Tailoring Fixed Index Annuities to Your Specific Goals: Shootin’ It Straight With Stan

Welcome to Shootin' It Straight With Stan. I'm your host, Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Today's topic is tailoring Fixed Index Annuities to meet your specific goals. Now, a lot of you out there have watched all 1,000 plus videos and are going, "Wait a minute, Stan, I'm not sure you really like Indexed Annuities." Nothing could be further from the truth. We are fans if they are presented correctly and the truth is laid out brutally, which we always do. Indexed Annuities, just a brief history lesson, were introduced in 1995. Yes, I was around. I know you're saying, "Stan, but you look so young." Yes, I was around, and they were introduced to compete with CD returns, hoping that those caps spreads and participation rates would give you a bit better return than CDs, but they are a Fixed Annuity.

They're a life insurance product. They're not a security, and the NASD or FINRA does not regulate them. They are regulated at the state level. It's a life insurance product. We're not against Indexed Annuities; we're against how a lot of them are sold and pitched on the Internet, which is horrific.

The Upfront Bonus

At the bad chicken dinner and expensive steak dinner seminar, which is a one-size-fits-all approach, we were horrified when agents lead with this upfront bonus nonsense, and the upfront bonus is what I call candy for the stupid. It's also like going to a car dealership and asking the salesperson to just show you the stereo system. "That's all I want, the stereo system." Just remember there are 100 pennies in the dollar, so if they've given you an upfront bonus, what are they doing? If you go to The Annuity Man, and run quotes, and if you run Income Rider quotes attached to Indexed Annuities, we're quoting the ones with and without bonuses.

The PILL

We don't care; it's part of the contractual guarantee. Ironically, probably not, but just contractually, the ones without the bonuses seem to, in most cases, offer a higher contractual payout. So, the bonus is nothing more than a shiny thing. But if you call us or set an appointment, you can go to The Annuity Man, and book a call; we'll call right on the dot, and we're going to ask you two questions. What do you want the money to contractually do? When do you want those contractual guarantees to start? And then we're going to remind you of the four things that annuities solve for contractually. The acronym is PILL. P stands for principal protection, I stands for income for life, L stands for legacy, and the other L stands for long-term care, PILL. If you don't need to contractually solve for one or more items in the PILL acronym, then you do not need an annuity.

Notice there's no G for growth, M for market, or S for stocks. Do not ever buy Indexed Annuities for market-type growth. I understand the sales pitch locally you're getting or nationally. The market upside with no downside, principal protection with market participation. Listen, if that was the case, that's all Goldman Sachs and JP Morgan and Morgan Stanley would buy and they're not buying them. Okay? Trust me. If it's growth that you're after, then do not buy an Indexed Annuity. If you want CD-type returns and the potential for 100 basis points, which is another extra percentage point or two on the upside, if the planets align themselves with the levers inside of an Indexed Annuity cap that spreads the participation rates, that would be great. But have your level of expectation in line with reality. I always tell people that if you buy the Indexed Annuity dream, you're going to own the contractual realities.

Put Your Thinking Cap On

Suppose you're going into an Indexed Annuity thinking you're going to get annually seven, eight, 9% as the agent showed you in their cherry-picked back-tested numbers. In that case, you're going to be sorely disappointed. If you go into it understanding that the downside is zero, so it's a Fixed Annuity, you're not going to lose money, and any gains will be locked in, but understand that those gains will be CD-like. If you have that rational thinking cap on, then we're good to go. We'll talk. But if you're going down the rabbit hole of upfront bonuses and seven to 9% return because this guy, your friend, or whatever told you locally about it, then you get what you deserve if you buy it under those premises. But for now, the two questions, what do you want the money to contractually do? When do you want those contractual guarantees to start?

If you said, "I need lifetime income to start at a future date," then most likely, we're going to show you a Deferred Income Annuity, which is another way to do lifetime income, and an Index Annuity with an Income Rider attached and we're going to shop all carriers. You need to understand that I don't care what anybody tells you; there's not one annuity index, and otherwise, that's better than the other. If the person says to you, "This is the best one. I've looked at them all, this is the best one," that's garbage. It might be the best one for them. They might get to go on a really nice trip if they sell enough of it. But annuities, including Indexed Annuities, are commodity products, period, end of story. If you take one thing away from this, do not buy it for market growth, buy it for CD-type growth. Buy it for principal protection if you're looking just for accumulation.

Income Riders

But the majority of people who buy Indexed Annuities from us buy them for the Income Rider guarantee. The Income Rider is the will do part of the annuity. Remember, I always say, own an annuity for what it will do, not what it might do. The might do is the index hopes and dreams and unicorns chasing the butterflies and the agent hopeful return scenarios that he shows you on the board and the stair step and all that stuff. Buy it for the contractual guarantees, period. Now, if you want to buy a standalone Indexed Annuity, we will do the research for you. We will explain the good and the bad, the limitations and the benefits, but we will have to make sure that you're not looking for market growth. We will have to make sure that you're not dreaming.

The Limiting Levers

We will have to make sure that you're buying it for principal protection first and a little bit better than CD returns if it all works out. Remember, the levers limiting the upside that Indexed Annuity companies use are caps, spreads, and participation rates. Those can be changed on the anniversary date, with most Indexed Annuities at the annuity company's discretion. Now, there are some that are a little bit different, but the vast majority work like that. So, they get to change them. They don't consult you, and they don't consult me, which leads me back to my original premise. Do not buy these for growth. If you want market growth, buy stocks, ETFs, mutual funds, or whatever you do on that side. I used to do that with Dean Witter, Paine Webber, Morgan Stanley, and UBS. I totally understand it. But what I totally understand as well is that annuities don't fit in that world.

Index Option Choices

That's a whole different world, period. If you want market growth and those types of returns, those S&P types of returns, do it. Also, understand that with Indexed Annuities, that index, that S&P index, or whatever index you choose, does not include dividends. Just pull up the return percentage of the dividend of the S&P return; it's typically over 50%. So, that's not included in the Indexed Annuity return. The other thing that kind of drives me crazy is that there are currently over 750 index option choices in the Indexed Annuity world. I think it might be a little bit more, and there are over 50 index choices, some made out of thin air that you've never heard of. And then the agent says, "Well, if you owned it 10 years ago," my question is, how is that possible if it's only been on the planet for three months?

Realityville

There are a lot of shenanigans and shiny things going on out there in the index world. Still, with us, we're just pragmatic, rational, and brutally factual when it comes to all annuities, especially Indexed Annuities. Most of the time we're walking you down into realityville. You're up on the top going, "Boy, this is the greatest thing I've ever seen. I get the market upside, and my principal is protected. I get an upfront bonus, I get free long-term care." We have to explain all of that fully, which is most likely nonsense pitched to you from a 30,000-foot view. What I encourage you to do is dig in. Dig into the details. This is serious, this is money. There's no urgency to buy. The urgency for you to fully understand what you are potentially buying, correct? The way that we would use Indexed Annuities with you, if you said, "I really won't want an Indexed Annuity," then we'd explain how they work, their principal protection products first, their CD products second, CD-ish products.

We would show you MYGAs, Multi-Year Guarantee Annuities, which are on my site and are the annuity industry's purest version of a CD. And we might do a combination of, say, if principal protection's your goal, a combination of MYGAs and Indexed Annuities, maybe a two-to-one or a three-to-one just to pepper it in, but probably not go all in Indexed Annuities. The cool part about Indexed Annuities, in my opinion, for lifetime income, let's go back to that, when you have an Income Rider attached to the Indexed Annuity and you say, "Okay, Stan, you asked me the two questions. What do you want the money to contractually do? And when do you want those contractual guarantees to start? And I said, 'I want income to start in seven years.'" Okay, great. Most likely, we're going to purchase a seven-year Indexed Annuity with an Income Rider, and you'll know exactly to the penny what that Income Rider's lifetime income stream will be starting in seven years.

The really neat part about Indexed Annuities using that for income in the future is at the end of the seven years, you might say, "You know what? Things have changed. I don't need the Income Rider. I don't need the income. Just send me all that money back that's been growing on the accumulation value side." It might be at 2% or 3% or 4%, who knows? But it provides a pivot liquidity that if you decide not to do the lifetime income as you had initially decided at the time of application, you can pivot out and get all your money back. So, that's a good thing too. It's flexible from the standpoint of a decision you can make at the end of the surrender charge time period, but the contractual guarantees are in place if that initial decision is still what you need.

So, hey, there is nothing wrong with Indexed Annuities. I have a problem with how they're sold across the industry; the reason that they're pitched, regardless of what you need, is because they are a high-commission product. They're very complicated. And remember, if you can't explain it to a nine-year-old, don't buy it. No offense to nine-year-olds, it's just that this is your money. Don't believe the hype, believe the contract. And own an annuity for what it will do, not what it might do. My name is Stan The Annuity Man. That's Shootin' It Straight With Stan. I'll see you next time.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.