince anyone either way.  There are literally dozens of issues I could talk about but this isn’t a political website so I’m just going to try to tell you why none of this matters in the long run.

I’ve written about the need to ignore single events when making long-term plans but this is a bigger one that may have ramifications for years to come.  It doesn’t mean you should make major moves just because of this election so relax and think about your options rationally.  Doing that may help you realize there are issues other than the election that make retirement planning more challenging.

I’m going to give you three reasons why the election shouldn’t be an indicator for major investment decisions.  Focus on your own personal reasons for making changes so you don’t have to second guess an ill-conceived strategy.

First, the stock market doesn’t care whether a Democrat or Republican is the president.  The stock market reacts when the incumbent looks to be challenged because the rules may change in a new presidency.  The stock market likes certainty and when the rules change there may be a slight dip while profits are taken at the top but the market usually bounces back once the new economic environment is known.  Traders keep trading and businesses move forward because that’s what America does.

Second, it is rare that one political party controls the presidency and both houses of congress.  Because there is typically a division between the executive and legislative branches of government, there tends to be slower movements for or against the issues that you feel are important.  Major changes can often be delayed or outright crushed by either the house or senate.  I agree with anyone who says the Founding Fathers were geniuses.

And finally, major political parties have been running up the deficit since 1930.  While Clinton claimed a balanced budget in the late 90s, there is debate about how the accounting was done and the federal deficit actually increased over those years, albeit at a much slower pace than in the years since.  Excessive government spending makes interest rates a political tool rather than an indicator driven by purely economic forces.  Lax monetary policy is a far bigger threat to your retirement than either political party because it keeps interest rates artificially low.

I think there is one thing currently happening that is far more important than the election in six weeks.  Stimulus money is running out and the economy hasn’t fully recovered from Covid-19.  Some lockdowns are still in place and it will likely be awhile before we’re moving forward full-steam again.  Raise your hand if you got out of the market before it recently lost almost 10% from the top.

When looking at one single event in time, it’s tempting to use it as justification for making moves that you should probably be making for other reasons.  Perhaps it would be more important to really define your goals and expectations first.  I think a lot of people fail to act because they don’t know what they want.  Keep your long-term goals in focus and forget about single points in time.  If the election motivates you to make a major financial decision then you probably should have done something well before now.

Enjoy your weekend and comment below if you have something to add.


Annuities Slow Down Time


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.


Annuity Sales v. Advice


Bryan Anderson - Annuity Sales Versus Annuity Advice

Two years ago I walked onto a car lot to take a look at new trucks just to see what was available.  My truck is old but in good shape so I have no expectation of needing a new model for several years.  That didn’t keep the salesman from telling me how much better a new truck would be as he shoved his card in my face when I tried to turn away.  Nothing down and 0% interest for 72 months… Such is life for a cutthroat salesman.

When you are in retirement or coming toward it, there are several issues and questions that need to be dealt with.  Income planning, health and long-term care, taxes, social security or estate planning etc. are all single issues that have priority for some but not others.  And you need to understand that each of those put you square in the wheelhouse of someone who is selling something.  Whether it be financial or legal services, it all takes time and often money to figure it all out.

Annuities can be seen as just one piece of the puzzle.  In order to place them correctly it takes careful consideration of both objective and subjective variables.  No single solution or approach is correct for every person so all retirement issues have to be factored into a recommendation.  The need for comprehensive planning runs head-on into the wall of a hard sales pitch.

Just this week I had my fourth conversation with a guy who has been reading this newsletter for almost two years.  He is in no real need of doing anything so has spent the past two years talking to just about everyone who hangs a shingle out to sell annuities.  The result is plenty of education but even more frustration over the lack of clarity in this industry.

I had to remind him that not once during our prior conversations did I recommend a specific annuity.  Everyone else tried to show him a favorite product and he knew right away they were just trying to sell him something that he didn’t really need.  At one point he actually said, “If I get pitched another 10 year annuity with an income rider without being asked what I am looking for I’m going to scream.”

He really went through hell to get back to where he started.  I commend him for his resilience and fortitude.  His name was sold to advisors that bought leads and he was called consistently by Ken Fisher and JD Mellberg but he was smart enough not to bite.  The sales pitch never offered what he needed or wanted.  No one actually asked what he was looking for.

Sales are ridiculous and focus on one of the key areas of income, volatility, inflation, control or legacy to highlight the weak spot or whatever is most concerning to you.  It’s called fear-based selling and it is usually the beginning of uncomfortable conversations.

You should be worried about living so long that you run out of money!

The market is going to drop and you’ll be broke!

The government is spending so much money that a dollar will be worthless in 20 years!

Insurance companies just want to steal your money!

Your family will be left with nothing!

Every single retirement concern relates to one of the above examples that attempt to instill fear in retirees and no specific product can solve more than one.  Calm down and approach it rationally.  Solutions require a strategy and to find that takes good advice, not a sales pitch for a fancy product.  We are not all like the guys who buy airtime for local TV on Saturday mornings.  I can do the very same thing but I prefer to help whether you buy something from me or not.

Seek advice that helps you sleep at night but don’t fall for a sales pitch in the meantime.

Have a nice Labor Day weekend!



I Don’t Care if You Buy an Annuity


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…