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January 17, 2025 • 24 mins
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Episode Transcript

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Speaker 1 (00:00):
Good morning to all. Craig Shillig here and this is
Safe Money. I'm here every Saturday to talk with our
listeners about financial strategies we use to manage and protect
assets safely. I've been in an insurance agent for over
twenty four years. During that time, I've learned a few
insurance strategies, like using annuities as safe money harbors, or

(00:24):
using cash value life insurance to supplement retirement income. Just
a reminder, you can call my office at five six
three three three two two two zero zero if you'd
like to enroll into one of my virtual Medicare community
meetings that I do via zoom. I give one every month,

(00:50):
or you can email me at craigat Craigshillig dot com
and that's my name, Craig Craig C R A I
G S C H I L l ig dot com.

(01:14):
Give me a caller, send me an email and I'd
be happy to email you the meeting zoom codes. Today,
I want to talk to you guys about annuities. The
definition of an annuity is an insurance contract issued and
distributed by financial institutions with the intention of paying out

(01:38):
invested funds in a fixed stream in the future. Now,
to simplify things, think to yourself, as annuities are a pension,
a pension is an annuity. Advisors say annuities are not
right for every client, but when they are right, they

(01:58):
can be the perfect financial planning solution. Now, yes, there's
a lot of negative stories with a lot of half
truths out there. AARP magazine and some other channels will
say annuities are evil, annuities are the devil, annuities are
a bad investment. That said that said annuity company didn't

(02:23):
do this or that. Google will also have a ton
of pro annuity and con annuity stories that they'll have
listed there. They'll give you an example of someone signed
up for an annuity and then died the next day
and the evil insurance company kept all the money. Well,
annuities have a beneficiary designation, so that death benefit is

(02:47):
paid to the person that was designated for, so that
argument doesn't really work all that well. Sometimes that's usually
only half the story. They usually left out the part
of the the surrender charge period was for ten years
and not two years. There's even a story out there
about a financial advisor that was sued and lost his

(03:10):
license in California. What the whole story doesn't tell you
is the client that owned that annuity never lost any money,
or they weren't told the bonus percentage on their annuity
isn't walk away money. I get it. Annuities aren't sexy.

(03:31):
You don't talk about them at cocktail parties. Someone always
boasts about a thirty percent return that they got on
some stock portfolio. But you aren't going to hear anybody
talk about their annuity contract paid the promise amount every
month when the market was tanked. Remember, no one likes annuities.

(03:52):
They like what annuities do? I want to talk about
The top seven companies for individual annuity reserves. US Life
Insurans in twenty three ended with about two point nine
trillion in reserves supporting benefits promises to individual a nuity holders,

(04:15):
according to the twenty twenty four Life Insurans fact Book.
The fact book is an almanac for the life insurance
and annuity sector. The American Council of Life Insurans and
a predecessor organization, the Institute of Life Insurance, have been
publishing it every year since nineteen forty six. The twenty

(04:39):
twenty three Annuity reserve total amount amounted to two percent
of US total net wealth. It was seven point two
percent higher than the comparable total for twenty twenty two.
The reserves helped insurres pay out sixty one billion in
income to individ visual annuity contract holders. Seven insurers had

(05:05):
more than one hundred and thirty billion in individual annuity reserves.
They are Jackson, Tia, Kraft, Corbridge. You've probably heard of Lincoln,
maybe you've heard of a theen Bright House, and most
of you you may have heard of Alliance Life. Now

(05:28):
my office doesn't represent all these companies, but we handle
most of the big ones. Remember the annuities guarantee income.
That's what everyone wants in their retirement years, because during retirement,
every day is a Saturday. The need for guaranteed lifetime

(05:49):
income is fueling interest in annuity sales, and the money
must go somewhere. Over the past several years, record breaking
fixed rate deferred annuities sales have been driven by elevated
interest rates in the fact that now they offer much
more yield than money markets and CD rates. Along with

(06:11):
complete protection of your principle. This means clients can rest
easy knowing that no matter what the market does, their
principle is totally protected. Many of the different annuity product
lines offer income riders, such as guaranteed living withdrawal benefits,

(06:35):
which can provide lifetime income. LIMRA data shows that in
the first quarter of twenty twenty four, fixed index annuities
income product sales increased by over twenty five percent over
the prior quarter and fifty eight percent year over year.

(06:56):
Traditional variable annuity sales also increase from four and a
half billion in the fourth quarter of twenty twenty three
to five point one billion in the first quarter of
this year twenty twenty four. Given the decline in employers
offering pensions, many people nearing or entering retirement may need

(07:18):
the peace of mind that comes along with not running
out of money before you run out of your life.
Although an annuity is not a pension, it can help
generate guaranteed income, So let's talk about an annuity. Your
retirement is unique to your goals and lifestyle, yet many

(07:42):
retirees share many of the same key objectives, such as
asset growth opportunities, principal protection from market loss, guaranteed lifelong income,
and the potential for retirement income to keep pace with

(08:03):
rising costs and inflation. That's why, when preparing the retirement
you've worked toward, you may want to consider how a
fixed indextinuity can work for your financial objectives throughout and
after your retirement years. Let's talk about some retirement unknowns.

(08:24):
Retirement is changing, people are living longer, there's market risk
out there, and we'll talk about income sources. So people
living longer. A retiree turning sixty five years old today
is expected to fund almost two decades of retirement. And

(08:47):
that's just the average. One in four sixty five year
old men will live to age ninety three. One in
four sixty five year old women will live to age
ninety five. One in four sixty five year old married couples,

(09:09):
one of them will live to approximately aged ninety eight.
A sixty five year old married couple, there's a fourteen
percent chance one will live to the age of one
hundred or greater. Let's talk about market risk. The reality
is that most people planning to retire in the near

(09:31):
future will be impacted by a bear market. Bear markets
another word for saying a down market. Historically, the average
time between bear markets is three and a half years.
In a future show segment, I'll talk about the sequence
of returns. What I do is I'll talk about taking

(09:55):
two time periods spreads of returns, and I'll flip one
of them. They will have the same overall RAIDAR return.
But it will show you if you make a withdrawal
during early down market or bear market years, how much
money will be burned by taking that withdrawal from that

(10:18):
bucket source. If you've had your financial professional, If you
haven't had your financial professional explain that to you, go
and do it. That example will really hit home the
concept of what drawing income in a down market does
to your overall portfolio, and why I keep harping on

(10:39):
you about having more than one bucket of money to
pull from during your retirement years. Let's talk about income sources.
The traditional three legged stool approach to retirement income is changing.
Over seven percent of older Americans draw retirement income from

(11:00):
a trio of income sources, social Security, defined benefits and
direct contribution plans. Forty percent of Americans are relying on
their Social Security monthly benefit to pay for their retirement. Hence,
you need to have another bucket of money, or two

(11:20):
different buck buckets of money to pull income from if
and when the market dips and you're trying to get
annual or monthly income from that bucket source. Also remember
cash value life insurance and annuity strategies work great in
this income generating space. Let's talk about some fixed index

(11:44):
annuity basics. What is a fixed indextinuity. A fixed index
annuity is a contract backed by the financial strength and
claims paying ability of that issuing insurance company guarantees contract
owners a retirement vehicle designed to protect assets while allowing

(12:06):
for growth opportunities. It does this through a combination of
powerful benefits principle protection, tax deferral, growth opportunities, guaranteed lifetime income,
and it may avoid probate. How a fixed annuity. How

(12:28):
a fixed indextinuity works. A fixed indextinuity is an insurance contract.
It offers tax deferral, principal protection and guaranteed lifetime income
throughout the course of the contract. The fixed indextinuity can
earn additional interest credits based on the changes of an

(12:50):
external index. As an insurance product, the fixed indextinuity is
not directly invested in any index, so your principle is
always protected from market loss while providing an opportunity to
earn interest based on changes to an external index. The

(13:13):
annuity cannot lose money due to index volatility, and the
interest credited will never be less than zero. Purchasing a
fixed index annuity allows you to start growing your lifetime
income and beneficiary benefits from the start. On day one,

(13:34):
the initial premium payment can be allocated in a combination
of fixed interest and indexed linked crediting strategies. Throughout the
first year, you have the option to add more money
to your annuity. Some annuities will allow you to add
more money beyond twelve months. It just depends on the contract.

(13:56):
Any additional premium ads to your benefit account value and
boost your lifetime income and benefit reserves. All payments received
after the initial premium automatically go into the fixed interest
strategy until the first contract anniversary. We'll talk about contract

(14:17):
anniversaries here. That's the contract value may be reallocated to
a combination of crediting strategies at the contract anniversary. This
usually comes up on the twelfth or the thirteenth month.
Some annuities will also grant you a bonus or benefits
account value bonus. Any premium you pay year one is

(14:42):
established as the benefits account value and receives a bonus.
This bonus is available as par to the lifetime Income
Withdrawal reserve after ten years as part of the enhanced
death benefit option for beneficiaries. Contract owners can allocate money

(15:05):
using multiple index interest crediting strategies. The fixed interest strategy
initial interest rate has set it issue and is guaranteed
for the initial interest guaranteed period, which will never be
less than one year. The fixed interest strategy will never
earn less than the minimum guaranteed interest rate. Index strategy

(15:28):
options with which premiums may be directed. The index strategies
utilize a formula linked to one or more published indexes.
Some examples are monthly point to point, annual point to point,
two year point to point now. Monthly point to point
is defined as on each contract anniversary, interest credits are

(15:53):
calculated based on monthly changes in that index over a
month one year period. Annual point to point is the
index price is compared to the previous year's index price
based on the contract anniversary day. The interest credit is
based on changes in the index price from point to point.

(16:17):
There's also a two year point to point on the contract.
The anniversary. At the end of twenty four month term,
the index price is compared to the terms beginning index price.
The interest credit is based on changes in the index
price from point to point. I haven't done many two
year point to points. Those are pretty new that are

(16:37):
probably newer to i'd say the last five years, so
I don't have many clients on those, yet people like
to change them every twelve months. Let's talk about caps
and participation rates. Caps and participation rates are applied to
the index strategies as part of the interest credit calculation. Now,

(17:00):
this is where some people complain about annuities because of
the caps and participation rates. Everybody always wants more upside potential,
but they forget that in fixed index annuities there's no downside.
Annuities have a guaranteed for so you don't have to
worry about losing any money when the market tanks. You

(17:21):
don't lose any of your principle. Cap means the maximum
rate that will will be used to determining any interest
credits to the strategy value. This is the top end
amount the insurance company will pay. Participation rates means a
percentage that determines how much of any gain the index

(17:44):
will be credited to the contract as interest. Most fixed
index ainuities have different indexes that you can get credits from,
depending on the annuity company. Some of those are the
S and P five hundred Nasdaq. Those are the common ones.
Some also offer blended funds or tactical funds as well

(18:08):
as balanced funds. You can even get higher caps or
participantation rates in some contracts if you're willing to spend
a little bit of a percentage of a policy fee
or a credit, or just pay a small percentage fee.
Some other benefits lifetime income benefit writer, income payments, potential

(18:35):
for income payment increases, well being benefits, free withdraws. Most
annuity contracts will allow you usually up to a free
withdrawal of ten percent of your total premiums paid after
a one year period. Some come with enhanced benefit writers,

(18:59):
come with death benefit and enhance death benefit writer options.
Some will even come with market value adjustment writers, lifetime
income payout factors. These are usually based on ages and
can either be for a single owner or a joint

(19:21):
owner arrangement. You can buy a fixed index annuity for
both of you husband and wife. You can it's a
joint contract Please also remember that not all annuities are alike.
Each type of annuity has a different goal. Some annuities
that offer bonuses are going to have a much longer

(19:44):
surrender charge period than an annuity that maybe just pays
a fixed interest rate would have much more of a
shorter surrender charge period. There's several different types of annuities.
There's different rules, contracts are different, the payout percentages are different.

(20:04):
The hold periods are also different, as well as some
of the benefits drived. I know that these all get
lumped into one category the name annuity, and then that's
where all the negativity comes from. But let's summarize what
we've talked about today. Annuities are financial products that offer

(20:25):
a guaranteed income stream and are usually bought by retirees. Now,
you don't have to be a retiree to buy an annuity.
I do have some mid to late forty and fifty
year olds by them, but understand you sometimes don't want
to buy annuity if you're underage fifty nine and a
half due to an early withdrawal penalty of ten percent.

(20:49):
But just keep that in mind. Some for a one
case today are adding fixed annuities to those portfolios. They're
not necessarily a bad move. Just keep those in mind.
The accumulation phase is the first stage of an annuity,
during which investors fund the product with a lump sum

(21:10):
payment or a periodic payment or periodic payments. The annuitant
begins receiving payments after the annuitization period for a fixed
period or for their lifetime. Annuities can be structured into
various types of instruments, giving investors flexibility. An annuity can

(21:36):
be categorized as immediate, it can be called a deferred.
Sometimes they're fixed, variable, or indexed. Again, I'll rehash this.
An annuity is not an annuity. Every contract is different,
so keep that in mind. Immediate annuities are way different

(21:56):
than deferred annuities. Variable annuities are a lot different than
fixed annuities, the same with indexed. Your financial professional can
guide you through the varying degrees of what annuities are
out there, and if they don't call or email me,
then I'll show you. Let's talk soon. Just a reminder,

(22:20):
I give monthly virtual meetings regarding medicare for two different
companies every single month all year. In one meeting, I
will cover Medicare supplements, the Medicap plans with a standalone
Medicare Part D standalone drug plan. Usually that meeting sponsored

(22:41):
by well Mark, and Wellmark offers both supplements advantage plans
and standalone drug plans. My other meeting is usually sponsored
by United Healthcare. This is the other virtual meeting that
I normally do on a Thursday morning. I focus more
on Medicare Part C knows Medicare advantage plans. In this

(23:03):
type of meeting, I will cover the four parts of Medicare,
but that meeting is solely on Medicare advantage plans. I'll
give you my next dates in January. My next dates
are going to be January twenty one and twenty three.
My February dates will be February eighteenth and twentieth, and

(23:25):
my March dates will be March eighteenth and March twentieth,
and then in April, I'm also doing meetings on April
fifteenth and April seventeenth of that month. That's as far
out as I am at this point, but I have
the entire year calendar already made. You can call our

(23:47):
office at five six three three three two two two
zero zero for the zoom meeting codes and additional dates
and times. You're also welcome to email me at Craig
at Craigshillig dot com and again that's c R a

(24:08):
I G at c R A I G S c
h I L l I G dot com. Give me
a caller or send me a note and I'd be
happy to send you the virtual zoom link meeting codes.
This is Craig Shillig with safe money.
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