February 14, 2025 • 34 mins
What if the secret to a financially secure retirement is hiding in plain sight? Grab your favorite drink and join us for the season kickoff of Bullshit on Stilts, where we unravel the intriguing world of annuities. Our guest brings fresh insights into these often-misunderstood financial tools, tracing their roots back to Roman soldiers and dissecting modern types, from the steady fixed annuity to the adventurous variable and the futuristic indexed. We promise a light-hearted yet informative discussion that will equip you with the knowledge to determine if annuities deserve a spot in your financial strategy.
Get ready for an episode packed with relatable analogies and humorous takes as we compare annuities to car engines to make sense of their mechanics. Fixed annuities are the reliable gas engines, while variable ones are like hybrids, offering a mix of investment options. And then we have indexed annuities, the electric engines of the bunch, providing a modern twist by tracking stock market indices. We navigate the phases of annuities, from premium to payout, breaking down how each phase offers its blend of flexibility and potential financial benefit.
Season two of Bullshit on Stilts kicks off with a funky vibe, thanks to our talented content creators and musicians. As always, our mission is to strip away the financial fluff and myths, offering clarity in a world often clouded by misinformation. Whether you’re curious about the complex mechanics of annuities or seeking to refine your retirement strategy, this episode promises a blend of humor, insight, and the occasional cultural reference to keep things entertaining. Keep those critical thinking skills sharp, and don't forget to share your financial curiosities with us for future episodes!
We love to hear your thoughts, questions, and ideas. Send us a text!
Developing your financial bullshit sniffer one episode at a time.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Welcome to Bullshit on Stilts.
We're back for season two andlet's just say it's as popular
as a fart in a high-riseelevator.
We're still barking atfinancial fairy dust like a dog
and a mailman, and in thisseason we're serving up a fresh
batch of debunking financialsales tactics and ads you never
(00:23):
asked for, all while helping yousharpen your own bullshit
sniffers for those life-changingfinancial decisions.
So grab your favorite drink,bring your sense of humor and
don't forget your calculator.
Join us on our quest to exposethe financial shenanigans that
even your grandma would callbullshit on.
It's time to get sniffing.
Let's get after it Hi.
Speaker 2 (00:46):
Hey, how are you?
I'm good.
Good morning, what's up.
Hey, how are you?
Speaker 1 (00:50):
Did you want to tell everybody what we're going to be
talking about today?
Speaker 2 (00:54):
We are going to be talking about annuities.
Where do they come from, whatare the different types and how
may they be applicable to you?
Speaker 1 (01:02):
Indeed, that's exactly right.
And why do we want to betalking about this?
What's the impetus for ussaying, hey, let's open Season 2
with a discussion aroundannuities?
Speaker 2 (01:14):
Well, I'm still stuck on the momentous occasion of
going from Season 1 to Season 2.
Yeah, right, and I am, and Ijust want to say formally that
it's an esteem and a privilegeto be here with you, breathing
the rather inferior atmosphereof our studio.
Speaker 1 (01:34):
Inferior atmosphere.
Wow, You're already startingoff Start season two here.
So you've been gone for alittle bit, you know doing other
things I have been.
I've been gone for a little bit, you know doing other things.
Speaker 2 (01:44):
I have been, I've been on the dark side I've been
instead of this type ofunplanned, unscripted.
I've been doing a lot of workwith AI.
Yeah exactly Many, many, manyhours later, and at some point
we'll get into the AI.
Speaker 1 (02:00):
But not today, not today.
No, not today, but not today.
We're all looking forward toyou having a little bit more
intelligence with thatartificial stuff you're working
on.
Speaker 2 (02:09):
So I am excited about talking about annuities today
because, either from a tacticalor from a strategic standpoint,
for most folks I don't carewhether you've got $100,000 or
millions of dollars they mayhave an appropriate place in
your portfolio as a way to bumpreturns or to mitigate risk, and
by that I mean remove a lot ofthe volatility in your portfolio
(02:32):
.
Yet they're confusing andthat's why a lot of consumers
are a bit skeptical or wary,particularly when we get into
variable or into indexedannuities, which I know you'll
clear up today.
They do have a place andthey're becoming more and more
sophisticated and, I think, arebecoming more and more
(02:53):
appropriate for folks, and soI'm excited to get into our
conversation.
Yeah, there's a few thingsyou'd like to say before I
pepper you with some questions.
Speaker 1 (03:01):
I think that annuities have a bad rap and in
some cases maybe they earn it.
In other cases they certainlydon't deserve the rap they get.
And I think consumers,investors out there have a hard
enough time right now trying tofigure out what a stock or bond
is if you're just starting out,much less what mutual funds,
etfs and so forth are.
And then, over the fence line,there's different grass.
(03:24):
Right, is it green or probablynot?
But there's different grass.
And these are annuities.
They're insurance contractsthat you can use as an
investment for your money, togrow it, accumulate it, maybe
pay income and we'll get intoall of that.
But the point is is that theseannuities, they have every
(03:46):
reason to be part of yourthinking what should I allocate
my monies to and across?
And I think today we'llhopefully start talking about
the annuities so that youlisteners start getting a little
bit cleaner understanding ofyou know the three key types of
annuities that are out there,how they work, what's underneath
(04:06):
them, and then we'll probablyget into a little bit deeper
convo.
Speaker 2 (04:10):
Okay, so confirm or refute this.
Do you think part of the badrap is not the annuity itself,
the inherent structure of anannuity, or is it the way
they're positioned and sold,understanding that anywhere from
20% to 30% of annuities mayhave been sold with some type of
misrepresentation or omission?
Speaker 1 (04:33):
I'll take answer B for $300.
No, absolutely.
I think that they're confusing,they're complex, depending on
what kind of annuities we'retalking about.
And if you're in the game ofsales, you know if that's your
profession, you're aprofessional sales individual.
You're not out there trying togive a completely balanced
(04:57):
delivery of things you makemoney on to sell.
You're out there to reallyshare the features and benefits
that make your solutioninteresting, maybe even creating
a desire on someone's part toput money into it.
And so that means that youtypically will maybe not be as
(05:18):
clear, not as transparent, notas overt with discussing some of
the drawbacks, limitations andor constraints that come with
the annuity you're trying tosell.
Oh, by the way, depending onwhat kind of annuity we're
talking about, commissions gofrom kind of small upwards to
big.
So why are you selling theannuity?
(05:39):
You're selling over anotherannuity.
Could it be that maybe yourpaycheck might be bigger, and I
don't know the answer to that,but that's certainly part of the
conflict of interest when we'retalking about annuity.
Speaker 2 (05:52):
Well, there certainly is, and there is an inherent
complexity to it.
We have a tendency to shy awayfrom complexity, and so, as
consumers, that's why I prettymuch as you know that I pretty
much dwell in the social mediaspace as a health and beauty
influencer.
Speaker 1 (06:10):
Yes, so when it comes ?
Speaker 2 (06:12):
to complex things like annuities.
I am initially I'm wary aboutit.
Speaker 1 (06:18):
Well, the fact that you're able to handle all the
colics in your hairline well.
I mean, that's a complex issuethat you deal with every day and
it comes out looking relativelyokay.
You're doing a good job Welland I appreciate that Absolutely
.
You're welcome.
Speaker 2 (06:35):
All right, so let's talk about annuities.
We've touched on it slightly,but let's get into what would
you say, three broad categoriesof annuities.
Speaker 1 (06:45):
Yeah.
Speaker 2 (06:45):
Yeah, I think there is Okay.
So where does annuity come from?
To begin, with.
Speaker 1 (06:50):
I'm glad you asked that question because I looked
it up before we got together.
Speaker 2 (06:57):
This guy looks good.
Speaker 1 (06:58):
All right.
So annuities, like so much weget, originally from the Romans.
Way back when man, they wereusing a concept that is what we
call annuities today, and thatwas you know, give me some money
now and when you're old, I'llpay you income back when you're
(07:23):
old so that you're taken care ofPretty, pretty basic in what
they used to do.
And so this even got extendedto soldiers in the Roman army
and so forth when they wouldretire.
So it really comes from thatworld, the annuity.
Speaker 2 (07:38):
Huh, does Barclays derive from the barbarians?
It could.
It does.
Speaker 1 (07:45):
I like that.
Speaker 2 (07:46):
Yeah, I'm just wondering you know how words
kind of morph.
Speaker 1 (07:49):
So your answer asking me questions that you already
know.
No, I'm just asking.
Speaker 2 (07:54):
For example the word hypocrite actually the
derivation of that means mask,yes Theater.
Speaker 1 (08:02):
Interesting Ancient Greek yes Theater Interesting.
Speaker 2 (08:04):
Ancient Greek, yeah, greek theater.
In Latin the annuity comes fromLatin, which means just annual
or yearly.
Speaker 1 (08:14):
Annual payments?
Yep, annual payments orsomething.
Speaker 2 (08:16):
Yeah, that's exactly right, that's exactly right, so
they've been around for a longtime.
Speaker 1 (08:20):
Concept's been around for a long time it's basically
like Wimpy from Popeyes.
Remember Wimpy that wouldalways borrow a dollar on Friday
and gladly pay you back onTuesday.
That's sort of the annuity.
Give me money now and down theroad.
What did he?
Speaker 2 (08:34):
say precisely Do you remember?
Speaker 1 (08:36):
Yeah, if you can spare a dollar today, I'll pay
you back Tuesday, wasn't it no?
Speaker 2 (08:45):
I'll gladly pay you Tuesday for a hamburger today.
Speaker 1 (08:53):
I'm loving it.
Oh, that's what it was.
I'm all hosed up, aren't I?
Speaker 2 (08:59):
So should I disregard everything from a credibility
standpoint?
Speaker 1 (09:02):
I might as well wrap it up, Go ahead and take over
buddy All righty.
But really that's all it is.
You either pay a lump sum moneyor periodic payments, like
every month, every year,whatever and the idea is that
down the road let's talk aboutretirement I have the option to
(09:24):
start receiving money back frommy annuity for the rest of my
life.
Speaker 2 (09:30):
As an example, Okay, three types of annuity.
What are they, kelly?
Speaker 1 (09:34):
There's a fixed annuity, there's a variable
annuity and then the relativelynew comer.
The indexed annuity is thethird type, and then the
relatively newcomer, the indexedannuity is the third type.
Speaker 2 (09:44):
So how would you characterize the fixed annuity
and then do a comparative onceyou go through the fixed and the
variable?
Speaker 1 (09:50):
Okay, so comparative.
So the fixed annuity is a veryconservative product.
So the fixed has something todo with this.
The fixed has something to dowith this.
The fixed has something to dowith it.
You are guaranteed some rate ofreturn, a fixed rate of return
over the time frame you own yourannuity.
(10:14):
So if it's a three-year annuityas an example, you can find a
three-year annuity thatguarantees you, in this example,
I'll pay you 5% interest everyyear for the next three years.
So that's very conservative.
The variable annuity I alwaysthink of it very similar to an
employer's 401k plan.
(10:35):
I put money into my annuity, Icontribute money in, I pay my
premiums into my annuity andthose dollars are invested in
investment funds think mutualfunds of my choosing.
So I can put it in stocks,bonds, I can put it in real
estate, all sorts of investmentfunds underneath the variable
(10:55):
annuity.
And that then means that thevariable annuity is typically
designed for growth over a longtime frame, just like your 401k.
And just like your 401k, thevalue of what your annuity has
inside it the contract value, asthey call it that will go up
and down based on yourinvestment performance of the
(11:19):
investment funds you ownunderneath that variable annuity
contract itself All right.
Speaker 2 (11:25):
So it has a lot of the generic structural
components of a 401k.
Yes, Maybe, are there downsidesto that, outside of perhaps
higher fees?
Speaker 1 (11:38):
Yeah.
So with the variable annuity,there's always pros and cons to
every one of these things, right.
So with the variable annuity,there's always pros and cons to
every one of these things, right.
So in the variable side, thebig con almost always is going
to be the cost of that contract.
You can see contracts that arein excess of 2.5%, 3%.
If you add all the bells andwhistles and think of it like
(12:04):
back in the 80s we would buy acar and we got to add things to
that car, kind of customize it.
I want the cd player and theleather seats, but I don't want
this nowadays when you buy a carit's all included.
That's a good analogy you get atrim line, and that trim line
means you get all of this plusthe leather seats.
Well, I don't want all theother channels, but you're going
to get it.
You're going to get the powerwindows, you're going to get the
.
You know.
So, when it comes to thevariable annuity or any annuity,
(12:25):
you typically have options toadd on features, benefits and or
, let's call it, protection withregard to that annuity and that
product.
And the variable annuities, uh,probably come with some of them
, the, the highest number offeatures that you can add to
that contract, called riders.
Speaker 2 (12:46):
So there are riders.
So when we talk about thefeatures or the options that
used to be on cars, probably allthe way up to curb feelers, is
there anything like a curbfeeler option or rider for
insurance?
Speaker 1 (13:01):
that's there, yet it's for a very, very unique
group of people um, I think youwant me to introduce the indexed
, the fixed indexed annuity.
Is that where?
Speaker 2 (13:15):
we're going.
Speaker 1 (13:15):
Okay, good, thank you where we're going all right, I
couldn't figure out your bodylanguage, that, uh, that
semaphore with those flags thatyou were following.
Speaker 2 (13:23):
Like an A-B guy.
Speaker 1 (13:24):
It's just my vertigo.
Okay, okay, so yeah, the fixedindex annuity is sort of the
tweener.
It's not a fixed annuitymeaning you might be able to get
a higher return.
The opportunity for higherreturn exists with the fixed
indexed annuity if I compare itto the fixed annuity.
With regards to comparing theindexed annuity to the variable
(13:47):
annuity we mentioned, in thevariable you go up and down.
It's a roller coaster dependingon how you invest your premium
dollars in the investment funds.
Right, with the indexed annuityit's really kind of cool.
You get to, you get to haveyour nudie accumulate value grow
over time by following a stockindex, and I'm making this very
(14:12):
simple.
Okay, thank you.
So you get to select.
I'm going to follow or monitorthe S and P 500 index and so at
the start of my purchase, myfirst month of owning it starts
my 12,.
My one year term, 12 month term.
I'm going to follow that S&P.
I'm going to watch it go up anddown, up and down, up and down,
(14:34):
and the only thing I care aboutis, at the end of the 12 months
, did the S&P index and higherthan it started?
Was the end value higher thanit was when it began?
If the answer is yes.
My indexed annuity earns money,it grows, it accumulates in
(14:55):
value.
The catch is, if the index wereto drop and have a negative
return, like in 2008 as anexample, well, guess what?
I don't get anything.
I get zero, meaning that thevalue of my annuity doesn't drop
as a result of investmentperformance.
(15:16):
It simply gives me a zeropercent return.
So I don't go forward two steps, one step back, like I do with
my 401k plan.
That's a really cool feature.
As a result that indexedannuity is not going to give you
the same performance as avariable when you're invested in
(15:37):
investment funds going up anddown.
But unlike the variable annuitythat could lose 10, 20, 30% of
its contract value due tonegative investment returns, the
index annuity, no matter whatthe S&P did, if it turns in a
negative, will give you exactly0% return.
(16:00):
You don't lose a dollar in yourindexed annuity due to
investment market performance.
That's cool.
Speaker 2 (16:09):
That's real cool and at some point I'd like to have a
sidebar discussion with you.
You mentioned that your 401kgoes two steps forward and one
step back, I think, in themarket that we've been
experiencing over the last 10years.
I think we need to have adiscussion about that, Sure sure
That'd be a fun discussion.
Speaker 1 (16:28):
Yeah, it's.
It's just part of right.
When you invest money, as weboth know and we've done it to a
lot of money the markets giveand they take away, and one of
the big things that people tryto help investors understand is
what's the recipe for your moneyto be invested that kind of
(16:50):
meets your needs withoutexposing you to too much of the
market damage when it occurs.
But you can't get away from itall if you're invested.
It's just not something thatyou can repeatedly do over 20,
30 years of investing.
Speaker 2 (17:09):
What I'd like also to do at some point is drill down
deeper into the indexed annuity,and you haven't done that.
That's because I've taken awayyour calculator.
Speaker 1 (17:21):
And my slide rulers.
Speaker 2 (17:22):
Yeah, I took away that and I got rid of Excel off
of your computer before youfired it up today.
That sucks, man.
So I took everything away fromyou.
But I think that would bepretty interesting to just kind
of see the math and theprobability and the risk
management of that.
Maybe we could do that for 10minutes or so.
Speaker 1 (17:40):
I think it'd be pretty cool, yeah, In fact, you
remember we did that studyaround index products, adding
two stock and bond portfolios,and what the result was and this
is all academic right but whatthe math basically showed us was
there's benefits when you havea measured approach and you
(18:04):
include an index product couldbe index universal life, could
be an index annuity but thebenefit comes from a key
component, which is no downsiderisk to market volatility to
negative, I should say marketvolatility.
That's huge, because all we'redoing when we're asset
(18:25):
allocating in a portfolio, we'retrying to squeeze out excess
risk, known as volatility, andmaximize at that level of risk
our opportunity for return.
That's all we're doing.
Now we have an asset that mighttake all of the negative
downside risk away and replaceit with zero.
(18:46):
That doesn't suck for that andwe'll probably talk about this.
But you don't get all theupside like you would if you
were fully invested, like in thevariable annuity or in the 401k
plan.
If you have a stock portfolioand the market's up 30% this
year, guess what?
Your stock portfolio isprobably going to be up around
30%.
However, with an indexedannuity, zeroes, as they say the
(19:10):
sales guys right, Zeroes, yourhero.
Well, because you got nodownside, I'm not going to allow
you to enjoy 100% of that stockmarket upside, so maybe I'm
going to limit the amount youcan earn on that index product
to, in this example, 14%.
So the market did 30, you get14 because you were exposed to
(19:32):
the same stock market but youalso had a zero downside risk on
that year, so you're not goingto get the whole 30.
We'll cap you at 14% on yourannuity 100 grand.
All of a sudden, when thatcredit comes in, your annuity is
now worth 114,000.
Pretty sexy.
Speaker 2 (19:49):
Yeah, that is real sexy and I think it has its own
segment coming up here.
Speaker 1 (19:53):
So we've talked about the fixed.
Speaker 2 (19:54):
We've talked about variable.
We've talked about the index.
To some degree you explainedwhat maybe they're investing in.
So could you just kind of recap, not just so much the structure
of the index to the index, butwhat kind of stuff are you
investing in or can you investin Based on the annuity?
Yeah, the underlying portfoliosare composed of what?
Speaker 1 (20:16):
Yeah.
So I sort of think of this areal quick analogy, and then
I'll answer your questiondirectly.
I think of the annuities ashaving different kinds of
engines for growth oraccumulation, like cars have
different kinds of engines.
So today we have cars that takegas, we have cars that take
(20:37):
diesel, we have cars that arehybrid and we have cars that are
electric.
Right, so let's just focus ongas, hybrid and electric.
Okay, when it comes to the fixedannuity, basically what's
backing that is the bondportfolio?
Almost exclusively yourpremiums that get paid into that
(21:01):
annuity are turned around andinvested into high quality bonds
, maybe some other stuff, butmostly bonds to back up their
promise that they'll pay you inmy earlier example, 5% per year
for the next three years.
That's what it is.
It's very old school, verystable and quite, quite safe.
(21:21):
Another way of thinking of itis, if I'm thinking of putting
money into cash and I have agoal in the next three or five
years, one of my options iscertificates of deposit from a
bank or a high yield savingsaccount, maybe even short term
high quality bonds as well as afixed annuity Very similar when
(21:43):
we go to the variable annuity,that engine in that is far more
of a hybrid, and why I mean ahybrid is that you have the
ability to invest money intostock funds, which are more
volatile and have an opportunityfor more growth, but you also
can invest in bond related fundsthat are more stable.
(22:05):
So it depends on how youallocate as to what kind of you
know engine.
What, what's propelling thegrowth of that annuity?
Is it the electric part of theengine or is the gas part?
And in this example, gas isstocks electric is your all
right?
Lastly, you have that indexedannuity, or fixed indexed
(22:25):
annuity.
What's backing that engine?
Think of it as an electric.
You're not really investingyour money in the stock market.
You're simply declaring I'mgoing to watch the S&P 500.
And at the beginning of my yearthe S&P reading was 1,000.
And at the end of my 12 monthsthe S&P's reading is now 1,200.
(22:51):
It's a 200-point change.
That's a 20% increase and, as aresult, my indexed annuity is
going to receive growth.
Accumulation of positive creditin the contract up to whatever
the cap is on that indexparticipation rate.
(23:11):
Does that make sense?
It's complicated?
Speaker 2 (23:14):
Yeah, it is complicated and it does make
sense.
It hurts a little bit.
Speaker 1 (23:20):
And I didn't even show you a spreadsheet dude.
I didn't show you a spreadsheetdude I didn't show you a
spreadsheet.
Speaker 2 (23:24):
I promise, if we were to drill down into this, it
does get a little bit.
There are aha moments.
I get this enough to where Imight consider instead of
rejecting it out of hand.
There you go.
So let's move from that overinto the different phases of an
annuity.
Okay, and I'll tee this up byobviously you've got the premium
(23:46):
phase.
Yeah, you have an accumulationwhich may be a determinant as to
what type of annuity you have,as to how long that accumulation
phase may be.
And then we have the payoutphase.
Run through those, kelly, shutup and sit down.
Speaker 1 (24:00):
So really, in layman's term, you invest your
money phase one, you grow yourmoney phase two Okay and you
take your money out of theannuity phase three All right.
So that wraps up Right.
So let's talk about that realquick.
So you typically can put moneyinto an annuity.
(24:23):
It's either a lump sum one bigbucket goes in or what they call
periodically, so it could be amonthly thing that you have $100
.
Speaker 2 (24:32):
Are there terms for those?
Speaker 1 (24:35):
There don't have to be terms.
Speaker 2 (24:36):
No, I meant are there terms that say that one might
be a single pay or a lump sum.
Yes, yes absolutely.
Speaker 1 (24:43):
In fact, some annuities that exist only will
take a lump sum payment.
So you go lump sum or aperiodic payment into the
annuity that's your money inDuring the time frame up until
the point where you say I wantto take money out of my annuity.
That's essentially what theyterm accumulation phase.
(25:03):
And remember, this is aninsurance contract so they can't
necessarily use the same termof investment growth, so they
use accumulation.
Okay, if I'm a 25-year-old and Igot an inheritance or my trust
fund released and I got $50,000and I just want to put it into
something, I could theoreticallyput a lump sum payment of 50
(25:23):
grand into an annuity and nottouch that annuity for the next
40 years until I'm 65.
That would be my accumulationphase in this example 40 years
of growing and accumulating,getting credits or whatever, and
at 65, I could then say youknow what?
I want my annuity to pay meincome now going forward until I
(25:47):
die, and I want that payment tocome out every month.
I want the check sent to myhouse in the form of a paper
check, because I like going tothe bank and I can do all of
that.
And that just gives you a senseof what those different phases
are.
That makes sense.
Speaker 2 (26:04):
That does make sense, you sure yeah, no, that makes
perfect sense to me yourfurrowed eyebrows are like no I
just uh, the producer didn'tmute mute phones and I'm a bit
upset by that that's okay,that's all right.
Speaker 1 (26:16):
Assistant producer, that's.
It's the associate.
Yeah, yeah.
So the intern, that's right,all right.
Speaker 2 (26:25):
So then we have what we've got payout Yep
Accumulation phase, the payoutwhat factors might affect
whether we annuitize or we startto parse it out?
And the reason I bring that outis not to get detailed.
There's a lot of flexibility.
Speaker 1 (26:41):
Oh my gosh, yeah, yeah, yeah.
So, first of all, a payout.
Just because you own an annuitydoesn't mean that you're locked
into taking monthly payments.
When you decide to start payingit out, you can take everything
out of it in one lump sum aswell.
You can walk away and say I'mdone with the product, thanks
for playing, and walk away withyour value of the contract, or
(27:04):
you can take it monthly.
You can also, by the way,essentially move your money from
one annuity to another in amanner that doesn't really take
the money out of the annuity,and why I keep saying taking
money out of the annuity.
The moment you do, there willbe taxes owed on the money you
(27:25):
withdraw out of the annuity, andI'm just bringing that up now.
We're going to cover that in alittle while here.
But that's a consideration forthe annuity.
Is that when you do take moneyout?
What was I answering?
Speaker 2 (27:38):
What?
Why don't we read what?
Okay, so we were talking aboutthe payout phase.
Speaker 1 (27:44):
Yeah, yeah, yeah, we were talking about oh, that's
right the flexibility.
Speaker 2 (27:47):
So let's talk about the payout phase.
The reason I want to talk aboutthe payout phase is because
there's a tremendous amount ofoptionality in how you take
money out of your annuity ormove your annuity for that
matter.
Speaker 1 (28:01):
That's right, yeah, yeah, in fact, your optionality,
or options that you have for anannuity it's very similar
options as someone would befaced when electing how they
want to take their pensionbenefits, by the way.
So you can take money out ofthe annuity.
You don't have to take it outjust monthly.
You can take out the entireamount, a lump sum payout you
(28:24):
can take out monthly.
You can elect to have theincome paid to you for the rest
of your life or you can elect tohave the income paid to you for
just 10 years.
I mean, there's a ton ofoptions when it comes to
withdrawing money out of yourannuity.
Without getting to real, realspecifics here.
(28:45):
You have lots of optionality,absolutely.
Speaker 2 (28:47):
Okay, so like the Simon and Garfunkel song, 50
Ways to Leave your Lover 100%.
Yeah, you got the same thinghere.
Speaker 1 (28:55):
Same thing here.
Lots of options.
You can fit it into almost anyscenario that someone has.
I mean, here's an example.
You have an option to, let'ssay, plan for.
Maybe you have your ownbusiness and one of your two
children is working in thebusiness and they're going to
inherit the business.
You're going to transfer thatbusiness to them.
You can put money into anannuity to equalize the gift to
(29:17):
your second child and give theman income stream for the rest of
their life based off of yourinvestment in that annuity for
child two, while child one getsthe business.
So in this example, you can useannuities for all sorts of
reasons, when it comes towhether planning for your
retirement, your estate plan,transferring businesses on and
(29:39):
on and on it's an incrediblesolution to be used.
Transferring businesses on andon and on it's an incredible
solution to be used.
The big deal about annuitieswill always be the safety and
guarantee wrappers that comewith it.
So let's talk about that for asecond.
I'm going to compare andcontrast to make my point.
If I have retired and I wantincome, I have lots of options
(30:06):
for income.
I can invest in stocks that paydividends and then have those
dividends paid out to me and Iuse that cash that I'm getting
on my stocks to live on.
I can invest in bonds and takethe interest that it pays and
live on it, but in both of thosecases I have no guarantee
outside of my own managementthat I will not run out of that
(30:28):
income.
With annuities, the insurancecarrier check the small print.
But the insurance carrier willguarantee that they will pay me
this income amount for the restof my life.
If I live longer than theyexpected, they're going to lose
money on me.
If I don't live as long as theyexpect, they earn money on me
(30:50):
as an example, earn more, let'ssay, of a profit on me.
So I can remove the risk ofsomething happening with my
stocks and losing the value plusthe dividends and so forth, and
I end up consuming myinvestments.
Where annuities, I can lock inan income for the rest of my
life.
That's a huge benefit on theannuity side when we're looking
(31:15):
at that versus stocks, bonds andor in conjunction with my stock
and bond holdings.
Speaker 2 (31:21):
Do you have?
Well, this has really been agood podcast and I like this.
This has been crisp, veryconcise, and we'll probably do
other sections on annuities aswe move into season two here.
But as a historian, I have aquestion for you.
So it's a year 300 AD,constantine's in power in the
(31:44):
Roman Empire, and you're anannuity salesman.
How would you sell an annuityto the?
Speaker 1 (31:51):
Roman.
Speaker 2 (31:52):
Empire, when you use the word earn, how would you
differentiate from a wine earnthat he probably has by the
thousands?
Speaker 1 (32:00):
We'd go back to growth.
Do we Okay, accumulation Okay,or excess return on top of the
money you gave me?
So you give me $100, and in 10years I promise to pay you for
the rest of your life $5 a year.
Speaker 2 (32:14):
Oh, that's a hell of an answer.
Did you just see a cross up inthe clouds?
Speaker 1 (32:18):
No, but that was good right, yeah, that was good
Thanks.
But that was good right, yeah,that was good Thanks.
Man, that was really good.
Hey, you know what this was?
Speaker 2 (32:22):
a really good start to the second season.
Speaker 1 (32:24):
I think it was exceptional.
I think it was exceptional thisthing, I mean, all of my
answers were perfect.
They were absolutely phenomenalanswers.
Well, here's why.
Speaker 2 (32:34):
Here's why, and I'm just going to touch on this
because we will be bringing thisup more in season two.
Season two it's like ai, if theprompt isn't right yeah, true,
meaning my questions to you.
Speaker 1 (32:47):
Yeah, don't get a good answer back.
That's true.
Plus, when you, when you haveyour fishing pole with a little
lure and you cast it and youdrag it back across the house, I
keep on following it and I'mfocused.
Speaker 2 (32:58):
It's really fun to watch.
That's right all.
Speaker 1 (33:02):
All right.
Thanks a lot for listening.
We'll catch you next time.
Thanks for tuning in to anotherepisode of Bullshit on Stills.
We hope you enjoy season twoand find it as refreshingly
honest as ever, because whoneeds financial fluff when you
can have some facts?
Remember, we're here to helpyou navigate through the
financial fog and come out theother side with a clear head.
(33:26):
A big thank you to our talentedcontent creators from
bensoundcom, upbeatio andpixabaycom, who make this
journey a little bit funkier.
Special shout out to AndreRossi's Funky Street and
upbeatio for providing thegroovy theme music that's been
setting the tone for our seasontwo adventures.
(33:47):
Got a topic you want us totackle or a financial myth
you're curious about?
Drop us a text and let us knowwhat's on your mind.
Until next time, keep yourdetectors on and your sniffers
down.
Welcome to Bullshit on Stilts.
We're back for season two andlet's just say it's as popular
as a fart in a high-riseelevator.
We're still barking atfinancial fairy dust like a dog
and a mailman, and in thisseason we're serving up a fresh
batch of debunking financialsales tactics and ads you never
(00:23):
asked for, all while helping yousharpen your own bullshit
sniffers for those life-changingfinancial decisions.
So grab your favorite drink,bring your sense of humor and
don't forget your calculator.
Join us on our quest to exposethe financial shenanigans that
even your grandma would callbullshit on.
It's time to get sniffing.
Let's get after it Hi.
Speaker 2 (00:46):
Hey, how are you?
I'm good.
Good morning, what's up.
Hey, how are you?
Speaker 1 (00:50):
Did you want to tell everybody what we're going to be
talking about today?
Speaker 2 (00:54):
We are going to be talking about annuities.
Where do they come from, whatare the different types and how
may they be applicable to you?
Speaker 1 (01:02):
Indeed, that's exactly right.
And why do we want to betalking about this?
What's the impetus for ussaying, hey, let's open Season 2
with a discussion aroundannuities?
Speaker 2 (01:14):
Well, I'm still stuck on the momentous occasion of
going from Season 1 to Season 2.
Yeah, right, and I am, and Ijust want to say formally that
it's an esteem and a privilegeto be here with you, breathing
the rather inferior atmosphereof our studio.
Speaker 1 (01:34):
Inferior atmosphere.
Wow, You're already startingoff Start season two here.
So you've been gone for alittle bit, you know doing other
things I have been.
I've been gone for a little bit, you know doing other things.
Speaker 2 (01:44):
I have been, I've been on the dark side I've been
instead of this type ofunplanned, unscripted.
I've been doing a lot of workwith AI.
Yeah exactly Many, many, manyhours later, and at some point
we'll get into the AI.
Speaker 1 (02:00):
But not today, not today.
No, not today, but not today.
We're all looking forward toyou having a little bit more
intelligence with thatartificial stuff you're working
on.
Speaker 2 (02:09):
So I am excited about talking about annuities today
because, either from a tacticalor from a strategic standpoint,
for most folks I don't carewhether you've got $100,000 or
millions of dollars they mayhave an appropriate place in
your portfolio as a way to bumpreturns or to mitigate risk, and
by that I mean remove a lot ofthe volatility in your portfolio
(02:32):
.
Yet they're confusing andthat's why a lot of consumers
are a bit skeptical or wary,particularly when we get into
variable or into indexedannuities, which I know you'll
clear up today.
They do have a place andthey're becoming more and more
sophisticated and, I think, arebecoming more and more
(02:53):
appropriate for folks, and soI'm excited to get into our
conversation.
Yeah, there's a few thingsyou'd like to say before I
pepper you with some questions.
Speaker 1 (03:01):
I think that annuities have a bad rap and in
some cases maybe they earn it.
In other cases they certainlydon't deserve the rap they get.
And I think consumers,investors out there have a hard
enough time right now trying tofigure out what a stock or bond
is if you're just starting out,much less what mutual funds,
etfs and so forth are.
And then, over the fence line,there's different grass.
(03:24):
Right, is it green or probablynot?
But there's different grass.
And these are annuities.
They're insurance contractsthat you can use as an
investment for your money, togrow it, accumulate it, maybe
pay income and we'll get intoall of that.
But the point is is that theseannuities, they have every
(03:46):
reason to be part of yourthinking what should I allocate
my monies to and across?
And I think today we'llhopefully start talking about
the annuities so that youlisteners start getting a little
bit cleaner understanding ofyou know the three key types of
annuities that are out there,how they work, what's underneath
(04:06):
them, and then we'll probablyget into a little bit deeper
convo.
Speaker 2 (04:10):
Okay, so confirm or refute this.
Do you think part of the badrap is not the annuity itself,
the inherent structure of anannuity, or is it the way
they're positioned and sold,understanding that anywhere from
20% to 30% of annuities mayhave been sold with some type of
misrepresentation or omission?
Speaker 1 (04:33):
I'll take answer B for $300.
No, absolutely.
I think that they're confusing,they're complex, depending on
what kind of annuities we'retalking about.
And if you're in the game ofsales, you know if that's your
profession, you're aprofessional sales individual.
You're not out there trying togive a completely balanced
(04:57):
delivery of things you makemoney on to sell.
You're out there to reallyshare the features and benefits
that make your solutioninteresting, maybe even creating
a desire on someone's part toput money into it.
And so that means that youtypically will maybe not be as
(05:18):
clear, not as transparent, notas overt with discussing some of
the drawbacks, limitations andor constraints that come with
the annuity you're trying tosell.
Oh, by the way, depending onwhat kind of annuity we're
talking about, commissions gofrom kind of small upwards to
big.
So why are you selling theannuity?
(05:39):
You're selling over anotherannuity.
Could it be that maybe yourpaycheck might be bigger, and I
don't know the answer to that,but that's certainly part of the
conflict of interest when we'retalking about annuity.
Speaker 2 (05:52):
Well, there certainly is, and there is an inherent
complexity to it.
We have a tendency to shy awayfrom complexity, and so, as
consumers, that's why I prettymuch as you know that I pretty
much dwell in the social mediaspace as a health and beauty
influencer.
Speaker 1 (06:10):
Yes, so when it comes ?
Speaker 2 (06:12):
to complex things like annuities.
I am initially I'm wary aboutit.
Speaker 1 (06:18):
Well, the fact that you're able to handle all the
colics in your hairline well.
I mean, that's a complex issuethat you deal with every day and
it comes out looking relativelyokay.
You're doing a good job Welland I appreciate that Absolutely
.
You're welcome.
Speaker 2 (06:35):
All right, so let's talk about annuities.
We've touched on it slightly,but let's get into what would
you say, three broad categoriesof annuities.
Speaker 1 (06:45):
Yeah.
Speaker 2 (06:45):
Yeah, I think there is Okay.
So where does annuity come from?
To begin, with.
Speaker 1 (06:50):
I'm glad you asked that question because I looked
it up before we got together.
Speaker 2 (06:57):
This guy looks good.
Speaker 1 (06:58):
All right.
So annuities, like so much weget, originally from the Romans.
Way back when man, they wereusing a concept that is what we
call annuities today, and thatwas you know, give me some money
now and when you're old, I'llpay you income back when you're
(07:23):
old so that you're taken care ofPretty, pretty basic in what
they used to do.
And so this even got extendedto soldiers in the Roman army
and so forth when they wouldretire.
So it really comes from thatworld, the annuity.
Speaker 2 (07:38):
Huh, does Barclays derive from the barbarians?
It could.
It does.
Speaker 1 (07:45):
I like that.
Speaker 2 (07:46):
Yeah, I'm just wondering you know how words
kind of morph.
Speaker 1 (07:49):
So your answer asking me questions that you already
know.
No, I'm just asking.
Speaker 2 (07:54):
For example the word hypocrite actually the
derivation of that means mask,yes Theater.
Speaker 1 (08:02):
Interesting Ancient Greek yes Theater Interesting.
Speaker 2 (08:04):
Ancient Greek, yeah, greek theater.
In Latin the annuity comes fromLatin, which means just annual
or yearly.
Speaker 1 (08:14):
Annual payments?
Yep, annual payments orsomething.
Speaker 2 (08:16):
Yeah, that's exactly right, that's exactly right, so
they've been around for a longtime.
Speaker 1 (08:20):
Concept's been around for a long time it's basically
like Wimpy from Popeyes.
Remember Wimpy that wouldalways borrow a dollar on Friday
and gladly pay you back onTuesday.
That's sort of the annuity.
Give me money now and down theroad.
What did he?
Speaker 2 (08:34):
say precisely Do you remember?
Speaker 1 (08:36):
Yeah, if you can spare a dollar today, I'll pay
you back Tuesday, wasn't it no?
Speaker 2 (08:45):
I'll gladly pay you Tuesday for a hamburger today.
Speaker 1 (08:53):
I'm loving it.
Oh, that's what it was.
I'm all hosed up, aren't I?
Speaker 2 (08:59):
So should I disregard everything from a credibility
standpoint?
Speaker 1 (09:02):
I might as well wrap it up, Go ahead and take over
buddy All righty.
But really that's all it is.
You either pay a lump sum moneyor periodic payments, like
every month, every year,whatever and the idea is that
down the road let's talk aboutretirement I have the option to
(09:24):
start receiving money back frommy annuity for the rest of my
life.
Speaker 2 (09:30):
As an example, Okay, three types of annuity.
What are they, kelly?
Speaker 1 (09:34):
There's a fixed annuity, there's a variable
annuity and then the relativelynew comer.
The indexed annuity is thethird type, and then the
relatively newcomer, the indexedannuity is the third type.
Speaker 2 (09:44):
So how would you characterize the fixed annuity
and then do a comparative onceyou go through the fixed and the
variable?
Speaker 1 (09:50):
Okay, so comparative.
So the fixed annuity is a veryconservative product.
So the fixed has something todo with this.
The fixed has something to dowith this.
The fixed has something to dowith it.
You are guaranteed some rate ofreturn, a fixed rate of return
over the time frame you own yourannuity.
(10:14):
So if it's a three-year annuityas an example, you can find a
three-year annuity thatguarantees you, in this example,
I'll pay you 5% interest everyyear for the next three years.
So that's very conservative.
The variable annuity I alwaysthink of it very similar to an
employer's 401k plan.
(10:35):
I put money into my annuity, Icontribute money in, I pay my
premiums into my annuity andthose dollars are invested in
investment funds think mutualfunds of my choosing.
So I can put it in stocks,bonds, I can put it in real
estate, all sorts of investmentfunds underneath the variable
(10:55):
annuity.
And that then means that thevariable annuity is typically
designed for growth over a longtime frame, just like your 401k.
And just like your 401k, thevalue of what your annuity has
inside it the contract value, asthey call it that will go up
and down based on yourinvestment performance of the
(11:19):
investment funds you ownunderneath that variable annuity
contract itself All right.
Speaker 2 (11:25):
So it has a lot of the generic structural
components of a 401k.
Yes, Maybe, are there downsidesto that, outside of perhaps
higher fees?
Speaker 1 (11:38):
Yeah.
So with the variable annuity,there's always pros and cons to
every one of these things, right.
So with the variable annuity,there's always pros and cons to
every one of these things, right.
So in the variable side, thebig con almost always is going
to be the cost of that contract.
You can see contracts that arein excess of 2.5%, 3%.
If you add all the bells andwhistles and think of it like
(12:04):
back in the 80s we would buy acar and we got to add things to
that car, kind of customize it.
I want the cd player and theleather seats, but I don't want
this nowadays when you buy a carit's all included.
That's a good analogy you get atrim line, and that trim line
means you get all of this plusthe leather seats.
Well, I don't want all theother channels, but you're going
to get it.
You're going to get the powerwindows, you're going to get the
.
You know.
So, when it comes to thevariable annuity or any annuity,
(12:25):
you typically have options toadd on features, benefits and or
, let's call it, protection withregard to that annuity and that
product.
And the variable annuities, uh,probably come with some of them
, the, the highest number offeatures that you can add to
that contract, called riders.
Speaker 2 (12:46):
So there are riders.
So when we talk about thefeatures or the options that
used to be on cars, probably allthe way up to curb feelers, is
there anything like a curbfeeler option or rider for
insurance?
Speaker 1 (13:01):
that's there, yet it's for a very, very unique
group of people um, I think youwant me to introduce the indexed
, the fixed indexed annuity.
Is that where?
Speaker 2 (13:15):
we're going.
Speaker 1 (13:15):
Okay, good, thank you where we're going all right, I
couldn't figure out your bodylanguage, that, uh, that
semaphore with those flags thatyou were following.
Speaker 2 (13:23):
Like an A-B guy.
Speaker 1 (13:24):
It's just my vertigo.
Okay, okay, so yeah, the fixedindex annuity is sort of the
tweener.
It's not a fixed annuitymeaning you might be able to get
a higher return.
The opportunity for higherreturn exists with the fixed
indexed annuity if I compare itto the fixed annuity.
With regards to comparing theindexed annuity to the variable
(13:47):
annuity we mentioned, in thevariable you go up and down.
It's a roller coaster dependingon how you invest your premium
dollars in the investment funds.
Right, with the indexed annuityit's really kind of cool.
You get to, you get to haveyour nudie accumulate value grow
over time by following a stockindex, and I'm making this very
(14:12):
simple.
Okay, thank you.
So you get to select.
I'm going to follow or monitorthe S and P 500 index and so at
the start of my purchase, myfirst month of owning it starts
my 12,.
My one year term, 12 month term.
I'm going to follow that S&P.
I'm going to watch it go up anddown, up and down, up and down,
(14:34):
and the only thing I care aboutis, at the end of the 12 months
, did the S&P index and higherthan it started?
Was the end value higher thanit was when it began?
If the answer is yes.
My indexed annuity earns money,it grows, it accumulates in
(14:55):
value.
The catch is, if the index wereto drop and have a negative
return, like in 2008 as anexample, well, guess what?
I don't get anything.
I get zero, meaning that thevalue of my annuity doesn't drop
as a result of investmentperformance.
(15:16):
It simply gives me a zeropercent return.
So I don't go forward two steps, one step back, like I do with
my 401k plan.
That's a really cool feature.
As a result that indexedannuity is not going to give you
the same performance as avariable when you're invested in
(15:37):
investment funds going up anddown.
But unlike the variable annuitythat could lose 10, 20, 30% of
its contract value due tonegative investment returns, the
index annuity, no matter whatthe S&P did, if it turns in a
negative, will give you exactly0% return.
(16:00):
You don't lose a dollar in yourindexed annuity due to
investment market performance.
That's cool.
Speaker 2 (16:09):
That's real cool and at some point I'd like to have a
sidebar discussion with you.
You mentioned that your 401kgoes two steps forward and one
step back, I think, in themarket that we've been
experiencing over the last 10years.
I think we need to have adiscussion about that, Sure sure
That'd be a fun discussion.
Speaker 1 (16:28):
Yeah, it's.
It's just part of right.
When you invest money, as weboth know and we've done it to a
lot of money the markets giveand they take away, and one of
the big things that people tryto help investors understand is
what's the recipe for your moneyto be invested that kind of
(16:50):
meets your needs withoutexposing you to too much of the
market damage when it occurs.
But you can't get away from itall if you're invested.
It's just not something thatyou can repeatedly do over 20,
30 years of investing.
Speaker 2 (17:09):
What I'd like also to do at some point is drill down
deeper into the indexed annuity,and you haven't done that.
That's because I've taken awayyour calculator.
Speaker 1 (17:21):
And my slide rulers.
Speaker 2 (17:22):
Yeah, I took away that and I got rid of Excel off
of your computer before youfired it up today.
That sucks, man.
So I took everything away fromyou.
But I think that would bepretty interesting to just kind
of see the math and theprobability and the risk
management of that.
Maybe we could do that for 10minutes or so.
Speaker 1 (17:40):
I think it'd be pretty cool, yeah, In fact, you
remember we did that studyaround index products, adding
two stock and bond portfolios,and what the result was and this
is all academic right but whatthe math basically showed us was
there's benefits when you havea measured approach and you
(18:04):
include an index product couldbe index universal life, could
be an index annuity but thebenefit comes from a key
component, which is no downsiderisk to market volatility to
negative, I should say marketvolatility.
That's huge, because all we'redoing when we're asset
(18:25):
allocating in a portfolio, we'retrying to squeeze out excess
risk, known as volatility, andmaximize at that level of risk
our opportunity for return.
That's all we're doing.
Now we have an asset that mighttake all of the negative
downside risk away and replaceit with zero.
(18:46):
That doesn't suck for that andwe'll probably talk about this.
But you don't get all theupside like you would if you
were fully invested, like in thevariable annuity or in the 401k
plan.
If you have a stock portfolioand the market's up 30% this
year, guess what?
Your stock portfolio isprobably going to be up around
30%.
However, with an indexedannuity, zeroes, as they say the
(19:10):
sales guys right, Zeroes, yourhero.
Well, because you got nodownside, I'm not going to allow
you to enjoy 100% of that stockmarket upside, so maybe I'm
going to limit the amount youcan earn on that index product
to, in this example, 14%.
So the market did 30, you get14 because you were exposed to
(19:32):
the same stock market but youalso had a zero downside risk on
that year, so you're not goingto get the whole 30.
We'll cap you at 14% on yourannuity 100 grand.
All of a sudden, when thatcredit comes in, your annuity is
now worth 114,000.
Pretty sexy.
Speaker 2 (19:49):
Yeah, that is real sexy and I think it has its own
segment coming up here.
Speaker 1 (19:53):
So we've talked about the fixed.
Speaker 2 (19:54):
We've talked about variable.
We've talked about the index.
To some degree you explainedwhat maybe they're investing in.
So could you just kind of recap, not just so much the structure
of the index to the index, butwhat kind of stuff are you
investing in or can you investin Based on the annuity?
Yeah, the underlying portfoliosare composed of what?
Speaker 1 (20:16):
Yeah.
So I sort of think of this areal quick analogy, and then
I'll answer your questiondirectly.
I think of the annuities ashaving different kinds of
engines for growth oraccumulation, like cars have
different kinds of engines.
So today we have cars that takegas, we have cars that take
(20:37):
diesel, we have cars that arehybrid and we have cars that are
electric.
Right, so let's just focus ongas, hybrid and electric.
Okay, when it comes to the fixedannuity, basically what's
backing that is the bondportfolio?
Almost exclusively yourpremiums that get paid into that
(21:01):
annuity are turned around andinvested into high quality bonds
, maybe some other stuff, butmostly bonds to back up their
promise that they'll pay you inmy earlier example, 5% per year
for the next three years.
That's what it is.
It's very old school, verystable and quite, quite safe.
(21:21):
Another way of thinking of itis, if I'm thinking of putting
money into cash and I have agoal in the next three or five
years, one of my options iscertificates of deposit from a
bank or a high yield savingsaccount, maybe even short term
high quality bonds as well as afixed annuity Very similar when
(21:43):
we go to the variable annuity,that engine in that is far more
of a hybrid, and why I mean ahybrid is that you have the
ability to invest money intostock funds, which are more
volatile and have an opportunityfor more growth, but you also
can invest in bond related fundsthat are more stable.
(22:05):
So it depends on how youallocate as to what kind of you
know engine.
What, what's propelling thegrowth of that annuity?
Is it the electric part of theengine or is the gas part?
And in this example, gas isstocks electric is your all
right?
Lastly, you have that indexedannuity, or fixed indexed
(22:25):
annuity.
What's backing that engine?
Think of it as an electric.
You're not really investingyour money in the stock market.
You're simply declaring I'mgoing to watch the S&P 500.
And at the beginning of my yearthe S&P reading was 1,000.
And at the end of my 12 monthsthe S&P's reading is now 1,200.
(22:51):
It's a 200-point change.
That's a 20% increase and, as aresult, my indexed annuity is
going to receive growth.
Accumulation of positive creditin the contract up to whatever
the cap is on that indexparticipation rate.
(23:11):
Does that make sense?
It's complicated?
Speaker 2 (23:14):
Yeah, it is complicated and it does make
sense.
It hurts a little bit.
Speaker 1 (23:20):
And I didn't even show you a spreadsheet dude.
I didn't show you a spreadsheetdude I didn't show you a
spreadsheet.
Speaker 2 (23:24):
I promise, if we were to drill down into this, it
does get a little bit.
There are aha moments.
I get this enough to where Imight consider instead of
rejecting it out of hand.
There you go.
So let's move from that overinto the different phases of an
annuity.
Okay, and I'll tee this up byobviously you've got the premium
(23:46):
phase.
Yeah, you have an accumulationwhich may be a determinant as to
what type of annuity you have,as to how long that accumulation
phase may be.
And then we have the payoutphase.
Run through those, kelly, shutup and sit down.
Speaker 1 (24:00):
So really, in layman's term, you invest your
money phase one, you grow yourmoney phase two Okay and you
take your money out of theannuity phase three All right.
So that wraps up Right.
So let's talk about that realquick.
So you typically can put moneyinto an annuity.
(24:23):
It's either a lump sum one bigbucket goes in or what they call
periodically, so it could be amonthly thing that you have $100
.
Speaker 2 (24:32):
Are there terms for those?
Speaker 1 (24:35):
There don't have to be terms.
Speaker 2 (24:36):
No, I meant are there terms that say that one might
be a single pay or a lump sum.
Yes, yes absolutely.
Speaker 1 (24:43):
In fact, some annuities that exist only will
take a lump sum payment.
So you go lump sum or aperiodic payment into the
annuity that's your money inDuring the time frame up until
the point where you say I wantto take money out of my annuity.
That's essentially what theyterm accumulation phase.
(25:03):
And remember, this is aninsurance contract so they can't
necessarily use the same termof investment growth, so they
use accumulation.
Okay, if I'm a 25-year-old and Igot an inheritance or my trust
fund released and I got $50,000and I just want to put it into
something, I could theoreticallyput a lump sum payment of 50
(25:23):
grand into an annuity and nottouch that annuity for the next
40 years until I'm 65.
That would be my accumulationphase in this example 40 years
of growing and accumulating,getting credits or whatever, and
at 65, I could then say youknow what?
I want my annuity to pay meincome now going forward until I
(25:47):
die, and I want that payment tocome out every month.
I want the check sent to myhouse in the form of a paper
check, because I like going tothe bank and I can do all of
that.
And that just gives you a senseof what those different phases
are.
That makes sense.
Speaker 2 (26:04):
That does make sense, you sure yeah, no, that makes
perfect sense to me yourfurrowed eyebrows are like no I
just uh, the producer didn'tmute mute phones and I'm a bit
upset by that that's okay,that's all right.
Speaker 1 (26:16):
Assistant producer, that's.
It's the associate.
Yeah, yeah.
So the intern, that's right,all right.
Speaker 2 (26:25):
So then we have what we've got payout Yep
Accumulation phase, the payoutwhat factors might affect
whether we annuitize or we startto parse it out?
And the reason I bring that outis not to get detailed.
There's a lot of flexibility.
Speaker 1 (26:41):
Oh my gosh, yeah, yeah, yeah.
So, first of all, a payout.
Just because you own an annuitydoesn't mean that you're locked
into taking monthly payments.
When you decide to start payingit out, you can take everything
out of it in one lump sum aswell.
You can walk away and say I'mdone with the product, thanks
for playing, and walk away withyour value of the contract, or
(27:04):
you can take it monthly.
You can also, by the way,essentially move your money from
one annuity to another in amanner that doesn't really take
the money out of the annuity,and why I keep saying taking
money out of the annuity.
The moment you do, there willbe taxes owed on the money you
(27:25):
withdraw out of the annuity, andI'm just bringing that up now.
We're going to cover that in alittle while here.
But that's a consideration forthe annuity.
Is that when you do take moneyout?
What was I answering?
Speaker 2 (27:38):
What?
Why don't we read what?
Okay, so we were talking aboutthe payout phase.
Speaker 1 (27:44):
Yeah, yeah, yeah, we were talking about oh, that's
right the flexibility.
Speaker 2 (27:47):
So let's talk about the payout phase.
The reason I want to talk aboutthe payout phase is because
there's a tremendous amount ofoptionality in how you take
money out of your annuity ormove your annuity for that
matter.
Speaker 1 (28:01):
That's right, yeah, yeah, in fact, your optionality,
or options that you have for anannuity it's very similar
options as someone would befaced when electing how they
want to take their pensionbenefits, by the way.
So you can take money out ofthe annuity.
You don't have to take it outjust monthly.
You can take out the entireamount, a lump sum payout you
(28:24):
can take out monthly.
You can elect to have theincome paid to you for the rest
of your life or you can elect tohave the income paid to you for
just 10 years.
I mean, there's a ton ofoptions when it comes to
withdrawing money out of yourannuity.
Without getting to real, realspecifics here.
(28:45):
You have lots of optionality,absolutely.
Speaker 2 (28:47):
Okay, so like the Simon and Garfunkel song, 50
Ways to Leave your Lover 100%.
Yeah, you got the same thinghere.
Speaker 1 (28:55):
Same thing here.
Lots of options.
You can fit it into almost anyscenario that someone has.
I mean, here's an example.
You have an option to, let'ssay, plan for.
Maybe you have your ownbusiness and one of your two
children is working in thebusiness and they're going to
inherit the business.
You're going to transfer thatbusiness to them.
You can put money into anannuity to equalize the gift to
(29:17):
your second child and give theman income stream for the rest of
their life based off of yourinvestment in that annuity for
child two, while child one getsthe business.
So in this example, you can useannuities for all sorts of
reasons, when it comes towhether planning for your
retirement, your estate plan,transferring businesses on and
(29:39):
on and on it's an incrediblesolution to be used.
Transferring businesses on andon and on it's an incredible
solution to be used.
The big deal about annuitieswill always be the safety and
guarantee wrappers that comewith it.
So let's talk about that for asecond.
I'm going to compare andcontrast to make my point.
If I have retired and I wantincome, I have lots of options
(30:06):
for income.
I can invest in stocks that paydividends and then have those
dividends paid out to me and Iuse that cash that I'm getting
on my stocks to live on.
I can invest in bonds and takethe interest that it pays and
live on it, but in both of thosecases I have no guarantee
outside of my own managementthat I will not run out of that
(30:28):
income.
With annuities, the insurancecarrier check the small print.
But the insurance carrier willguarantee that they will pay me
this income amount for the restof my life.
If I live longer than theyexpected, they're going to lose
money on me.
If I don't live as long as theyexpect, they earn money on me
(30:50):
as an example, earn more, let'ssay, of a profit on me.
So I can remove the risk ofsomething happening with my
stocks and losing the value plusthe dividends and so forth, and
I end up consuming myinvestments.
Where annuities, I can lock inan income for the rest of my
life.
That's a huge benefit on theannuity side when we're looking
(31:15):
at that versus stocks, bonds andor in conjunction with my stock
and bond holdings.
Speaker 2 (31:21):
Do you have?
Well, this has really been agood podcast and I like this.
This has been crisp, veryconcise, and we'll probably do
other sections on annuities aswe move into season two here.
But as a historian, I have aquestion for you.
So it's a year 300 AD,constantine's in power in the
(31:44):
Roman Empire, and you're anannuity salesman.
How would you sell an annuityto the?
Speaker 1 (31:51):
Roman.
Speaker 2 (31:52):
Empire, when you use the word earn, how would you
differentiate from a wine earnthat he probably has by the
thousands?
Speaker 1 (32:00):
We'd go back to growth.
Do we Okay, accumulation Okay,or excess return on top of the
money you gave me?
So you give me $100, and in 10years I promise to pay you for
the rest of your life $5 a year.
Speaker 2 (32:14):
Oh, that's a hell of an answer.
Did you just see a cross up inthe clouds?
Speaker 1 (32:18):
No, but that was good right, yeah, that was good
Thanks.
But that was good right, yeah,that was good Thanks.
Man, that was really good.
Hey, you know what this was?
Speaker 2 (32:22):
a really good start to the second season.
Speaker 1 (32:24):
I think it was exceptional.
I think it was exceptional thisthing, I mean, all of my
answers were perfect.
They were absolutely phenomenalanswers.
Well, here's why.
Speaker 2 (32:34):
Here's why, and I'm just going to touch on this
because we will be bringing thisup more in season two.
Season two it's like ai, if theprompt isn't right yeah, true,
meaning my questions to you.
Speaker 1 (32:47):
Yeah, don't get a good answer back.
That's true.
Plus, when you, when you haveyour fishing pole with a little
lure and you cast it and youdrag it back across the house, I
keep on following it and I'mfocused.
Speaker 2 (32:58):
It's really fun to watch.
That's right all.
Speaker 1 (33:02):
All right.
Thanks a lot for listening.
We'll catch you next time.
Thanks for tuning in to anotherepisode of Bullshit on Stills.
We hope you enjoy season twoand find it as refreshingly
honest as ever, because whoneeds financial fluff when you
can have some facts?
Remember, we're here to helpyou navigate through the
financial fog and come out theother side with a clear head.
(33:26):
A big thank you to our talentedcontent creators from
bensoundcom, upbeatio andpixabaycom, who make this
journey a little bit funkier.
Special shout out to AndreRossi's Funky Street and
upbeatio for providing thegroovy theme music that's been
setting the tone for our seasontwo adventures.
(33:47):
Got a topic you want us totackle or a financial myth
you're curious about?
Drop us a text and let us knowwhat's on your mind.
Until next time, keep yourdetectors on and your sniffers
down.
Popular Podcasts
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.