RPF0251-Introduction_to

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00:00:14.720 | If I say the word annuity to you, what are your general impressions?

00:00:20.560 | What image comes to your mind when I say the word annuity?

00:00:26.240 | Well I know that for the majority of you an image of excitement and just joy comes to mind where you

00:00:32.640 | immediately think to yourself, "Man I can't believe all the wonderful things that I can do with

00:00:36.880 | annuity. What a useful tool." Well that's not it. What comes to mind for me, I guess because I deal

00:00:44.880 | in this space, is the terrible reputation that annuities have. I think of popular commentator and

00:00:51.520 | consumer activist Clark Howard. He always on his radio show, which is a good radio show by the way

00:00:56.880 | if you enjoy it, if you can stand how slow he talks. But if you listen to his radio show, anytime

00:01:01.760 | the word annuity comes up on his show, he talks about it as being a dirty word. That's his general

00:01:08.240 | opinion of annuities. Well today I'm going to try to approach that topic and I'll not argue with

00:01:13.920 | Clark. He does a good job and he's probably right for many annuities. But today I want to give you

00:01:18.800 | an overview and a framework that you can apply to the concept of an annuity. And my goal is that

00:01:24.800 | you would feel empowered and strengthened. That you would feel like you have a clue as to what is

00:01:33.200 | an annuity and how does it work.

00:01:36.480 | (Music)

00:01:51.520 | Welcome to the Radical Personal Finance Podcast. My name is Joshua Sheets and I'm your host. Thank

00:01:55.280 | you so much for being with me today. I am excited to bring you this topic. We're going to continue

00:01:59.680 | our technical financial planning discussions. It's been a while since I've done a technical

00:02:03.920 | finance show and we're going to get back into the swing of the show the way that I want it to be.

00:02:07.920 | Hope you enjoy it. Don't be scared off by the word annuity. Relax, sit back and enjoy some learning

00:02:15.040 | and understanding. (Music)

00:02:23.600 | My intent with today's show is to empower you so that you're not intimidated by the word of

00:02:28.960 | annuity. So that you understand what is this funny word and what does it actually mean. And then more

00:02:34.080 | importantly, what's available in the marketplace and how can you apply what's available in the

00:02:38.480 | marketplace to your own situation. In today's show, I'm going to be sharing with you a bunch

00:02:43.600 | of terms. We're going to talk about a lot of vocabulary and the bulk of the content today will

00:02:47.680 | be me simply explaining and describing what these words actually mean. Because if you understand what

00:02:56.160 | the words actually mean, then you'll be able to look through the marketplace and understand what's

00:02:59.920 | being talked about. So if I use terms like fixed or variable or indexed, or if I use terms like

00:03:06.400 | joint or joint and survivor, or if I use terms like deferred or immediate or single premium or

00:03:13.520 | accumulation or annuitization, you need to know what those words mean. And if you know what those

00:03:18.080 | words mean and you have a clear concept and understanding of what they mean, then you'll be

00:03:23.120 | able to look at your situation or you'll be able to look at the situation of somebody that you're

00:03:26.080 | working with and helping and be able to understand if an annuity product is an appropriate fit for

00:03:32.000 | them. And this is really where the big questions come on. I'm going to start with a quick definition

00:03:36.320 | of annuities and then we're going to get into right up front here, the major controversies

00:03:42.800 | that surround annuities. Then I'm going to get into the vocabulary and on the controversies,

00:03:47.360 | I'm going to give you a brief overview and in future shows, we might talk more about the

00:03:51.520 | controversies in depth. But remember with annuities that we are specifically talking about

00:03:58.080 | a type of life insurance. It's important that you understand that. Oftentimes, you'll hear

00:04:05.600 | annuities referred to as the fifth type of life insurance. The five basic types of life insurance

00:04:12.400 | contracts are term life insurance, whole life insurance, universal life insurance, endowment

00:04:20.400 | contracts or endowment life insurance and annuities. But in many ways, annuities are the

00:04:26.400 | exact opposite of life insurance. It's almost a paradox. They are a type of life insurance,

00:04:32.400 | but in many ways, they are the opposite of life insurance in this way. The purpose of a life

00:04:37.280 | insurance contract, any type of life insurance contract is to pay out a sum of money at the

00:04:43.280 | death of the insured. And so in order to fund that payout, generally, most contracts will have

00:04:52.320 | a series of premiums that you pay into the contract. So you make payments into the contract

00:04:57.920 | until the death of the insured and then upon the death of the insured, there's a one-time lump sum

00:05:04.480 | payout to the beneficiary. Well, an annuity is the exact opposite of that. In general, the purpose

00:05:10.160 | of an annuity is to distribute a lump sum of money until the death of the insured. And so it is a

00:05:19.600 | type of life insurance in that it's usually associated with the death of the insured in some

00:05:25.440 | manner, but it's more of a way to dispose of money and send money out. Now, there are exceptions to

00:05:32.320 | that rule. Not all annuity contracts are contingent upon the death of the insured, but in general,

00:05:38.720 | they are. One definition of an annuity from one of my financial planning textbooks is this,

00:05:43.760 | and it will sound wordy, but these words are important. An annuity is a periodic payment

00:05:50.640 | beginning at a specific or contingent date and continuing for a fixed period or for the duration

00:05:59.680 | of a designated life or lives. Now, all those little caveats are important, but in general,

00:06:06.240 | the way that I think about an annuity is it's a payment that comes in for life. So the type of

00:06:12.560 | annuity program that most of us are aware of and comfortable discussing would be some sort of

00:06:19.120 | social program like Social Security. Your Social Security payments are a form of an annuity.

00:06:25.600 | You expect upon the distribution of your Social Security payments from the US government,

00:06:31.440 | you expect to receive payments that come in for life. If you turn 70 years old and you start

00:06:38.240 | taking your life into your Social Security distributions, you don't expect them to come

00:06:42.480 | in and then to run out. You expect them to come in for the rest of your life. So in that context,

00:06:47.840 | the Social Security payments are a form of annuity. Now, we could actually get more specific

00:06:54.320 | with the terms. Social Security is actually a type of deferred annuity. It's an annuity that

00:07:01.120 | is deferred until a certain age, 62, your normal retirement age of say 67 or later retirement age

00:07:08.320 | of 70. You make periodic premium payments into that contract with your employment wages,

00:07:19.040 | your employment taxes, excuse me, your employment taxes off of your wages based upon the Social

00:07:22.800 | Security wage base. So you make your contributions into that account. That account grows and is

00:07:28.000 | distributed to you at the time of your retirement. The example of Social Security is an apt one to

00:07:37.600 | compare to annuities because there are some unique factors of annuities that don't come into play

00:07:42.800 | with some other types of investment contracts. The first thing to point out is that annuities

00:07:47.520 | are always based upon the faith and credit of the issuing insurance company. In the same way that

00:07:52.880 | your Social Security payment is issued to you based exclusively on the faith and credit of the

00:07:59.440 | US government. That's it. There's no actual money behind it. And so you're depending on the US

00:08:08.240 | government to make your payments to you in the same way that you're depending on an insurance

00:08:12.160 | company to make your payments to you. So you need to be very careful when choosing who you buy

00:08:16.320 | annuities from to make sure that that company is going to be strong. Additionally, when looking

00:08:21.760 | at the distribution options, there are various distribution options. With Social Security,

00:08:25.200 | they're relatively simple because they're made for you in the sense that you're basically choosing

00:08:30.880 | your age. That's the biggest decision. But the same with annuities. You do have more options

00:08:36.480 | with annuities in the individual marketplace. And annuities are classified along different lines.

00:08:41.360 | So in general, they're going to be classified based upon the number of lives covered,

00:08:46.000 | the time when the payments start, the method of the premium payment, and what the type of

00:08:50.960 | obligation is from the insurance company. We're going to talk about the terms immediate, fixed,

00:08:55.440 | variable, indexed. We're going to talk about accumulation and annuitization. We're going to

00:08:59.120 | talk about all – well, we're not going to get to payout methods. That'll probably be a separate

00:09:02.960 | show to talk about payout methods. But I'm going to define these terms. First, let's address a

00:09:07.040 | couple of the controversies about annuities. Before I do that though, real quickly, I want

00:09:12.480 | to talk about the sponsors. And we've got two sponsors for today's show. As I talk about these

00:09:17.120 | sponsors, you'll notice in the last four shows, the sponsors have been the same. They will not

00:09:20.400 | always be the same. I'm bringing out a total of 10 sponsors to the show. I have almost all 10 of

00:09:25.120 | them finalized. I'm just waiting on the final contracts. In some case, the final payments from

00:09:28.880 | the sponsors. Each one is a little bit different and I'll be launching those systematically over

00:09:33.280 | the coming days. But for now, we still have the same two sponsors today as we did yesterday. So

00:09:37.440 | I'll move through them quickly. Sponsor of the day number one is Paladin Registry. And Paladin

00:09:42.640 | Registry is a financial advisor referral service. Basically, what Paladin does is they go through

00:09:48.640 | and they vet financial advisors. They have various criteria they go through and they try to do some

00:09:54.160 | of the due diligence that you need to do when hiring a financial advisor for you. They have a

00:09:58.320 | very stringent vetting process where they go through and look at the advisor's history, their

00:10:02.880 | records, their compliance record, also to look at their business practices. And then based upon that,

00:10:08.640 | they put together a group of recommended advisors who are in place to serve you. If you're interested

00:10:16.560 | in details of that, please listen to episode 248 of Radical Personal Finance. There is an in-depth

00:10:22.640 | interview with Jack Waymire, who is the founder of Paladin Registry and a former financial advisor

00:10:27.440 | himself. And if you listen to that show, you will have an extensive understanding of why Paladin

00:10:32.160 | Registry exists and how they can serve you. After you listen to that show, please go to

00:10:37.120 | radicalpersonalfinance.com/paladin. Put in your name and information. You'll put in your name

00:10:42.240 | and your details. And once you put in that information, they will put some advisors in

00:10:47.200 | contact with you. Usually it comes out to be about three people that they'll put in talk with you.

00:10:52.400 | These will be advisors that will be near you if they have advisors who are near you and who they

00:10:56.240 | are specifically selecting based upon the information you put in about the amount of

00:11:00.240 | assets that you have under management, things like that. And they'll try to match you with an

00:11:04.480 | advisor who's appropriate to you. You do not have to choose those advisors, but hopefully they'll

00:11:09.360 | give you a good starting point. Interview them carefully. Select carefully. Make sure that

00:11:13.840 | they're serving you. But so far, the feedback from the audience has been fairly good. So you

00:11:18.640 | can put those details in at radicalpersonalfinance.com/paladin. And I will receive a

00:11:24.320 | commission when you use that link. So please go to radicalpersonalfinance.com/paladin. I don't

00:11:29.120 | receive a commission based upon your choosing to work with one of the advisors. I do receive a

00:11:33.520 | commission based upon your entering your information there and getting put in touch with

00:11:38.560 | the advisors. So thank you for using that link. Sponsor of the day number two is You Need a

00:11:43.360 | Budget, the YNAB budgeting software. YNAB, You Need a Budget. This software is awesome.

00:11:49.600 | It's about all you need to know. If you don't currently budget using YNAB, I think you should

00:11:56.000 | at least give it a try. If you don't currently budget, you should. And if you don't currently

00:12:01.040 | budget using YNAB, I think you should give it a try. After I found it, I switched all of my

00:12:07.200 | personal accounting and budgeting to the system and also my business accounting and budgeting

00:12:12.080 | to their system. It's an inexpensive piece of software. It's, what is it, 60, 70 bucks, but

00:12:16.400 | you can have a free 30-day trial at radicalpersonalfinance.com/ynab, Y-N-A-B. So give it

00:12:23.600 | a shot. Try it free for 30 days. If it doesn't work for you, just cancel the subscription. I

00:12:27.520 | think it'll make a profound difference for you. Again, find that at radicalpersonalfinance.com/ynab.

00:12:33.440 | All right, controversy. Controversy, controversy, controversy. There are two major

00:12:38.000 | controversies I want to address right off the bat, and they're simply complexity and cost.

00:12:43.200 | Those are two things you need to be aware of. Most consumer advocates who are generally against

00:12:48.400 | the use of annuities for investing, the major complaint that most consumer advocates have is not

00:12:53.840 | that annuities don't work, can't work, or ineffective for solving the financial planning

00:12:57.920 | problems, but rather that they are complex, and they are or can be complex. They don't always

00:13:06.560 | have to be, but many of them are. Very complex. The basic function and design of an annuity is

00:13:14.400 | relatively simple. You give me an amount of money. I set it aside. I invest it, I being the insurance

00:13:22.320 | company, I invest it, and then I pay you out a sum of money for your lifetime. It's pretty simple.

00:13:27.840 | We have some simple terms of the contract. But what's happened is that the annuity products

00:13:31.600 | that are on the market today have generally become very, very complicated, all kinds of

00:13:36.880 | riders and benefits and phantom accounts and guaranteed minimum income benefits and withdrawal

00:13:41.760 | benefits and all kinds of funky things. These can become very, very complicated. You get into the

00:13:47.360 | world of indexed annuities, and your account earnings are based upon a certain index, and you

00:13:51.360 | look at the index, and there's cap rates, and there's minimum rates, and, and, and, and. And so

00:13:56.480 | they're very, very complex. Don't get involved if you don't understand those products. Major rule

00:14:06.240 | for success in investing, don't invest in something you don't understand. Never invest in anything

00:14:14.160 | that you don't understand. Again, never invest in anything that you don't understand. If you

00:14:20.560 | cannot explain an investment, investment process, an investment product in a very simple terms to

00:14:26.960 | your young son or daughter, a nephew or niece, a young person of normal intelligence,

00:14:34.240 | normal experience, you probably should not be doing it. Good rule of thumb. Make sure that

00:14:41.760 | you understand it. So if you don't understand the annuity product or the options or how it works,

00:14:47.360 | if you don't understand the 267-page prospectus that you were given that you immediately tossed

00:14:52.400 | in the trash can, don't do it. Make sure that you understand what you're doing.

00:14:57.440 | I believe you'll have more understanding after today. So in general, the complex annuity products,

00:15:04.720 | be very, very careful. I agree with the mainstream consumer advocates from that perspective.

00:15:10.720 | What about the cost and performance? Here's Joshua's number one rule. If you are comparing

00:15:18.160 | side by side an investment vehicle such as a mutual fund and an investment vehicle such as

00:15:23.040 | an annuity, in general, the mutual fund will always be cheaper than the annuity. The reason

00:15:31.520 | for that is because all annuities involve some type of insurance and there's a cost for that

00:15:38.000 | insurance. There is no insurance associated with most investment products such as mutual funds.

00:15:45.040 | So you've got to make sure that you need and want the benefit of the insurance

00:15:50.560 | before you make that choice. You've got to make sure that it's worth the money. Sometimes it will

00:15:57.840 | be worth the money. Sometimes it will not. After I go through the terms, you should start to be

00:16:02.480 | able to think about whether or not those benefits are worth it. But annuities will always cost more

00:16:11.200 | than other investment products such as mutual funds because of the component of insurance.

00:16:17.440 | Hope that makes sense. Now let's talk about types and classifications and let me explain some

00:16:24.560 | lingo to you. We begin with an overview of the terms. The first way that we classify annuities

00:16:30.320 | is based upon the number of lives covered. So simplistically here, are we talking about a single

00:16:37.600 | life annuity or a joint annuity? A single life annuity is an annuity payment that is calculated

00:16:45.680 | based upon one person's life. I have a million dollars. I take a million dollars to the insurance

00:16:51.920 | company at the age of 60. I say, "Dear insurance company, please pay me out a payment for the rest

00:16:57.520 | of my life." They will calculate that payment. It'll come up to a certain monthly amount and

00:17:02.400 | they'll promise me to pay me that monthly payment for the rest of my life. That is called a single

00:17:07.840 | life annuity. If I have a joint life annuity or possibly also called a joint and survivor annuity

00:17:15.600 | and the distinction between those two is extremely subtle and not important for us to talk about,

00:17:19.520 | we're just going to use the term joint annuity. If I have a joint annuity, then that payment is

00:17:23.760 | going to be calculated based upon two lives. So I take that million dollars to the insurance

00:17:28.640 | company. I say, "Dear insurance company, I want payments from this account for the rest of my

00:17:34.160 | life and for the rest of my wife's life," or it could be the rest of my business partner's life,

00:17:41.040 | or it can be the lives of any two people who come together and make that request to the insurance

00:17:46.800 | company. Well, what they will do is they'll take my age, calculate that, take my wife's age or my

00:17:52.960 | joint annuitants age, calculate their life expectancy, and they'll give me a different

00:18:00.160 | number. That different number will always be lower than it was if it was my life alone

00:18:07.440 | because they've got to stretch the payment over two life expectancies and it's expected that we

00:18:16.800 | will have more years of payments over the two of us than just over one of us. That's the first way

00:18:22.720 | of classifying an annuity. It is based upon the number of lives covered, single life annuity or

00:18:28.880 | joint annuity. Another way of classifying an annuity, and these are not, by the way,

00:18:33.360 | exclusive. They're not mutually exclusive. You could have various combinations of these

00:18:38.640 | classifications basically across the board. So just remember that these are just different words.

00:18:45.760 | Here are these words in the names of a type of annuity product. So next way that we classify

00:18:50.400 | them is when do the payments start? Do they start immediately or do they start at some point in the

00:18:56.960 | future? If the payment is going to come in immediately, so I'm going to take my million

00:19:01.840 | dollars to the insurance company and I'm going to say, "Hey, here's a million dollars and I want

00:19:06.960 | payments immediately from this money," so one month later they're going to send me my first payment,

00:19:11.520 | that is called an immediate annuity, an immediate annuity. Or I can have some sort of deferred

00:19:21.760 | payment. I could take my million dollars to the insurance company and say, "Dear insurance company,

00:19:25.760 | here's a million dollars. I want payments to begin 10 years from now because for the next 10 years,

00:19:30.560 | I have enough money coming in over the year and I'm going to go travel the world, but 10 years

00:19:33.920 | from now, that's when I want payments to come in." That's called a deferred annuity. Immediate

00:19:40.240 | annuity, income right away, deferred annuity, I'm deferring the income to some point in the future.

00:19:47.600 | That deferred annuity can be for a specific date. I can tell the insurance company, "On 10 years

00:19:55.440 | from today, I want payments," or it can be for some date that I choose in the future. I could

00:20:01.440 | tell the insurance company, "At some point in the future, I will come to you and ask you for payments,

00:20:06.480 | but I'm not establishing the date today." That's called a deferred annuity. Immediate annuity,

00:20:14.320 | deferred annuity. Another way to classify an annuity is based upon how we pay the premiums.

00:20:20.720 | And annuities can be purchased either with a single premium or with periodic premiums.

00:20:31.040 | A single premium is where I take my million dollars today and with one single premium payment

00:20:36.640 | to the insurance company, I purchase my annuity. Periodic premiums is where instead of taking them

00:20:42.960 | one million dollars, I instead send them $1,000 a month or $100,000 a year or whatever the number is.

00:20:50.480 | I send them my strict amount of money every month. And that periodic payment could be the same

00:20:57.600 | periodic payment or it could change from month to month, year to year, depending on the type of

00:21:02.080 | contract. Immediate annuities are always going to be single premium annuities because to take a payout

00:21:11.360 | immediately, by definition, you're going to give over a lump sum to the insurance company. So,

00:21:17.920 | this is where the term single premium immediate annuity comes from. You'll often hear this

00:21:23.520 | referenced in mainstream consumer finance literature. A lot of consumer advocates will

00:21:28.000 | say this is the only type of annuities people should consider buying. A single premium immediate

00:21:32.320 | annuity. SPIA, sometimes pronounced SPIA, the acronym for single premium immediate annuity.

00:21:39.440 | So, they'll say a single premium immediate annuity is the only type of annuity that

00:21:43.600 | somebody should purchase. That's a good starting point because what it does is it pulls out some

00:21:47.760 | of the more complex and trickier types of annuities. But it's not by definition true.

00:21:53.360 | If we were proposing analytical philosophical arguments, we could create the statement if this,

00:21:59.120 | then that, and we would prove that that is not by definition the only type of annuity,

00:22:03.600 | nor is it necessarily by definition the only safe type of annuity to buy. All it means is we're

00:22:09.680 | going to bring a million dollars of cash, a single premium, and we're going to get an

00:22:12.640 | immediate annuity payout. Now, deferred annuities could be with single premiums or they could be

00:22:18.320 | with those periodic payments. Most of the time, they're going to be periodic payments. Where

00:22:22.480 | you're deferring the annuity contract, the annuity payment until some point in the future,

00:22:28.800 | and you are making a series of payments. The type of payments will vary, again,

00:22:33.920 | depending on the annuity contract. Annuities have many different uses. Some uses are for the wealthy,

00:22:38.960 | some uses are not for the wealthy. The classical understanding of the annuity is that you sell a

00:22:44.880 | business, sell a piece of real estate, and you want to turn that into an income. Here's my million

00:22:48.640 | dollars, send me income payments. But that's not the only use of an annuity. This is where a lot of

00:22:53.680 | excellent planning comes in and also where a lot of abuse comes in. Because, for example,

00:23:00.320 | by definition, annuities are not taxed during their accumulation. If you can put a sum of money

00:23:06.960 | into an annuity contract and that taxation on the growth of that contract is deferred

00:23:13.680 | until the future, until some future date, until the money comes out of the annuity contract.

00:23:18.320 | Well, the other nice thing about annuities is there are no income limitations to participating

00:23:23.440 | in an annuity, and there are no caps on how much money you can put into an annuity.

00:23:28.160 | So if you make $100 million a year and you would like to invest $2 million per year into an annuity,

00:23:34.400 | and if you can find the insurance company that will allow you to make that $2 million

00:23:38.480 | periodic payment every year going forward, you can put $2 million in, $2 million in, $2 million in,

00:23:44.000 | $2 million in. As the account grows based upon whatever is written in the contract,

00:23:48.880 | you can defer the taxation on that contract until the money comes out. And that's as deep as I'm

00:23:56.240 | going to go with annuity taxation today. That is fundamentally true, and annuities are a useful

00:24:02.880 | tool when doing tax planning. However, there are some limitations and downsides to annuities,

00:24:08.960 | some complexities to annuity tax planning that mean that you have to be very careful. We'll cover

00:24:13.360 | those possibly in a future show if I dig deep into annuity taxation, but annuity taxation is

00:24:18.480 | very complex on the distribution. But the point is there's useful abilities to it to make those

00:24:24.640 | periodic payments, put the money in, and to defer the tax on the growth. So we classify annuities

00:24:30.080 | based upon the method of premium payment, single premiums or periodic premiums. Next, we can

00:24:36.160 | classify annuities based upon the nature of the insurance company's obligation. And here,

00:24:42.640 | the two technical lingo words would be a pure annuity or a refund annuity. Your social security

00:24:51.600 | payment is what's called a pure annuity. The way it works is you turn 70 years old, you take your

00:24:57.360 | distribution from Social Security. If you die at 72, your payments stop. And for the purity of this

00:25:04.960 | example, assume that you are a single, non-married, no spouse receiving spousal Social Security

00:25:09.680 | benefits. You are 70 years old, you take Social Security at age 70, you die at 72. You received

00:25:16.560 | two years of payments and your payments stop. No beneficiary receives any excess money. You put

00:25:24.080 | hundreds of thousands of dollars into the account over the course of your working lifetime and your

00:25:28.240 | payments stop. That is called a pure annuity. Now, a refund annuity would work like this.

00:25:37.440 | You start taking payments from your annuity, not Social Security because Social Security is a pure

00:25:42.480 | annuity. You start taking payments at 70, but you stipulate that your account balance will be paid

00:25:52.240 | out in some way to a beneficiary. Let's say that you've contributed a million dollars to the annuity

00:25:58.000 | and you die at 70. Excuse me, you take the distributions at 70, you die at 72. You've only

00:26:02.960 | received, say, $50,000 a year from your million dollar account. So you've received $100,000 out

00:26:09.200 | of the account. But you stipulate that at least the balance of the annuity will be paid out to

00:26:14.480 | your beneficiary. So your beneficiary continues to receive annuity payments until the full $1

00:26:19.520 | million has been paid out. I'll cover some more options in a moment because this is where a lot

00:26:24.320 | of confusion happens, but also where a lot of important planning can happen. The key thing for

00:26:28.800 | you to recognize here at the outset is that the pure annuity will always be the highest payment.

00:26:35.760 | The highest monthly dollar amount will always be a pure annuity. That's also the highest risk

00:26:44.000 | payment. With Social Security, if you die at 72, or if you're worse, if you die at 62 before you

00:26:50.000 | even took payments at 70, which is what happens to many people, if you die early, you get screwed

00:26:55.920 | because you put all this money into the contract or into the Social Security Administration. You

00:27:00.800 | put all this money in and you never see a dime of it. And the people that you care about don't

00:27:05.280 | see a dime of it. So you get screwed. But if you live a really long life,

00:27:10.800 | you get a pretty good deal. And the same thing exists with a pure annuity payment.

00:27:16.640 | You have the confidence of having the highest payment. And if you die early,

00:27:22.560 | you might lose the money. But if you live a really long time, you could make out like gangbusters.

00:27:28.800 | And this is where a little bit of intelligent planning can come in. Some people, if they're

00:27:33.200 | single, they don't have any beneficiaries that are counting on them. You know the level of your

00:27:36.880 | health. Most annuities are not underwritten based upon health. There are some annuities that can be

00:27:41.680 | underwritten based upon health. And those are advantageous to you if you have an impaired

00:27:47.280 | health condition. Those are called impaired risk annuities. So let's say you have terminal cancer

00:27:51.920 | or you're very, very sick for some reason. You can actually go to the insurance company and lobby

00:27:56.320 | them to do health underwriting for you. And you can ask them to give you an annuity payment based

00:28:02.240 | upon your sickness. And the idea is that they'll give you a higher annuity payment than somebody

00:28:06.400 | who's healthy because you have a lower life expectancy. But most annuities are not underwritten

00:28:10.880 | based upon your specific personal health. So if you're very healthy, you're single, you have no

00:28:16.400 | heirs or beneficiaries that you're worried about providing for, well, a pure life annuity might be

00:28:22.080 | a really great deal because you're going to get the highest monthly payment. If you die, oh well,

00:28:27.040 | you die. You funded somebody else's payment. But the idea is if you lived to 115, you've gotten a

00:28:31.920 | lot of money from the insurance company. On the flip side, that could be an unacceptable risk to

00:28:36.880 | you. Let's say that your total value of assets is $1 million and you either want to spend the money

00:28:42.560 | yourself or you want to pass that money along to your kids. And it would make you sick to know that

00:28:48.400 | if you died two years in and you were out $100,000, the insurance company would keep $900,000.

00:28:52.720 | Well, then you can go ahead and take the refund annuity. And you can say that if I live,

00:28:58.320 | then I'm going to receive this amount of monthly payment. And if I die, I'm going to receive at

00:29:02.640 | least $1 million. My kids are going to go ahead and get this value of my estate, this residual

00:29:07.440 | remainder value of my estate in the form of the refund annuity. The value of an annuity in that

00:29:12.400 | situation is that you can guarantee that your payments are going to continue for life. That's

00:29:19.200 | really, really valuable. By guaranteeing that your payments are going to continue for life,

00:29:23.440 | then you know that at least the million dollars is never going to run out. And the flip side is

00:29:30.400 | that you're always going to get at least either you or someone you care about is always going to

00:29:33.520 | get the million dollars out of the contract. Annuities can be very flexible tools in the

00:29:40.000 | tool belt of a good financial planner. They can fit specific needs because at the end of the day,

00:29:44.880 | we generally aren't worried about optimizing the money. We're optimizing the lifestyle that can be

00:29:52.480 | bought with the money. While I'm on the topic of what the insurance company's obligation is,

00:29:57.840 | pure versus refund, I should additionally note that not all annuity payments have to be made

00:30:03.280 | on the basis of a life payout. So it doesn't have to be a life annuity. You can purchase an

00:30:09.600 | annuity from an insurance company that pays out for a specific term or number of payments. An

00:30:14.960 | example here would be you can buy an annuity that pays out for 20 years and it's not even connected

00:30:21.200 | to a lifetime payment. So that is an option. Or you can buy a, which we get to when we talk more

00:30:26.720 | in depth about some options about the type of payouts, you can also buy a payment that pays

00:30:32.720 | out for life or at least 20 years. But you can just buy a strict 20-year payout. Here's a million

00:30:37.280 | dollars. I want payments from this account for at least 20 years. And those payments are either

00:30:41.280 | going to come in for you for 20 years or to your beneficiary if you die before the end of that 20

00:30:46.240 | years. So that is another subset. One more very important type of classification is between a

00:30:54.960 | fixed annuity and between a variable annuity. This is a classification of basically how the payment

00:31:02.800 | of an annuity is going to be determined. A fixed annuity is a series of payments that is calculated

00:31:10.240 | based upon a fixed interest rate. This rate is known prior to the inception of the annuity or

00:31:17.840 | prior to the payout of the annuity. It's known, it's calculated, it's clear, it's certain, it's

00:31:24.160 | specific. The actual number will be based upon the prevailing economic conditions at the time

00:31:31.520 | and based upon the rate that the insurance company is offering when the contract is created.

00:31:36.880 | Mentally, you can compare this to something like a CD product. A CD product is issued by a bank.

00:31:42.240 | It's issued at a fixed rate of interest. That rate of interest is determined and is very highly

00:31:48.000 | subject to the prevailing economic conditions, the prevailing interest rates, what the bank can earn

00:31:54.400 | on its excess deposits and where they can invest their money, and then how much of that they're

00:31:58.000 | willing to send back out to you in the form of a CD. There's also competition. Banks are forced

00:32:03.600 | to compete with one another for customers and that competition in some ways is going to be based upon

00:32:08.560 | interest rates. Well, fixed annuities are no different. The insurance company is going to

00:32:12.560 | offer a system of periodic payments based upon the prevailing interest rates and the insurance

00:32:18.480 | companies need to compete with one another. When you're purchasing a fixed annuity product,

00:32:23.040 | you need to make sure that you check the market carefully, that you do your due diligence and

00:32:26.800 | you try to find the best possible deal, the highest possible interest rate. However, you also

00:32:32.320 | have to keep in mind that you've got to balance the highest interest rate and what interest rate

00:32:36.240 | the insurance company is offering with the safety and security of the company. In the same way that

00:32:42.160 | a small, struggling, fledgling bank might need to offer a higher rate of interest to attract

00:32:47.120 | depositors to their accounts, a small, fledgling, struggling insurance company might be attracting

00:32:52.960 | depositors by offering a higher rate of fixed interest, a higher guarantee. And the important

00:32:58.080 | thing about the fixed annuities is that fixed annuities are backed by what is called the

00:33:03.760 | general account or general portfolio of the insurance company. This is their large pool of

00:33:09.440 | money that's specifically calculated, planned, and invested to pay out for the general obligations of

00:33:15.360 | the company. So your contract is as strong as the company standing behind it. That's different

00:33:22.880 | than what's called a variable annuity. In a variable annuity, the rate of interest that you

00:33:28.960 | earn on your account will vary. It is variable. It's not fixed. It's variable. And it's variable

00:33:36.400 | based upon what's written in the contract, based upon some sort of scheme. Usually, it's based upon

00:33:43.680 | what is the performance of a specific investment account. Usually, in most variable annuities,

00:33:51.040 | this would be mainstream mutual funds, which are repackaged in an annuity language that's called

00:33:56.800 | subaccounts. So these are called variable subaccounts. But what happens here is that

00:34:02.640 | the insurance company is basically managing the contract, but the underlying investment results

00:34:09.600 | that you get from the contract are going to be based upon the performance of the investments

00:34:14.880 | contained within the contract. Fixed annuities are insurance products only. Variable annuities

00:34:21.840 | are insurance products and investment products. Because of that, any insurance agent who is

00:34:28.160 | selling a variable annuity must be licensed both as an insurance agent and also as a securities

00:34:35.440 | dealer, a securities broker. You can have very simple and straightforward variable annuities,

00:34:42.080 | and you can have very complex variable annuities. Most fixed annuities are relatively simple and

00:34:47.680 | straightforward, and it's hard for them to be very, very complex. But variable annuities,

00:34:52.480 | in my mind, are a tremendously useful product. One of the simplest—and I don't want to get

00:34:58.000 | too deep into application, but because variable annuities get a bad rap, one of the simplest

00:35:02.560 | types of retirement plans that I know of is just simply to take a sum of money, turn it into a

00:35:08.560 | variable income payment with a very simple investment portfolio backing it, and you basically

00:35:13.920 | walk away from the risk of exhausting and depleting your assets. The way those payout plans work is

00:35:20.320 | that the amount of the income that you receive every month will vary up and down based upon

00:35:24.960 | the performance of the underlying investments, but you never exhaust the money. So when you're

00:35:31.520 | trying to figure out back to, "Okay, I've got a lump sum of money. How do I retire on this?"

00:35:35.520 | one of the fears that you have if you're going to take something like a 3 or 4 or 5% distribution is,

00:35:40.160 | "What's the right distribution, and how can I guarantee that I don't outlive my money?"

00:35:44.480 | Well, with an annuity, a life income annuity, it's impossible to outlive your money.

00:35:49.120 | So they're very, very useful. However, they can also be very, very complex and have some pitfalls.

00:35:55.600 | Now, here I need to mention that there's an additional type of annuity that kind of

00:35:59.840 | straddles the line between a fixed annuity and a variable annuity. These annuities are called

00:36:06.480 | indexed annuities, commonly called an equity indexed annuity, sometimes referred to as a

00:36:12.400 | fixed indexed annuity, but the key word that you want to pay attention to is the word "indexed."

00:36:17.760 | Here, what happens is your rate is not fixed, nor is it variable, but it's indexed to the

00:36:26.800 | performance of some other investment. These annuities have had a troublesome past.

00:36:31.200 | They're especially the target of regulators trying to enact some regulation. Fixed annuities were

00:36:42.640 | very popular back in the 1980s and early 1990s during the very high interest rates of the Carter

00:36:49.600 | and Reagan administration, but since that time, interest rates continue to decline,

00:36:54.720 | and stock market returns have increased massively over that period of time. During the 1990s,

00:37:00.640 | you had a massive growth of stock prices, and so the problem was fixed annuities weren't really

00:37:06.560 | selling. The insurance companies are trying to figure out, "How can I offer a product that is

00:37:12.960 | going to retain," in the advertising angle, you'll hear it, "the upside potential in a search to

00:37:20.720 | develop products that would be able to deliver higher returns than normal fixed interest rates?"

00:37:29.680 | Then these products were developed, and they're not regulated as securities, but in some ways,

00:37:34.560 | they work like securities. Again, the advertising literature around these is infamous. You're always

00:37:39.920 | going to find something around the lines of all the upside potential without the downside risk.

00:37:46.640 | You'll find these heavily promoted. Just run through your AM radio station dial on Saturday

00:37:53.840 | morning. You'll find at least somebody in your local area who's doing a show on annuities and

00:37:59.520 | how they can protect your portfolio and your retirement from all the risks of the stock market

00:38:03.440 | and protect you in the next stock market meltdown. These are extremely popular, and they're massive,

00:38:08.880 | massive sellers. Equity index annuities deserve an entire show. I really should go through and

00:38:14.400 | talk about them in detail. That show would probably be well done in some form of a debate format if I

00:38:20.720 | could find somebody who's a real proponent of equity index annuities, and I could raise all

00:38:23.920 | of the objections, all of my objections to them and go through them. I'm not going to cover them

00:38:27.360 | in today's show. In short, my summary is this. I've never bought one. I've never sold one.

00:38:32.640 | I'm open to there being an appropriate financial planning place for them. I've had some people

00:38:38.880 | that I respect that have made some arguments for them, but I am intensely skeptical of any indexed

00:38:47.360 | annuity for various reasons, a lot of detailed reasons for that. Personally, I would rather

00:38:54.640 | have either a fixed annuity or a pure variable annuity. Basically, it comes down to the price

00:39:01.040 | of the insurance. Insurance companies can't print money. The US government can. More properly,

00:39:07.040 | the Federal Reserve can and does, but insurance companies can't print money. So recognize that

00:39:12.080 | they're investing in the same markets that are available to every other investor.

00:39:17.520 | Now, if you look at the economies of scale, it's possible that an insurance company

00:39:24.960 | can build a real area of expertise because of the depth of their bank account. So an insurance

00:39:30.000 | company could go in and do $100 million deals that you and I as individuals can't access.

00:39:34.800 | But what I don't fundamentally, conceptually like about indexed annuities is that usually,

00:39:41.120 | these annuities are indexed to a direct index that is widely and publicly available,

00:39:48.240 | the most common one being the S&P 500. Well, you can go buy an S&P 500 index fund,

00:39:52.720 | and you'll get the full return of the market with the full risk of the market as well.

00:40:02.080 | Well, the insurance company, the way they work is they put in a series of rates. They put in a

00:40:07.360 | series of cap rates and participation ratios and things like that. And since your returns are still

00:40:14.800 | driven off of the S&P 500, but yeah, you've got the money there. Hopefully, those of you who are

00:40:21.040 | in tune with this area of the market, you can see the problems. I don't like them. I'm open to being

00:40:25.600 | wrong. I've been wrong about lots of things before, but I don't like them. But I don't want to go too

00:40:29.680 | deep into any particular application today. I want to stay focused on this big picture overview.

00:40:33.680 | This basic overview should help you to start to feel more comfortable with at least the meaning

00:40:39.360 | of the terms. So when you're looking in the industry or reading a product name, or you're

00:40:44.320 | being presented something, you can have an idea of how it fits in. All financial planners should

00:40:49.680 | always have annuities as a component of their tool belt, because they solve really unique

00:40:56.720 | problems in a really good way for you. This is where you have to get down to the personal

00:41:01.920 | application of the problem. In general, most pundits on finance are going to be giving broad,

00:41:07.760 | personal brushstrokes. But the boots hit the ground when it comes to what do I actually do

00:41:14.320 | with the sum of money and how do I take a distribution from it. Then you get into somebody's

00:41:19.520 | risk temperament. You get into their desires, their goals, what they're willing to live with.

00:41:23.760 | And you get into the fact that personal finance is very personal. It's not all about finance.

00:41:30.000 | You can run studies in an objective way and try to figure out what's the ideal way to optimize

00:41:35.520 | a portfolio for a large public pension fund. But when you get down to the individual participant

00:41:41.280 | situation, money is all about funding life. That's why we spend so much time on the show

00:41:45.600 | talking about life, lifestyle, and relating that to money. Each of these different annuities,

00:41:51.840 | each of these different designs has an application. The actual classifications are relatively simple.

00:41:57.920 | You can purchase simple annuities with all of these different designs that might fit a place

00:42:03.520 | in your specific situation and in your financial planning needs. I'm going to go back through a

00:42:08.640 | couple of these frameworks and explain some of the products. Now that you've got the overview

00:42:11.840 | of these different ways of classifying, you should be able to remember these terms. I'm

00:42:16.480 | just going to give you a little bit more depth on a couple of these classifications.

00:42:21.200 | This deeper dive that I'm doing will be focused on the specific decisions that you'll have to

00:42:28.160 | make if you're buying an annuity. The scenario here is you've gone through the process of a

00:42:33.600 | financial planning process with an advisor. You are sitting down and looking at your situation.

00:42:37.680 | You've sketched out what your goals and what your needs are. Now you have to make some specific

00:42:42.240 | decision. Back to the number of lives covered. Annuities are powerful tools for you to be able

00:42:50.080 | to assure the income for your family under your marital obligations. Annuities are one of the best

00:42:59.200 | ways to do that. I have many times done planning for clients and I've many times been in the

00:43:05.840 | situation of doing planning for clients where the major problem is not do we have enough money,

00:43:12.400 | but the major problem is how do we make sure that we have enough income for the rest of our lives.

00:43:18.400 | This is something in my situation, for example, in my marriage. I am involved and I lead almost

00:43:26.480 | all of the financial decisions in our household. I'm the nerd. I'm the leader. I am the provider,

00:43:32.800 | the protector of my household. My wife is an amazing woman and she's very, very intelligent,

00:43:39.680 | but she doesn't love the details of finance. She's extremely detail-oriented. When we sit down to

00:43:44.400 | sign a contract, she'll sit there and she'll read every single sentence of the contract from

00:43:49.440 | beginning to end. I love that about her. She never signs anything unless she's read it carefully.

00:43:54.320 | She's very, very careful and precise, but she doesn't love going through all the details.

00:44:00.080 | So for me, in terms of sketching out our family's financial planning and providing for

00:44:05.280 | the obligations of my marriage to make sure that my wife is cared for and to make sure that she's

00:44:11.600 | able to maintain her lifestyle no matter what, if I were in a retirement planning situation,

00:44:16.080 | annuities would play heavily into my planning portfolio because it allows me to eliminate some

00:44:23.280 | of the risk of her making a mistake from an investment perspective or to eliminate some

00:44:27.680 | of the risk of her maybe being swindled or taken advantage of. It allows me to put in place some

00:44:33.120 | protective influences. So one of the most useful ways to do this is with a joint annuity where

00:44:38.800 | there's going to be an income payment for the rest of my life and for the rest of my wife's life.

00:44:43.040 | The difficult thing about setting up annuity payments is that once you set them up,

00:44:47.920 | they're done. You can't really change them with very few exceptions. But the wonderful thing

00:44:53.200 | about setting up annuity payments is once you set them up, they're done. And you can use annuity

00:44:58.800 | income on a joint annuity to provide for your spouse and make sure that for the rest of their

00:45:06.400 | life, they're taken care of. That is powerful. But you got a lot of decisions to make. And you

00:45:14.880 | got to be very, very careful here. When you're choosing your annuity payouts, this is not

00:45:19.360 | during the accumulation period, but it's during the distribution period. So using insurance lingo

00:45:25.200 | terms, this would be called when you're annuitizing the contract, or you're moving from the

00:45:29.520 | accumulation period into the annuitization period where you're receiving income from the contract.

00:45:33.760 | You're going to have to make a choice about single life annuity versus joint life annuity.

00:45:38.000 | And you have to choose about having a refund option versus no refund option.

00:45:43.120 | So back to the priority. The highest payout is always going to be on the single life with no

00:45:49.760 | refund options. Highest payout, single life, no refund options. The older you are, the higher

00:45:55.760 | the payout. Joint life payout will be less of a monthly amount, but it provides much more security

00:46:03.600 | for your joint annuitant. Refund options will be less still, but it provides more security that

00:46:11.680 | the principle of your investment will be distributed to your beneficiaries.

00:46:16.480 | What should you choose? Depends on how much money you have, but it depends on priorities.

00:46:25.120 | If you're trying to eke out an income of a high income as compared to your overall

00:46:32.800 | balance of investments, you'll need to go in the direction of no refund option in order to get the

00:46:37.520 | maximum income. And you might be walking away from the principle of the investment, the corpus of the

00:46:42.640 | account, if you die early, but at least you've assured the higher level of income. But if you've

00:46:49.840 | got loads of money and you're not too worried about eking out the highest income, then a refund

00:46:54.320 | option is certainly nice. And most people will choose some kind of refund option. Now, when you're

00:47:01.040 | choosing among distribution options, you'll have options. So for example, do you want to have a

00:47:06.880 | joint annuity with a full income at the same amount for your life and the same amount for

00:47:11.920 | your spouse's life? Or do you want to have an annuity that is the full income for your life

00:47:17.120 | and two thirds at your spouse's life or 50% at your spouse's life? Something like that.

00:47:21.280 | The answer to that question would be based upon your overall expenses. You'll have a higher payout

00:47:26.880 | for your lifetime, for both of your lifetime, if you choose a lower payout for your spouse's

00:47:31.280 | lifetime. But is your spouse actually going to be able to go through with those details? So you need

00:47:37.920 | to get some good advice, choose carefully, and you're balancing between potential gain versus

00:47:43.280 | overall risk. You need to think very, very carefully. The lingo that will be used will be this.

00:47:48.560 | You'll be offered a pure annuity, which is lifetime income for your lifetime only with no benefits

00:47:55.760 | and no refunds. After the annuitant dies, you'll be offered a refund annuity. The refund annuity

00:48:02.960 | can guarantee either a life income or a certain number of payments, payments for 10 years, 15

00:48:09.680 | years, 20 years after your death. Or it can offer a guaranteed refund of the whole amount of your

00:48:18.320 | account or 50% of your account. There's not a right or wrong answer. It's just a matter of

00:48:25.200 | looking through and seeing what you're comfortable with. The other comment I want to make on Deep

00:48:28.800 | Dive is between the question of variable versus fixed. Basically, fixed annuities might form a

00:48:36.960 | portion of your decision, but people don't love buying them today because of the low interest

00:48:43.120 | rates that we're living in currently. And also the fact that one of the major challenges that we face

00:48:48.160 | is overall inflation. So anytime you need an amount of money that's going to keep pace with

00:48:54.400 | inflation, you need to go in the direction of a variable annuity rather than in the direction of

00:49:00.400 | a fixed annuity. That's always going to be the use. So if your financial advisor says to you

00:49:05.440 | variable annuity, don't all of a sudden assume that they're out to swindle you. Recognize that

00:49:11.040 | they're trying to solve a problem. And the problem is how does my income keep pace with my expenses,

00:49:16.480 | not just how do I have the same amount of money coming in every month?

00:49:21.840 | Listen carefully and consider carefully. Always make sure when choosing annuities that you

00:49:27.760 | understand clearly all of the costs involved with the annuities. In a fixed annuity, there will be

00:49:34.480 | no costs that are disclosed to you because you're simply going to be given a specific rate of

00:49:39.520 | interest. And you can calculate the overall rate of interest and that rate of interest is coming in

00:49:44.160 | net of all of the expenses. So if you calculate the payments and you calculate what that represents as

00:49:48.800 | a rate of interest, you're getting that income net of the expenses. In a variable annuity, you're

00:49:55.600 | always going to have a prospectus and that prospectus will list in it the specific costs of

00:50:02.080 | the insurance. It'll list the mortality and expense charges, which is the cost of making sure that

00:50:07.760 | that income is there forever. There are some other little bonuses on annuities that you'll usually

00:50:12.480 | see, which I didn't go into, things like guarantees of high watermarks. So for example, if you have a

00:50:18.080 | million dollars in your account and then the market's declined to $800,000, in many annuities

00:50:22.960 | you can buy an option where the million dollars will be paid out to your spouse rather than the

00:50:26.560 | $800,000. That has a benefit, but it also has a cost. You can go through the prospectus and you

00:50:32.080 | can see each of the costs. And remember, you've got to deal with the annuity costs and also with

00:50:37.600 | the costs of the underlying sub-accounts, the underlying investments. And you need to shop

00:50:43.200 | carefully for costs. Shop carefully for costs. Make the companies compete. Make sure that you

00:50:50.800 | fully understand them. Just because the cost is higher doesn't mean that the benefit might not be

00:50:56.640 | there, but you've got to understand the costs carefully. I hope this overview has been useful

00:51:03.440 | to you. I personally really love the power of annuities. In the right situations, annuities

00:51:10.400 | can really, really, really be cool. And they can do some really cool things for you. But you've

00:51:16.240 | got to understand the risks and the trade-offs. And hopefully this will help you to feel more

00:51:20.720 | confident and more competent with regard to making your decisions. I've put together over the years,

00:51:27.120 | I've put together some very cool annuity transactions where my clients had some really

00:51:33.520 | neat and interesting benefits that were created by annuities. One of the more interesting ones

00:51:39.200 | that I did was actually with a client who was a retiring teacher and they were offered a pension

00:51:45.360 | from the school board. But when we went through – and this is the type of scenario that will be

00:51:51.520 | flagged by any compliance officer, by any commentator. If you were to put forth this

00:51:58.720 | scenario in public and say, "Well, this was the scenario," most people would say,

00:52:03.680 | "The client got screwed and the insurance agent was just trying to get a commission." So let

00:52:10.720 | me explain to you the scenario and why it was such a cool scenario. A client was a retiring couple

00:52:18.160 | and one of the spouses was a retiring teacher. And as a retiring teacher, this spouse had a

00:52:24.560 | pension, a traditional pension from the teaching system, from the central retirement system of the

00:52:33.600 | state. But as we went through and carefully examined that option and we looked at the details,

00:52:41.120 | there were some concerns about it. Number one, they were involved in a large pension system.

00:52:47.360 | And although this pension system is well-funded, it's not as well-funded as it should be.

00:52:54.640 | Most of the state-backed pension programs currently existing in the United States

00:53:01.360 | are not doing quite as well as they should be, and some of them are downright dangerous.

00:53:05.680 | Depends. You need to research carefully. This one was better funded than others,

00:53:10.560 | but the trend is in the wrong direction. Population trends, investment return trends,

00:53:15.280 | participation trends, the trends were in the wrong direction. That was the least of the concerns. That

00:53:19.200 | was just kind of like an added bonus to escape the government run system and move over into the

00:53:24.240 | private market system where there was much greater financial strength. That was the least of it.

00:53:28.000 | So that was kind of the extra bonus consideration. The bigger consideration was that they had either

00:53:34.080 | a lump sum payout or they had a series of payments. And when we ran the numbers on the payments and

00:53:40.320 | looked through them, they were good, but they didn't have any really good inflation options.

00:53:45.920 | They didn't have any really great cost of living options. They were mediocre cost of living options.

00:53:52.000 | Now, this client was comfortable with investment risk. They were comfortable

00:53:56.720 | with fluctuations in the market, at least with a well-balanced portfolio. They had other assets

00:54:02.800 | they could rely on. They weren't scraping the bottom of the barrel just living on every dollar

00:54:06.800 | of income. And their overall goal was to have a higher total amount of income, but to really have

00:54:12.720 | the same security that you get from the pension system. And this is where if you're looking at

00:54:16.880 | the financial markets, one of the things that you'll find is that financial planners generally

00:54:21.120 | argue in the abstract. So we'll talk about what's the highest total rate of return. Is it all come

00:54:26.240 | in from pure stocks or has it come in from stocks and bonds or has it come in with stocks and

00:54:31.440 | annuities? Whereas individual people who aren't financial planners would generally be looking at

00:54:36.000 | the situation and thinking, "What about my lifestyle?" And you'll usually find that in that

00:54:41.600 | situation, most of us as individuals will go towards safety. If you just think conceptually,

00:54:47.760 | the example I always use is let's say that you have a retired firefighter, retired teacher,

00:54:51.600 | both of them living on state pensions plus Social Security. They got $10,000 a month between them.

00:54:57.040 | They're not too worried about things. They're not worried at that point about what's the highest

00:55:01.440 | potential rate of return. The thing that we financial planners do, we're debating and

00:55:05.360 | dickering back and forth about could we actually get them $11,000 a month with a little bit more

00:55:09.840 | risk with more fluctuation? Clients say, "I'll take the 10, man. I'm not worried about every

00:55:14.720 | last dollar. I like the comfort and the safety of this government-run pension." So back to the

00:55:21.440 | specifics of the situation, this client, they were comfortable with the risk, but they wanted

00:55:26.080 | the income and they needed the income right away. So we ran the numbers on a variable payout plan

00:55:31.840 | for a joint life payout plan. It's just a simple variable annuity, no guaranteed minimum withdrawal

00:55:37.920 | benefits, no other living benefits, a simple variable annuity on a joint payout plan with

00:55:43.040 | a balanced portfolio behind it. We ran the numbers of putting the lump sum into that contract.

00:55:52.000 | We stress tested it historically. We looked at the fluctuation. We went back and reviewed it. I

00:55:58.320 | reviewed all the expenses, all the numbers very carefully, and these clients are very detail

00:56:02.720 | oriented, very, very competent. We went through it all carefully. After doing the lump sum from

00:56:09.680 | the state-run pension system directly into the annuity, after all of the commissions that were

00:56:15.120 | paid to me on the transaction, after all the costs and everything up front, it was going to be a

00:56:22.080 | beautiful, beautiful distribution. They were going to have a lower income payment for probably about

00:56:28.400 | the first two or three years because of the expenses up front. That was basically the expenses

00:56:33.840 | of the commission that I was paid on the transaction. But from then on, by having the

00:56:38.960 | accounts invested in a variable portfolio-based return versus the state-run fixed return,

00:56:49.040 | we expected a much, much higher – with conservative estimates, we expected a much,

00:56:54.880 | much higher total lifetime income amount. That was fundamentally due to being able to walk away from

00:57:03.200 | the minimums, the standards, the fixed promises in the fixed income space and move over into the

00:57:10.720 | free market where they could take advantage of the growth of the capital markets as prosperity

00:57:14.000 | and wealth grows over time from the well-run companies of America and the world. That was

00:57:19.360 | fundamentally the basis. We reviewed the numbers carefully. We went ahead and pulled the trigger on

00:57:23.680 | the transaction. They could afford the short-term loss of income over the first couple of years. We

00:57:29.280 | had a refund situation in there. So no matter what, they had the refund and that was incidentally the

00:57:34.480 | other major benefit of the transaction. In the state-run pension, they didn't have a refund

00:57:39.840 | option. So even though we had the availability of the life income options and the joint life

00:57:45.200 | income, they didn't have the refund option. So if they annuitized it over there, they wouldn't have

00:57:50.240 | the income coming and then they both died prematurely. That whole payment system stopped.

00:57:56.320 | But if they took the lump sum, we could engineer what we predicted would likely be a higher total

00:58:02.880 | lifetime payout, likely be it possibly be a much, much higher lifetime payout and have the refund

00:58:08.560 | option for the kids. It came with a couple of years of lower expenses. Well, it worked out.

00:58:13.360 | It was cool because it wasn't a timing move, but it was serendipitously timed with an increase in

00:58:24.080 | the values of the equity markets. It really worked out well. So it was even less than what we

00:58:28.880 | predicted by the time they had their full income. One of the sad things I had about closing my

00:58:33.840 | practice was I, from time to time, would go and look at their payout options and assess the

00:58:37.920 | transaction just to see how it was doing. Over the course of their 30 or 40-year retirement,

00:58:44.000 | I am very confident that it made it. At this point, now that I no longer have to worry about

00:58:50.880 | forward-looking statements and things like that on an investment product, I feel really good that

00:58:55.040 | over the course of their retirement years, that my planning advice has made a difference of

00:59:01.200 | potentially, I don't know, maybe an extra million bucks of money to spend. Time will tell. I don't

00:59:07.120 | know if I'll ever know, but I'm pretty proud of the transaction. So it's a cool scenario because

00:59:13.120 | it shows the power. It showed me the power of an annuity in the right place. And that's what

00:59:19.120 | good financial planning can do. You can take it. You can look it through very, very carefully.

00:59:23.200 | And just because an insurance agent is selling an annuity doesn't mean that they're just trying

00:59:26.480 | to scrape the biggest commission they can. Yes, I got paid a very nice commission.

00:59:30.800 | It was a large transaction. And I got paid a great commission. I'm very thankful for that.

00:59:36.800 | I deserved the money. I worked hard for it. And I improved the client's position immeasurably.

00:59:42.400 | And they never would have known about that option if we hadn't been working for a number of years

00:59:47.440 | on their financial planning. So I hope it's a useful illustration to you of the power

00:59:52.560 | of an annuity product where in theory, could they have had a higher total lifetime return

00:59:58.880 | if they were to invest the money purely into stocks? In theory, maybe. But the problem is

01:00:08.000 | they weren't willing to make that transaction because they needed the income and they wanted

01:00:12.720 | the security and the comfort of having the guaranteed income. So we couldn't sell out

01:00:20.400 | the pension, take the lump sum, and put it all in stocks and spend off a percentage. They weren't

01:00:24.400 | willing to make that transaction for their own comfort. I wouldn't have been willing to make

01:00:28.240 | that transaction myself. But they were willing to make the transaction to move it into a variable

01:00:34.800 | income plan on a well-priced, low-cost variable annuity. Hope you like the example.

01:00:41.680 | Now, I want to answer a couple of comments and questions here that came up on the Patreon page.

01:00:45.360 | On the Patreon page, I put out the topic of the shows in advance for those who are

01:00:50.480 | pledging $3 a month per more. And when I put out the topic of this show, I received a total

01:00:55.520 | of seven comments. I want to answer just some of those seven comments here rapid fire.

01:00:59.440 | So one comment came in from Julie and he talked about, he says, "At the bank, we use fixed annuities

01:01:04.720 | for very risk-averse clients who have a lot of cash but don't want any additional market risk

01:01:09.440 | than they might already be taking within their investment profile. I still don't quite understand

01:01:13.520 | how clients can compartmentalize this, but I digress. The marketplace has changed in the past

01:01:18.400 | few years and there are now three and five-year annuities, which are shorter than the standard

01:01:22.640 | seven-year surrender schedule of the annuities of yesteryear. What do you think about an annuity

01:01:26.800 | for someone with a short time horizon that demands a guarantee and does not want to play games

01:01:31.280 | dragging money from bank to bank?" Julian, I think it's a good idea for the right client who

01:01:36.240 | understands the limitations and the value. And so in many ways, essentially what's happening here

01:01:42.320 | is the insurance companies have created a product to compete with the banking products. So the

01:01:47.200 | product has similar attributes compared to a three or five-year CD. In this situation, it's in many

01:01:53.760 | ways would be comparable to a CD product. And so you can compare the rates and then you compare the

01:01:58.240 | credit worthiness of the issuing insurance company with the credit worthiness of the issuing bank

01:02:02.640 | behind the CD and you compare the returns. There are really going to be few in a simple

01:02:09.200 | short-term fixed annuity product like that. There are going to be few downsides except for the lack

01:02:15.200 | of liquidity. And as long as the client understands that and it meets what they're trying to do,

01:02:18.960 | I don't have any problem with it. Next question here, Kalman says, "In regard to asset allocation

01:02:24.400 | and diversification, how does one consider an annuity? I've been considering my military pension,

01:02:28.960 | which is essentially an annuity, as more bond-like in regard to its stability in regard to the

01:02:32.960 | market. As such, I have most of my investments in stocks and stock funds. Please comment on this.

01:02:37.920 | Also, suggestions for resources on pricing annuities would be valued. Thanks." Kalman,

01:02:42.720 | and by the way, if any of you don't want me, I always just read first names when I get emails or

01:02:46.400 | discussions on Patreon. Feel free to use fake names in anything you send me if you don't want

01:02:51.200 | me to read your name on it or use a fake name on Patreon. Patreon will let you do that, no big deal.

01:02:57.280 | But yes, how does one consider an annuity? So one considers an annuity based upon the attributes of

01:03:03.760 | the underlying investments. So the use of the word annuity is not necessarily an asset class

01:03:11.920 | identifier. Just because I have an annuity doesn't tell you anything about it. I could own a variable

01:03:17.600 | annuity with a 60/40 stocks and bonds asset allocation in my underlying subaccounts within

01:03:25.040 | my annuity contract. If I owned that, then I would consider just 60/40 stocks/bonds. I could

01:03:31.600 | also own a fixed annuity that is based upon a specific rate, and in that situation, now that

01:03:37.280 | would be much more like a fixed income allocation or my bond allocation. Bonds are fixed income

01:03:43.040 | investments. And so that underlying contract would be much more applicable to a fixed income portion.

01:03:48.800 | With regard to a military pension, that would be much more bond-like because it is stable,

01:03:53.840 | its performance is not tied to the underlying performance of the equity markets. It's a

01:03:59.120 | government-backed fixed income investment with some inflation options associated with it.

01:04:03.760 | And so the key there is I would look at the pension, and I'm not an expert on this,

01:04:07.440 | I haven't reviewed it, look to see what your inflation adjustment options are. And then based

01:04:12.240 | upon what that is, based upon what that says, I would then compare it to other aspects of my

01:04:19.360 | investment market. Example, Social Security's annuity payout is based upon the consumer price

01:04:25.920 | index. So in this situation, maybe you would compare that to other investments that are also

01:04:32.640 | connected to inflation metrics like TIPS, Treasury Inflation Protective Securities.

01:04:36.800 | But if your military pension, and I don't think it does, but for sake of illustration,

01:04:41.120 | if your pension guarantees that it's going to go up at 3% or 4% or whatever every year,

01:04:45.600 | well, now that's different. That's a little bit different. This is where some of the science of

01:04:50.800 | the pension research, which is what all the asset allocation stuff is based upon, and it has to be

01:04:55.840 | basically absorbed by you or by your planner, and then regurgitated. And it's not going to be so,

01:05:01.760 | so scientific. Resources on pricing annuities, I don't have any website to mention to you. If

01:05:06.320 | anybody in the audience knows of a great website, come on by and do that. What I used to use is the

01:05:12.000 | internal systems of Northwestern Mutual when I was there, and then I would check some of the

01:05:16.480 | online sites and talk to some brokers if I was pricing outside annuities. But as far as consumer

01:05:22.240 | level pricing, I don't know of any good resources. Steve says, "Besides thinking about annuities,

01:05:28.640 | are ripoff?" I don't really have any questions. Well, Steve, hopefully you have a little bit more

01:05:33.360 | of a discussion here. Rick wants to ask about the role of annuities in retirement income planning

01:05:38.960 | and some of the work done by Dr. Wade Pfau. He has done a great deal of work, and annuities,

01:05:44.400 | the science more and more is demonstrating that for retirees, annuities should be playing a role

01:05:49.440 | in their portfolio. And planners are still going to argue about this, but I don't want to get too

01:05:53.520 | deep into that today. Richard asks a question, which is an interesting question. He says,

01:05:57.760 | "What about Swiss franc annuities? Are they still available? This seems like a way to protect

01:06:01.760 | against the fall of the US dollar, and are annuities guarantees only as good as the

01:06:05.600 | insurance company which issues them?" Richard, Swiss franc annuities, I don't know if they're

01:06:09.760 | still available. My guess would be yes. There's no conceptual reason why they can't work. You'd

01:06:14.000 | have to find the right provider. Annuities are interesting because once you understand the

01:06:18.480 | concept of it, you can actually structure them in different ways. So there are private annuities out

01:06:23.840 | there. If I were working, say, at a private family foundation or a family office, something like that,

01:06:31.440 | and I were working with a wealthy billionaire family, then I would be out there looking at

01:06:35.120 | some of the private annuities that are available. And sometimes people will write private annuities.

01:06:38.640 | Sometimes people will purchase private annuities. You can do this in the international market.

01:06:43.680 | And yes, that can be a good way to protect against the fall of the US dollar. And you can put

01:06:48.560 | different currencies within it. Also interesting with regard to annuities is you can create private

01:06:53.760 | annuity transactions. And these would not be appropriate for not rich people, because there's

01:07:00.880 | too much paperwork involved. But you can set up annuity transactions with other assets,

01:07:06.560 | non-traditional assets behind them. You will use annuity calculations in different forms of estate

01:07:12.000 | planning where you're setting up a different kind of entity. You can use annuity calculations within

01:07:16.080 | that. And so you use different rates depending on what you're doing. So the concept of an annuity

01:07:22.320 | is a very-- it's just a mathematical concept. And it can be provided and issued by many, many people.

01:07:29.280 | Remember that annuities are going to be tax deferred. And if you can get big enough dollar

01:07:35.840 | amounts behind it, and you get into the world of private placement life insurance and private

01:07:40.160 | placement variable annuities, if you have enough money behind it, what can happen is you fund them

01:07:44.960 | with some interesting investments. And you can enjoy some of the tax benefits of the annuity.

01:07:52.960 | So it's in theory and probably in practice, although I've not gone out and searched out

01:07:57.760 | these products, I would if I were working for a family office. But in theory, there's no reason

01:08:01.520 | why you can't take some of the investment vehicles, which are usually more highly taxed,

01:08:07.680 | and place them inside of an annuity contract if you can pool enough money together to make it work.

01:08:11.760 | So you can take something that would be maybe some sort of hedge fund, which is

01:08:16.480 | pursuing a trading strategy generating a lot of short-term capital gains, move that into an annuity

01:08:21.600 | which allows you to defer the income over a period of time to the future. And that could be very

01:08:26.400 | advantageous for you. Additionally, annuities have some useful roles that are useful roles with

01:08:33.840 | their beneficiary designations, and some of the control and some of the restrictions, some of the

01:08:37.840 | amount of money that can go into them. So they can be a little bit seductive at the higher levels.

01:08:44.240 | The key there is you got to get enough money behind it. Those aren't available in the retail

01:08:48.240 | market. And it's a very specialized market. I don't know anything about it more than the concept.

01:08:53.840 | You ask, are annuities guarantees only as good as the insurance company which issues them? Yes,

01:08:57.920 | depending on the type of annuity. A fixed annuity, the payout is only going to be as good as the

01:09:02.560 | actual insurance company behind them. A variable annuity, in general, an insurance company is going

01:09:09.360 | to be covered by the SIPC, a Securities Investor Protection Corporation insurance. And because

01:09:14.880 | that's a product that's based upon the performance of separate accounts, not the general account or

01:09:20.240 | the general portfolio, but separate portfolios, then the variable annuities in some ways are

01:09:24.240 | actually going to be safer because it's the underlying mutual fund company that's going to run

01:09:28.880 | whose money is going to fund the company. So if you're concerned about the insurance company,

01:09:34.560 | if the underlying investments are solid and well constructed, and if the company is covered by SIPC,

01:09:41.920 | then you're going to have more consumer protection. So what SIPC does, it does not cover

01:09:50.480 | a investment loss, but it does cover loss in case of failure of the investment company.

01:09:57.280 | So in that way, then the guarantee there is going to be covered by the underlying investments.

01:10:02.640 | But still, there are enough great, very strong insurance companies. I don't see any reason not

01:10:06.080 | to choose a strong insurance company. Next, Mike says, one of the biggest frustrations that I have

01:10:10.320 | is that there are basically two worlds in financial planning, fee-only planners versus salesman

01:10:14.720 | planners that receive commissions. They each talk smack about the other one. It seems like fee-only

01:10:19.520 | planners will rarely discuss annuities except maybe a SPIA, a single premium immediate annuity,

01:10:24.480 | and hopefully that means more to you now. The fee-only planners will cite all the negatives of

01:10:28.400 | the complex annuities and how much better their plan is, but they're a little biased because they

01:10:32.480 | can't sell them even if they wanted to. However, the commission-based advisor salesmen have a huge

01:10:37.680 | conflict of interest. What are your thoughts? Have you ever heard of a fee-only planner recommending

01:10:42.320 | an annuity? Was it a SPIA or was it a more complex one? Mike, you've hit the nail on the head. There

01:10:48.080 | are all kinds of arguments in the financial industry and very few of them are academically

01:10:52.400 | pure. Most of them are based upon what do I do and where does my income come from. We all have a

01:10:59.040 | bias, even a confirmation bias, where our own approach, we have a difficult time absorbing

01:11:05.040 | information. I've thought through over the last year, now that I've disentangled myself from any

01:11:09.440 | potential conflicts of interest, I've tried to think through most of my own perceptions and think,

01:11:14.480 | "Do I really believe what I used to believe or was I simply confirming my own bias

01:11:18.560 | because of my compensation structure or something like that?" What's the answer? I don't know.

01:11:23.040 | Our fight against our own internal bias is a lifelong struggle. I think that much of the

01:11:31.440 | argument does indeed come down to two things. It does indeed come down to the compensation

01:11:40.320 | structure of the advisor and it also comes down to their clarity of message. If you are a fee-only

01:11:46.720 | advisor and your client is thinking you have $2 million under management, you're exclusively

01:11:51.200 | charging 1%, that $2 million account is $20,000 of gross revenue to your practice at a 1% rate,

01:11:58.320 | $20,000 of gross income. If the client takes $1 million out of the account and goes and purchases

01:12:05.520 | an annuity, that's a reduction of $10,000 of gross income to your practice. Thus, you have

01:12:14.080 | a conflict of interest or a potential conflict of interest. It should be accurate, a potential

01:12:20.320 | conflict of interest. It's hard to go around that and it would be hard to see the value of annuities

01:12:25.920 | when it's clouded by the $10,000 walking out of your practice. On the flip side, if you only sell

01:12:34.960 | annuities, let's say that you don't have a securities license, and there are many people

01:12:39.600 | like this, so you sell equity indexed annuities, it's going to be very hard for you to see the

01:12:44.640 | value of the overall performance and low fees that you can put in place in a stock portfolio

01:12:50.640 | and not see all the benefits of the equity indexed annuity. You're going to lock on to all

01:12:55.680 | of the claims of the equity indexed annuity sales force, all the upside potential with no downside

01:13:01.280 | returns, et cetera, et cetera, et cetera, and you're not going to be open to the other side.

01:13:05.680 | This debate is actually why I personally don't love the concept of fee only. I think that fee

01:13:14.720 | only can have a place, but I would rather see both because if the advisor can household and

01:13:22.240 | custodian the million dollars of assets and have the $10,000 of gross revenue to their practice,

01:13:27.600 | and also they can sell the annuity and have the commission of the annuity, then in many ways,

01:13:32.800 | they're going to be more comparable. They're going to be able to look at both of them

01:13:36.640 | with a more direct discussion. There's all kinds of interesting ways that you can look

01:13:40.880 | at commission products and say that they're better than the fee only world. I would like to see them

01:13:46.400 | both. I also rely on some of the academic research. I say, "Look at some of the academics.

01:13:51.600 | There is a value of academics who are not connected to incentivize based upon the sale of

01:14:00.000 | products and look at the research that they put in place and what it seems to be demonstrating

01:14:06.720 | is the value of annuities." In general, the value of simple annuities, you don't need a complex

01:14:13.120 | product. You can have a simple product. I'll also tell you from me personally,

01:14:18.240 | I am going to be launching the details of the coaching program going forward in the next few

01:14:21.680 | days. One component of that is general financial advice. I'm not selling any products, no insurance,

01:14:27.840 | no investment products. I believe I would recommend both. I think also that if it were my

01:14:34.800 | personal planning, at the moment, I still want annuities in my personal plan and in my parents'

01:14:39.760 | financial plan. More can you say about that? I hope that helps. Then have I ever heard of a fee

01:14:47.520 | only plan or recommending annuity? Yes. Was it a SPIA or is it a more complex one? It's usually

01:14:52.640 | going to be a SPIA because of the phase that somebody is working with the plan. Okay, I've

01:14:57.440 | got this lump sum of money. I'm going to put it over into a scenario. You can have a simple

01:15:01.280 | annuity that's not a complex one. Last question comes from James. He says,

01:15:06.320 | "If you purchase an annuity at the wrong time or the wrong kind from the wrong company, etc.,

01:15:10.000 | is it possible to go back out and get some of the principal back, waiting till perhaps a better time

01:15:15.280 | to start the annuitization process over?" Good question. Depends on the phase of the annuity

01:15:21.280 | contract. In the early phase, annuities are insurance products, so there's always going to

01:15:26.400 | be a free look period associated with them. In that free look period, that will be associated

01:15:32.080 | based upon the laws of your state. It might be 10 days. It might be two weeks. It might be 30 days.

01:15:36.720 | Check the laws of your individual state. But you can do an annuity transaction, and then if within

01:15:42.080 | the free look period, very short period of time, you desire to undo the annuity transaction,

01:15:46.880 | then you can simply back out, and you'll get all of the principal back. If you are past the free

01:15:53.280 | look period, your annuity transaction will be based... The amount of what you do will be based

01:15:58.720 | upon how you chose to pay your sales commissions. In annuities, you can pay upfront sales commissions,

01:16:04.400 | or you can pay back-end sales commissions. If you were to pay upfront sales commissions,

01:16:08.640 | this would work similar to class A mutual funds, where you pay an upfront sales commission,

01:16:12.960 | then you could back out, and you'll get all the principal back because the account value already

01:16:16.800 | reflects the payment of the commission to the insurance agent. On a back-end sales commission,

01:16:21.840 | which is... Then you'll have some sort of surrender charge associated with it.

01:16:25.920 | And that surrender charge will be an amount of money that if you take it out, you will

01:16:30.320 | surrender the money. So this is where you're going to incur a cost. Now, this is what angers me about

01:16:37.040 | the annuity marketplace. I don't mind many of the things that companies do that really upset some

01:16:43.440 | other people. Because I say, "Hey, let the market decide. I'm generally a free market libertarian.

01:16:48.560 | Let the market decide. I'll do my best job to go over things, and hopefully the buyer can understand

01:16:56.160 | and do their due diligence." But I can't stand the surrender charges that some of these companies

01:17:03.440 | impose. And some of them are flat out nuts. 15 years of surrender charges for some contracts?

01:17:10.640 | In my mind, that's absurd. And if there is a place for regulation in the financial markets,

01:17:16.480 | it ought to be on some of that stuff. Surrender charges should be limited,

01:17:21.200 | and they should be of limited duration and limited amount. And that's what I can't stand.

01:17:26.320 | Once you're in it, you've got to look at it. And there are some different ways. And one quick

01:17:32.640 | way to look at it, if you have an annuity contract that's been established, maybe it was purchased

01:17:37.040 | the wrong time, maybe it's the wrong kind, maybe it's from the wrong company. And if you look at

01:17:41.040 | it and recognize that the surrender charges to get out of it are very expensive, then what you

01:17:46.000 | want to do is look at it and say, "Can I change this individual annuity contract to be a more

01:17:52.400 | appropriate type of contract?" And many times, that's what you can do. So can you change the

01:17:57.440 | investment allocation from one type of investment to another, from a stock portfolio to a bond

01:18:03.440 | portfolio, from a bond portfolio to a stock portfolio? Can you change the underlying investment

01:18:08.720 | accounts to lower cost sub-accounts? Can you adjust the riders and drop some riders? Sometimes

01:18:17.440 | you can drop a benefit that you purchased in the beginning, which was some sort of minimum income

01:18:21.760 | benefit or living benefit that was adding 1.5% to your annual expenses. You can just drop that,

01:18:26.880 | and you're not incurring the surrender charges, and you're dropping the annuity contract to a lower

01:18:30.720 | value. And then also look to see, "Can I do a 1035 exchange, as a like-kind exchange,

01:18:38.880 | from that annuity into another annuity and possibly with the same insurance company? And

01:18:43.840 | could by doing that and keeping the money with the same insurance company, is there a way to waive

01:18:48.480 | the surrender charge?" There are sometimes some ways out of those thorny situations. So if you

01:18:52.560 | come across a situation that you believe is improper, think broadly about all of the escape

01:18:59.680 | routes out of the contract. And those are some of the different ideas that I have. And I hope that

01:19:04.960 | some of those might be useful to you. So thank you all so much for asking those questions. I enjoy

01:19:09.920 | getting those questions on the Patreon page. I don't always answer them from you guys, but I do

01:19:13.520 | like to answer them when I can. And hopefully, some of these answers were useful to you.

01:19:18.240 | Hour and 20 minutes today on annuities. You, if you, my friend, have made it to this point

01:19:24.320 | in this discussion, you are a rare breed. It takes a special kind of person to make their way through

01:19:31.520 | an hour and 20-minute discussion on annuities. I hope you at least enjoyed it a little bit.

01:19:35.840 | I hope you found it interesting, and hope you feel a little bit more well-equipped.

01:19:39.360 | There are all kinds of different aspects of annuities we could go into. If you were a life

01:19:43.040 | insurance advisor, you've got to be well-versed in the taxation of annuities. There's some

01:19:47.520 | very thorny aspects of annuities with regard to estate planning. You need to be aware of those.

01:19:52.960 | If you are a life insurance, or excuse me, a financial advisor, I don't know if I'll cover

01:19:56.960 | that on some point on the show. That's not a very wide-ranging, interesting topic. It's an

01:20:02.240 | important topic, but it's not a very wide-ranging, interesting topic. But maybe at some point, I will.

01:20:06.080 | I'm sure at some point, I don't commit to when I will do an entire show on equity index annuities,

01:20:10.960 | because they are such a popular part of the marketplace. And some people are real proponents

01:20:14.640 | of them. I understand them. I understand why they're proponents of them. I'm not. But if any

01:20:21.040 | of you want to come on and talk about it with me, I'd be happy to have you on the show and we could

01:20:24.240 | debate it. It might be kind of an interesting podcast for people to hear. Thank you all so

01:20:28.880 | much for listening. Thank you for supporting the show. Hopefully, you see some of the Patreon

01:20:32.480 | benefits, even though I'm now having advertising on the show. I still am relying on you, the

01:20:36.880 | individual listener of the show, to support the show directly. And there are many benefits for

01:20:40.800 | doing so. One of them is me answering your questions on things like this. So if you would

01:20:45.280 | like to support the show, please consider going to radicalpersonalfinance.com/patron.

01:20:49.120 | Also, remember that over the coming days, I will be doing many more, six more phone calls with those

01:20:54.640 | of you who are supporting the show at $10 a month. So Q&A, that's a great opportunity for you if

01:20:58.880 | you'd like to be involved in the Q&A. As I released this today on Tuesday, October 20, 2015, I did a

01:21:04.480 | Q&A yesterday, and there were a total of four people on the call. So I had an extensive amount

01:21:08.880 | of time to speak with individuals about their individual situation. So if you'd like to get

01:21:12.400 | on next week's call, go to radicalpersonalfinance.com/patron, sign up for the show.

01:21:17.040 | Check out You Need a Budget if you haven't tried it. You Need a Budget budgeting software at

01:21:21.600 | radicalpersonalfinance.com/ynab and radicalpersonalfinance.com/paladin for a financial advisor.

01:21:27.680 | I'm out. Be back with you soon.

RPF0251-Introduction_to_Annuities