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Tax Saving Income Tips

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As we approach an almost insurmountable debt load likely increases in tax is may be inevitable, we thought it may be a good opportunity to share some useful tax saving tips and strategies. Annuities can work very well for some portions of this strategy.

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Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.

Video Transcription

A financial strategy in place that will protect the fruit of your hard work

When you finally retire, it is important to have a financial strategy in place that will protect the fruit of your hard work and make sure that you get the most out of your golden years. One of the most critical parts of your financial plan is how you will draw money from your retirement accounts.

Conventional wisdom says it is best to begin spending your taxable accounts first, so that your tax deferred and tax free retirement accounts have more time to grow. But in the new economy, with lower interest rates and smaller nest eggs, there is a better strategy. By tapping all of your accounts simultaneously and by deferring your Social Security, you can reduce the tax bracket you are in and keep Uncle Sam’s hands off a significant amount of your money. In fact, it is possible to use the Tax Code to make your portfolio last up to seven years longer.

To demonstrate this strategy, consider a couple who decide to retire at 62 with $1 million in assets. These assets consist of $700,000 in a regular IRA and $300,000 in a taxable account. The first step is for them to put off claiming Social Security. This will increase their future benefits and reduce the amount of those benefits that will be subject to tax.

Next, the couple should withdraw about $70,000 annually from the taxable account for living expenses. This will allow them to stay in the low end of the federal income tax bracket of 15%, and, at this rate, the account will support them for about 4 years. Each year they should take advantage of the low tax bracket and also withdraw $70,000 from their tax deferred IRA and convert it to a Roth IRA. There, the money will be able to grow, tax free. Finally, after four years, as the taxable account reaches its end, the couple should begin taking Social Security.

But what has this approach accomplished? Because they are now 66 years old, they will qualify for a combined $44,000 in Social Security, which is 33% more than they would have received at 62. The formula that determines how much of an individual’s Social Security is taxable counts only half of the person’s Social Security income. So, in contrast with a regular IRA, you can receive twice as much Social Security income before you ever trigger a tax on your benefits.

Finally, because money has been moved from a tax deferred IRA to a tax free Roth IRA, when distributions begin, the taxable income that they create will be lower. The withdrawals from the Roth account can supplement income in years in which tapping other accounts would push them into a higher tax bracket.

Given the present financial environment, it is especially important to use the tax code wisely. With a little planning, it is possible to save large amounts of money and protect what you have earned.

If the fog is lifting and you want to know more, simply click the link on your screen.

Is an Old Variable Annuity Better than a New Hybrid?

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“Don’t buy an annuity! The **guarantees they offer are often unnecessary and costly.” – has turned into “that annuity sure saved you from the market meltdown!”; and “you’d better hang on to it!”

So, can today’s annuity buyer expect the same performance from an annuity they could have purchased a few years back? Eric and Dick discuss the variable annuities  of yesteryear and how they compare to the hybrid annuities and variable annuities# of today.

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**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

A New Twist on Variable Annuities

Variable annuities draw fierce debate from both advocates and skeptics alike. But whether you like the **guaranteed benefits that they offer or think that they cost too much for the protection they provide, one thing is clear: Those who bought variable annuities# with **guarantee provisions five years ago got a screaming deal.

Plunging markets showed off the best attributes of variable annuities# with **guarantee provisions. Now, Hartford Financial is making an interesting offer to some of its variable annuity# holders: It’s trying to buy them out.

The pros and cons of variable annuities#

The reason financial experts on both sides of the variable annuity# debate have such strong reactions to the products is that they offer an unusual set of reward characteristics. On one hand, variable annuities# often give policyholders upside potential similar to that of mutual fund^s, ETFs, or other pooled investments. Yet the insurance aspect of annuities adds the ability to provide additional **guarantees, which regular mutual fund^s and ETFs can’t do. The view that opponents take, on the other hand, is that these **guarantees are often unnecessary and are usually costly. With annual expense ratios for variable annuities# typically well above what a similar mutual fund^ or ETF would charge, the **guarantees they offer definitely come with a cost — and under ordinary market conditions, the cost often exceeds the benefit.

How the market meltdown hurt insurers Over the past several years, though, market conditions have been anything but normal. A more than 50% plunge in the stock market from late 2007 to the market’s bottom in early 2009. [Read More…]

 by Dan Caplinger of Fool.com on November 15, 2012

Annuity Guys® Video Transcript:

Dick: We have a real twist on things, Eric. The same folks that we’re advising everyone not to buy a variable annuity#, we don’t get into the variable annuity# as much as we do the hybrid annuity, but a lot of the folks that were talking bad stuff about the variable annuity# . . .

Eric: Saying nasty things about buying a variable?

Dick: We’re seeing this change of events. Were the **guarantees were so good in the variable annuities# of yesteryear, that nowadays, the same guys that were basically saying, “Don’t buy those. They’re just paying high commissions to insurance agents,” are now basically saying, “If you’ve got one of those variable annuities#, do not let it go.”

Eric: The **guarantees you’ve got there, nobody can beat that. I don’t know how you did that. It’s interesting, because we say . . . In the fund thing in this article, they talked about, “The **guarantees were often unnecessary and costly.” Guess what, it’s **guarantees. Why is it you’re . . .

Dick: They’re not unnecessary when they’re necessary.

Eric: They weren’t costly when they saved your butt.

Dick: Exactly, when it became a great deal. That’s where we always say that hindsight’s 20/20. All the experts seem to agree, and then find out later that they’re wrong.

Eric: That’s where when we talk about annuity, you talk about the **guarantees. If you can live with the minimum **guarantee, you know exactly what you’re going to get, and you’re happy with that, anything beyond that is icing.

Dick: Right. I personally, Eric, have talked to several folks that have called in and described their variable annuity# to me. They’ve said, “It’s got a 6% death benefit. It’s got a 6% withdrawal rate that I’m taking out. I’ll get my principle back. I can take 6% out.”

Eric: We can’t get those right now.

Dick: Yeah. We tell those people typically, “Unless there’s some great extenuating circumstances, don’t give that up.” That is a very good **guarantee, and they don’t do that anymore.

Eric: Right. Some of them . . . if you bought it when the market was going gangbusters, and you had that annual lock-in or those ratchets, so it locked in at that high watermark . . .

Dick: Right. You’re working off of that now.

Eric: Then ‘shh’.

Dick: Yeah, going up from there.

Eric: Everything else going down. Now it keeps building off of that.

Dick: Yes. The variable annuity# companies, they looked at past performance. They did their actuarial studies, and they said, “Based on this, we can offer these contractual **guarantees.” What do they tell us about past performance?

Eric: Never predict future performance. Never **guarantee future performance based on the past.

Dick: Exactly. Here they are caught in their own dilemma of future performance not matching past performance, so they’re all scaling back.

Eric: We should make the point that these companies that are trying to buy out of their **guarantees, it’s not at risk to the consumer.

Dick: True.

Eric: What these companies are trying to do, they’re just trying to become more profitable, because they have to dedicate a whole lot more assets reserving for those **guarantees. They can take those dollars and use them in more profitable divisions, typically, property casually and those other areas. Those are the companies that are saying, “We can make more money by putting our dollars someplace else.” Your annuities, if you’re in one of those companies that is looking at maybe buying you out . . .

Dick: Think twice.

Eric: First of all, I don’t know if it’s a great option to buy it out. You have to weigh that very carefully, as well.

Dick: Get with an adviser that can really look at it closely and say, “This is a good one. Keep it.” That doesn’t mean that all of the older annuities are good.

Eric: Right. There’s some bad ones.

Dick: Yes, there are. Yet, if you’re looking for a new annuity, there are newer annuities, and this is where we get back into the hybrid or the fixed, because they weren’t investing in the stock market or riskier investments. They’re putting the money from those annuities into bonds and very high-grade investments, US treasuries, so they weren’t hit with the same things that variable annuity# companies have been, and their contractual **guarantees are, in many case, equal to or better than what some of the past variable annuity# **guarantees were.

Eric: Those are really the new style that we like, that typically took some of those best components from those old variables, those income riders and those income **guarantees, and then added those to a fixed component. That’s where we see a lot of the move in today, where if you’re looking at an annuity today, those fixed or hybrid annuities with indexing components to get better returns.

Dick: They give you those contractual **guarantees that the old variable annuities# gave us. I guess, nobody really knows the future, but I’m going to go out on a limb here and predict something. It’s like when we look at ourselves in a mirror, Eric; we are all guilty of it. We look back 2 or 3 years ago and we go, “Wow. I was a lot thinner then. I was a lot younger then. I wish I could go back to that.” I predict that if things continue on with the type of economy and headwinds we’ve had, that we’ll look back at today’s annuities and we’ll go, “Wow. What if I would have got that setup then?” It’s that way each year that goes along, as long as there are some good contractual **guarantees. If we can lock into those and we’re satisfied with those, a lot of times later on, we can look back and go, “Wow. That was a good move.”

Eric: Yeah, I agree. It’s being satisfied with the **guarantee, as long as that . . . Are you going to answer the question? Are the old ones better than the new ones?

Dick: Many times, we end with a statement that basically says, ‘It’s depends’, and it does depend. You really do have to look at it and determine it. Most the time on an older variable annuity#, going back maybe 3 or 4 years, where that annuity had some good riders on it, there’s a pretty good chance that you don’t want to give that annuity up. On the other hand, if we’re looking at some of these newer annuities, and maybe yours was quite a bit older or you didn’t get the riders on it . . .

Eric: Don’t have the **guarantee.

Dick: Right. Or you just can’t live with the idea that your principle’s at risk and it can go backwards, there can be some reasons to change up to a newer annuity.

Eric: In hindsight, basically, or in retrospect, some of the old ones are good and some of the new ones are good; some of the old ones are bad and some of the new ones are bad. You had it, we summarized it.

Dick: That’s right.

Eric: Thanks for checking us out today.

Dick: Thank you.

Is it Unfair to Compare Annuities to Investments

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Is comparing annuities to investment choices a mistake? A recent Market Watch article stated that was just one of the three major errors made by both financial professionals and consumers when evaluating annuities.

Eric and Dick examine comparing annuities to investments in this weeks video review.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Three annuity mistakes to avoid

What not to do when evaluating annuities for retirement

By Andrea Coombes

If you’re comparing annuities to other investment products, you’re making a classic mistake—and it’s just one of three major errors that consumers and financial experts make when evaluating annuities, according to a panel of experts at a recent MarketWatch Retirement Adviser event in New York that focused on income strategies.

“Both immediate and deferred annuities have been shown to have a very positive role in an overall retirement-income strategy, but the deployment of these instruments is often hampered by some very fundamental misunderstandings,” said John Olsen, president of Olsen Financial Group, and author of a number of books on annuities, including “Index Annuities: A Suitable Approach.”
The panel, moderated by MarketWatch senior columnist Robert Powell, also featured Farrell Dolan, principal with Farrell Dolan Associates, and David Blanchett, head of retirement research at Morningstar Investment Management.
Mistake No. 1: Unfair comparisons

One such misunderstanding—and it’s often made by financial experts, Olsen said—is to assess the value of a variable deferred annuity as though all of its costs “are nothing but pure overhead.” That can lead consumers to view such annuities as unreasonably expensive. [Read More…]

Annuity Guys® Video Transcript:

Eric: Today we are going to talk about whether it is unfair or fair to compare annuities to investments.

Dick: Eric, I think that it’s the hardest thing in the world for all of us to stay off of comparing annuities to investments, and I think it is unrealistic to think that we would do any comparison; however, I think that’s where we get in trouble.

Eric: It’s the expectations game. So often when people come to us, they’ve been conditioned to talk about return, whether it be from a mutual fund^, savings account, whatever. Everything’s about return. What’s the return?

Dick: They spent their whole life accumulating this money so their focus has always been on that.

Eric: They are trying to figure out how can I get the biggest return rather than mitigating the risk necessarily with an annuity to get the biggest return in dollars, rather than return in rate.

Dick: What inspired us this week, reading this article by Andrea Combs that really gets into some of the things that we talk about on a regular basis; and that is why do we buy? Why do we choose annuities? There’s contractual **guarantees, there is cash flow, and that is what she really gets into, that there’s this transition that we go through that cash flow becomes king. Longevity of knowing that we’ve got money, no matter how long we live, and there is a third aspect which is maybe a little bit more parallel to investment, that is where you require secure level of growth, contractual **guarantees.

Eric: I like the idea of just saying it transfers the risk from me, as the investor or individual, to the insurance company. They are going to take care of doling out my allowance each month, hopefully, and that’s the income stream that I have confidence in. They’re insuring my future income stream, is how I look at it.

Dick: Past wisdom from the investment world has been that if we draw our portfolio down by a certain level, say 4%, 4½, 3½%, everybody’s got their own view of it, that somehow we can continue to do that and be invested. The last decade has shown us that that really can’t be relied upon.

Eric: In an era of 5% CDs, it’s easy to say, “I can pull of my 5% and never touch my principle.” If you looked today, if you can find a 5% CD . . .

Dick: It’s not there.

Eric: I could sell a few of those, if I could find a 5% CD. That world no longer exists, that safety, security aspect of getting those returns, necessarily. This is where if you need those returns that are a larger withdrawal than just pulling out your principle, and a lot of people do today, this is where annuity comes into play.

Dick: I was just going to say, again, talking about not being focused on the return. Unfortunately so many times folks, annuities are sold based on comparing them to investments, and especially the indexed annuity or the hybrid annuity where it’s stated that you’ve got upside potential to a downside risk; there is truth to that. The upside potential is pretty minimal, and the idea that it has outperformed certain investments, certain indexes, S&P 500 over certain time periods in history, it was ever intended to do that.

Eric: It’s not what they’re geared for. We’ve talked about it in the previous videos, in order for you to be happy, you look at the **guarantees. If you can be happy with what the **guarantees are offered through an annuity, then anything that you get above that . . .

Dick: It’s a pleasant surprise. It’s good news. You’ll never be surprised by an annuity by it going the wrong way. I have to qualify that a little bit. We’re talking more about fixed annuities here and not as much about variable annuity#. Because a variable annuity# is an investment, and yet, it does have some **guarantees.

Eric: It can have some **guarantees.

Dick: It can have, so there is some aspect about that that you have to say, “Maybe for some people, a variable annuity# may fit,” but again that’s a whole different discussion.

Eric: Sure. In her last point, she talks about annuitization, which is a really interesting aspect. We’ve talked a lot about hybrid annuities and the fact that you don’t have to annuitize necessarily, to get the same benefit that you would from annuitization. Her focus is on the stream that’s provided from an annuity.

Dick: For all practical purposes, we’ll just assume that her annuitization would also mean turning on income for life; a different terminology. We do find that with clients that . . . what would I call it, Eric? The depression mentality, where we can live off less so we’re going to, and yet, they’ve set this annuity up so that we can turn it on and turn on this income at a certain point of time and relax, enjoy what we have, and know we will never outlive our money. Yet we have these clients who have a tendency to hold back from that.

Eric: I think nobody wants to give up their principle. You worked hard and earned these dollars, nobody likes the idea of just . . .

Dick: Spending it.

Eric: You give it all to the insurance company and you get that allowance. That’s what really annuitization really is; it protects you on the income side. The income rider on these hybrid annuities does something very similar in a sense: Guaranteed income for life, but still allows you to get access. If anything is leftover, that can go on to your heirs. That’s, I think, the aspect about that type of annuity that’s really popular.

Dick: I think it helps people who wouldn’t normally annuitize to go ahead and take their income stream, because they know that they still have some access to the account value.

Eric: I think it’s really one of the things that we are finding really attractive right now because it does allow that flexibility. For people that are used to this return mentality that we’ve talked about, they still have that opportunity to hold on to those dollars a little bit. Not necessarily get the best return, but to get that income stream, have that safety/security.

Dick: Eric, when we talk about comparing annuities to investments, what’s the balance?

Eric: You have to look at the diversification. For me, when you’re looking at those two things, you have to look at protecting the foundation, and that’s where an annuity comes in. After that, hopefully investments can play a part in controlling for inflation and being out there.

Dick: Maybe a healthy way to compare annuities to investments would be in your own portfolio, in terms of what proportion of your portfolio do you want in security and safety for that income foundation or death benefit-type foundation as compared to what portion are you willing to put at risk?

Eric: Exactly. It’s to protect the foundation. How do you want to protect it? Are you comfortable protecting it in the headwinds that we have going on, or would you rather protect it with a rock-solid foundation?

Dick: I agree. Thank you, folks.

Eric: Thanks for tuning in today.

Do Not Waste Time Considering Annuities, If You…

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Do not waste your time considering annuities if you cannot find one of the following Annuity Profiles that matches your situation.

Annuity Profiles
1.    Security Oriented – Reached a stage in your life when market risk is not appealing.
2.    Value Freedom from Oversight – Want money to grow securely but do not want to be bothered with constant monitoring. Set it and forget it!
3.    Want a Pension Style Income – Can appreciate a reliable stream.
4.    Like Avoiding Probate for Heirs – Knowing that money can transfer efficiently and IRAs can be stretched over your children’s lifetime.
5.    Your Healthy and Plan to Live a Long Life – Longevity makes annuities work in your favor.

The above scenarios do not have to be an all or nothing strategy. Having specific amounts of money allocated to specific purposes allows for a blending approach when accomplishing retirement objectives.

The above attributes are not as well suited to variable annuities# where securities risk and higher fees are typical.

Dick and Eric discuss the above Annuity Profiles in more detail.

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Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified. 

Case Study Example from the Insurance Information Institute:

Is an Annuity Right for You?

Click a Star to rate us as you watch, we love your feedback!!! Click video once for play or to pause.

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Why should I consider purchasing an annuity?

Annuities can serve many useful purposes.

If you are in a saving-money stage of life, a deferred annuity can:
Help you meet your retirement income goals.
Help you diversify your investment portfolio.
Help you manage your investment portfolio.

If you are in a need-income stage of life, an immediate annuity can:
Help protect you against outliving your assets.
Help protect your assets from creditors.

Read more from the Insurance Information Institute.

Annuity Guys Video Transcript:

Dick: You know annuities really aren’t for everyone and Eric and I…

Eric: Shock! Oh my god.

Dick: Eric and I’d like to kind of tackle that today, and just be maybe a little bit blunt and explanatory, on those that an annuity works well for and those that don’t.

Eric: You’re just saying “Don’t waste time, either yours or ours if…”

Dick: Well, now we don’t mind to waste a little of our time, but it’s their time that they’re concerned about.

Eric: Okay, their time. So if you don’t fit the annuity profiles that we’re going to talk about, probably not best to invest too many more hours pondering, whether or not an annuity fits your situation.

Dick: Right, and many times folks, someone has recommended an annuity to you. Could be an adviser, it could be a friend and it’s really wise to look at your options, and consider what does make sense, what doesn’t make sense, whether it’s an annuity, or an ETF, a mutual fund^, whatever it is that you’re thinking about. However, there are some things about an annuity that make them good for some and not good for others.

Eric: Right, so we always talk about **guarantees safety, **guaranteed growth, , those are some of the things. So if you’re a mutual fund^s stock picker and you like that security as being in the market, you like that aggressive growth profile, an annuity’s probably not.

Dick: Right, an annuity wouldn’t be the right thing. I mean you’re less security-oriented. You’re more willing to take risk. Another thing would be that you would really look at this market, and you would say to yourself that over the next decade or two, that you think things are going to really rock and roll. They’re going to do well. If you’re the type of person that really believes that we’re in for a tough couple of, the next 20 years then you may find yourself thinking that an annuity is pretty appealing.

Eric: Yeah, or if you like to be actively involved.

Dick: Right.

Eric: You know if you’re one of these hands-on, you want to be the trader, you want to have your fingers in everything. I flash back to the Ronco commercials of yore, you know? The little toaster, where it used to say, you know, “You set it and forget it.” If you’re that mentality, then maybe an annuity is kind of an appeal, because it’s one of those things you want that **guarantee, that aspect of the annuity. You want that regular check coming.

Dick: So folks, if you like the idea of freedom from oversight you don’t have to be involved in the day to day activity, the monthly ups and downs of the statement coming in. If that appeals to you then yes, you’re probably going in the right direction.

Eric: Yeah, if you run to the mailbox get that investment statement and go, “Yes,” then that’s probably not an annuity person, you’re more of an investment person.

Dick: Right, exactly.

Eric: So pension-styled income, we talk about you like the idea of getting that check every month. If that appeals to you…

Dick: Well, it’s quite different. There’s nothing else out there, there just literally, is nothing that gives you income **guarantees like an annuity.

Eric: Well, a pension.

Dick: Well, and that is an annuity. I mean Social Security it is a form of an annuity type arrangement. Pensions are annuity type arrangements, and so if you have a lump sum of money, and you want to know that you’re never going to run out of money, never going to run out of income and you value that, then an annuity really is in that line of thinking.

Eric: Right, if you’re more of a person who says, “You know what? I’m just going to take out a fixed. My investments I’ll manage them. I can pull out 3.0-4.0-5.0% every year and I’ll be happy. I don’t need that **guarantee aspect. I’m comfortable with a little.”

Dick: Right, and if inflation goes crazy, and you start getting into your principal that type of thing that you’re comfortable with making those adjustments along the way.

Eric: You can flex up and down.

Dick: Right, right. Again, you’re kind of out of that mode of auto-pilot or set it and forget it. You’re a hands-on, do-it-all.

Eric: Hands-on, right.

Dick: And we have to realize too, this is another issue that I’ve run into with clients and I know you have. Is that as we age, as retirement progresses along we have less and less tolerance or we see our clients have less and less tolerance, for being right on top of things and manipulating it themselves. They really want a lot of times, more of that auto-pilot setup.

Eric: Right, exactly, and I think people start to feel more secure. When you don’t have a salary check coming every month, all of a sudden that regular flow of income that you’re used to getting, if you’ve been in one of those jobs where you got that check every month, then all of a sudden switching to something that’s a little more uncertain.

Dick: Right and you have to make those decisions.

Eric: And they may have been a little bit more aggressive and had tolerance of the market’s ups and downs, at that point in time in their life, but all of a sudden, now they have to get that monthly paycheck. Those ups and downs become a lot more painful.

Dick: It makes a big difference in your ability to sleep well at night and to feel comfortable with what you’re doing.

Eric: Exactly. Speaking of feeling comfortable one of the things, probate comes in. Everybody’s suing everybody these days, but one of the nice things about a lot of states is that annuities are protected, basically from creditors.

Dick: From creditors, that type of thing, and yet even for probate it’s such an efficient way to take money around the probate court, because it goes directly to the heirs, and so that’s good. Also folks, if you have an IRA, that IRA can be stretched, stretched out to your heirs. And insurance companies are one of the few financial institutions that really do that effectively. They are just set up for it. It’s the way they work. So in effect, you can transfer an IRA. Give your children maybe, the equivalent of their own retirement in the future from your IRA, if you don’t need to spend it.

Eric: Exactly. Yeah, and kind of the last profile that I would say that really is key for an annuity, if you think you’re going to have some longevity. You’re going to live a nice long life and you don’t want to have to worry about running out of money, that’s it. That’s the sweet spot right there.

Dick: Right, right. Well, and you know Eric, we’ve always said and we tell people all the time, look we’re not trying to beat the insurance company or beat up on the insurance company.

Eric: Occasionally, I like to beat them, but…

Dick: But if our clients can win. Obviously, we’re always going to err on our client’s side. So if someone has longevity, they really believe that they have the possibility of living that longer life, they really will actually, statistically come out ahead, and win against the actuaries at the insurance company. So then the rate of return isn’t just decent or acceptable or reasonable, it’s very good, and so that’s where we like to have that conversation. There’s also a flip side to this, which I just might want to mention because there’s a few of you folks out there that are just the opposite. You actually believe you’re going to live a much shorter life, and yet you want to know that you can maximize the money that’s coming in to you, never run out and spend all you want while you’re still here. The thing you want to do there is look at an immediate annuity, that’s medically underwritten, because you’ve got some medical condition that you believe will shorten your life, and we can actually do a medically underwritten annuity.

Eric: Right, you may have a condition that basically says, “You know what? Statistically, it takes a couple years off your life expectancy.” Then they rate that based off of that new age that they calculate.

Dick: Right, right. So Eric, is it possible that some people are wasting their time considering annuities?

Eric: Well, most definitely. I mean you always want to look at all your options.

Dick: You do.

Eric: Obviously, the answer is annuities are not for everyone.

Dick: That’s true.

Eric: So hopefully our little five points here, that we’ve got on this page, will help you determine whether an annuity is right for you.

Dick: Exactly. You really have to weigh your situation over and when you go over these points, if a lot of them sound like you, and make sense to you then go forward, do your research, go consider an annuity, and if it’s the opposite?

Eric: Right, if you can’t hit one of the items on the checklist.

Dick: One or two, yeah, just sayonara.

Eric: Thanks for checking us out today.

Dick: Thank you.

Hybrid Annuities have too many moving parts… Says Who?

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What makes a Hybrid Annuity different from a Fixed Annuity? Answer: index strategies, an income rider, and the contractual **guarantees associated with the income rider.

What makes a Hybrid or Index Annuity better than a standard fixed annuity with an income rider? Answer: the opportunity to participate in the potential upside of index gains that can exceed the interest earned by a fixed interest only annuity.

The **guarantees may not be “sexy” but they form the foundation of why someone should consider a hybrid annuity. We all like the “potential” to do better — Dick and Eric tackle the moving parts of a Hybrid Annuity in this weeks second segment of this two-part series.

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**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Enjoy our short Fog Lifter video…

“The Power of Indexing and Contractual Income Guarantees”

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Are Hybrid Annuities too Complicated?

A common complaint leveled at hybrid annuities is that they are too complicated and have too many moving parts. The Annuity Guys®, Dick and Eric, discuss why many folks in the media and investment world like to hobby-horse this point while missing the real reasons why these financial products work so well as a foundational allocation in thousands of retirement portfolios. The secret is “the non-moving parts otherwise known as contractual **guarantees.”

Contractual Guarantees – absolute **guarantees, no-moving parts.

Hybrid/Fixed Index Annuities – allow for upside potential of specified moving parts in addition to absolute contractual **guarantees.

Income Rider – addendum to an annuity contract **guaranteeing a future lifetime income plus additional benefits in some income riders (this is a contractual **guarantee).

Features, Benefits, and Facts:

  1. Annuity Owner Remains in majority control of the annuity’s cash account value during the surrender term and has 100% control after the surrender term.
  2. Full account value of the cash account passes on to heirs with no surrender or penalty charge.
  3. Guaranteed growth in deferral **guaranteeing a minimum future income. Example: Initial Premium $100,000 + 5% bonus **guaranteed growth of 7.2 percent deferred for ten years = $210,000 income account value producing a of $12,600 per year at age 70 with a single life payout.
  4. Payout percentages from the income account are based on age and a single or joint income need. Example: age seventy single payout 6 percent or joint payout 5.5 percent
  5. Fees for riders can be based on the cash or income account value and are charged to the cash account. Fees typically range from half of one percent (.5%) to one and a quarter percent (1.25%). This does not reduce the **guaranteed growth of the income account.
  6. May have a death benefit allowing the income account if it is larger than the cash account to be distributed to heirs over a five-year period.
  7. May have an increasing income as an inflation hedge.
  8. May have a Long Term Care Benefit.

Index Strategy Moving Parts:

(Index examples: *S&P 500, *Dow Jones Industrial, *Trader Vic (Commodities), *Barclays Capital Aggregate US Bond, and literally any third-party index may be specified as a measure for crediting interest).

[Read More…]

Annuity Guys® Video Transcript:

Eric: Today, we’re going to talk about hybrid annuities. Do they have too many moving parts? Sounds like a flashback to maybe a previous episode.

Dick: Like one last week that we said ‘are they too complicated?’

Eric: This time, we talked about at the very end, all the moving parts. Now we’re going to get a little bit more detail as to, do they have too many moving parts?

Dick: That’s a good question, and I think that some folks would say, yes, it’s too complicated. There are too many moving parts. I think that you have to really weigh over who’s saying it and why they’re saying it; what their motive is.

Eric: Yeah. The first thing we should start out is where we started last week, in saying, why does somebody buy an annuity to begin with? It’s contractual to **guarantees.

Dick: Right. Exactly!

Eric: Safety, security, predictability. That’s why we like the hybrid annuities, is for those contractual **guarantees.

Dick: The moving parts, as we discussed last week folks, the moving parts are those things that are in addition to the contractual **guarantees; so those are the potential of the annuity. If you can be satisfied, and this is what we do with our clients, we help them to see where the contractual **guarantees actually do meet all of their concerns and their objections. Then if they can get some additional potential on top of that, then that’s a win-win.

Eric: Right. Let’s start with the base here. Typically, we’ve got this fixed indexed annuity as the base.

Dick: Right. That’s our chassis.

Eric: That’s our chassis. What then goes into making a fixed indexed annuity a hybrid annuity?

Dick: Typically, it will be an income **guarantee, and that income **guarantee will give a lot of different benefits, primarily knowing what your income is going to be at some point in the future that will help to offset inflation and know that you’ve got some type of increasing income at some point in time.

Eric: Right. We talk about that income rider quite a bit because of what it offers. It’s one of those things that’s attractive to people because they remain in majority control.  We’ll go into detail in the article about what majority control means. It’s also a way of taking assets and being able to pass it on to a beneficiary or heirs.

Dick: Yes. It’s not like the immediate annuity where you give the lump sum away. There’s a count value.

Eric: Too often, people want the annuity, but they don’t want to give up that control.

Dick: Correct.

Eric: That’s what that hybrid aspect brings to this chassis.

Dick: It does.

Eric: Payout percentages, as good, better than . . .

Dick: Payout percentages, as compared to an immediate annuity, if you’re starting an immediate annuity today and you’re starting a hybrid annuity today, the payout percentage will typically be a little bit less. The beauty of it is, the immediate annuity pretty much has to be started within 12 months of the time that you’ve signed up or been approved for your immediate annuity. However, with a hybrid annuity, the idea of deferral says that it’s going to pay out a lot more at some point in time.

Eric: Right. If you’re just looking for the most money you can get right now and you don’t care about anything else, then look at an immediate annuity.

Eric: If you’re wanting flexibility plus those **guarantees, that’s where the hybrid comes in.

Dick: Not only that, but there situations where the immediate annuity isn’t that much more.

Dick: Folks are more interested in that account value, if they don’t use it all up, going on to the heirs.

Eric: Right. That’s been one of the biggest reasons people are drawn toward the hybrids. The income rider tends to be the first piece that we highlight. Is it a moving part?

Dick: No. That’s what’s good about the income rider, is that it is a contractual **guarantee. That is part of that chassis that is **guaranteed.

Eric: I would say, if you’re looking at a fixed indexed annuity, what makes it a hybrid is, again, is adding that income rider component, that **guarantee of income in deferral. Basically, you’re building that account base in deferral.

Dick: Another aspect that lends itself to the hybrid aspect of the annuity is the idea that you can get some upside potential without the downside risk. You’ve got a little bit of that variable annuity# flair to it with that. That’s where the confusion tends to come in.

Eric: Yeah. We’ve talked about this before, too. People will call up and we’ll talk to them and say, “I’m interested in a variable annuity#.” In the mindset of somebody, the variable aspect is because it has the potential of having varying rates of return.

Dick: Right, some increased potential.

Eric: Right. In this case, an indexed annuity has varying rates of potential, sometimes based off of, basically, those indexed components.

Dick: In the early days, Eric, of indexed annuities and what we now call hybrid annuities a lot, they were sold and people purchased them, or wanted them, based on these indexes that did have all of this fluctuation and movement in them. The reason for it was because it did protect the downside, it did give them upside, and the fact of the matter is, there have been many time periods when this type of an annuity has out-performed the stock market, but it was never intended to do that in the first place.

Eric: We’ll tell you right now, if your intent is to go out there and beat the market, don’t buy one.

Dick: Don’t buy one.

Eric: That’s not the purpose for a hybrid annuity.

Dick: It’s possible that you can do it.

Eric: Over a period of time.

Dick: But it’s not the reason. It’s not the purpose.

Eric: Right. Because what you’re trying to do with a hybrid is limit your downside.

Eric: You’re taking away that downside risk of being in the market because your principal is protected.

Dick: Exactly. Eric, we’re not doing a very good job of getting to our list here.

Eric: I was going to say, we’re going to get to the second point here very soon. It’s talking about some of the moving parts that are truly involved in the indexing components.

Eric: Dick’s done an excellent job of laying out an article here, so if you haven’t had enough time to watch us, you’ll see below, or in the links below.

Dick: Read it more in-depth.

Eric: We’ve got some additional details. Caps.

Dick: Caps, okay. My cap’s hanging right there. Let’s tie the caps into; first of all, what’s an index? Most of you folks understand that when we talk about an index, this could be any type of index. It could be an index . . . let’s use the popular ones.

Eric: S&P, NASDAQ.

Dick: Dow Jones, The Trader Vic’s. You could use a gold index. You could use a bond index; any degree of creativity.

Eric: Exactly. The index could be literally the temperature outside each day. It’s a benchmark on which you can measure something. The most popular ones are those that are tied to the stock market.

Dick: They do buy call options on these indexes, so that is the purpose, why we choose an index. When we look at the caps, folks, if the market goes up 10% in a given year, and your cap is 3% or 4%, which is about where caps are now. We have some exceptions, where caps are higher, but somewhere in that 3% to 4% range, market goes up 10%, how much are they going to get, Eric?

Eric: If the cap’s 3%, you’re going to get 3%.  That’s the limiting factor. You have no downside risk. If the market’s down 10%; 0. You’ll hear a lot of people talk, “Zero is your hero,” because you don’t have that backslide in case you had multiple down years. You don’t have to worry about recovering from a backslide. The worst that’s going to happen is that you stay on a level plane.

Dick: Right. One of the things that we didn’t really touch on, which I will just drop back to for a second here and then move on, that is one the income rider. Typically, that will have somewhere in the neighborhood of maybe a 7% **guarantee; 6%, 7%, we’ve even seen 8% for some time periods, which was a **guarantee. Even though you might have a 3% cap on the indexing for your cash account, your index account could be significantly higher.

Eric: That’s why that income rider is so popular, because while it’s in deferral, you can get those **guaranteed growth periods.

Dick: Right. If we move into the spread?

Eric: Personally, I’m a big fan of the spread; and that’s not peanut butter and jelly, necessarily. I like spreads because with a standard fee, you have typically a percentage that’s pulled out every quarter, of your account, period after period. Let’s just use a round number.

Dick: You’re referring to the income rider.

Eric: Income rider fees.

Dick: Right. Okay.

Eric: You could have fees for other things, but the income rider fee, which is what makes a hybrid annuity really a hybrid, is having that income rider. There’s typically a fee associated. If that fee is ½%, that ½% is going to be pulled out on a regular interval, ir-regardless of whether or not you’re getting a gain.

Dick: Whether you had any interest earnings or not.

Eric: That’s correct. Spreads on the other hand, are typically higher than fees. A fee may be 50 basis points, ½%. You may see a spread of 1½% to 2%. The deal with the spread is the company only takes their portion if you have a gain. You’re giving up the first portion of any kind of gain that you could receive.

Dick: Right. Your account value cannot go backwards if you’re not earning with a spread.

Eric: That’s right. If you had 12 consecutive, or 10 consecutive, years of getting 0 return, whatever you put in principle-wise, would be **guaranteed to be that same level.

Dick: Right. I think that the spread has a definite place, and it should be considered in the overall picture. As we’ve experienced with certain annuities that don’t have a spread, their contractual **guarantees are so much higher for the income. Since that’s the client’s primary objective, then it makes sense to go with the fee over the spread, using that particular annuity. You have to weigh it against all those factors.

Eric: Exactly. Typically, you’ll see the spread number being higher. It’s just attractive when you’re looking at predictability, that you know that you’re not going to have any kind of negative impact just because you don’t have a return.

Dick: Another idea of using the spread is when the market has . . . when you’re using it in indexing, and maybe you’re doing an average of a year’s worth of indexing, and they will say, “If your average growth of the index for the year was 10%, you’re going to have a 3% spread.” That means that first 3% of that 10%, you don’t get.  On the other hand, if that year there was a 5% negative growth, or 10% negative growth, then your 3% spread would not be applicable, because there’s no earnings, no growth there.

Eric: Right. Where we typically see the spreads are on something that have more upside potential a lot of the time.

Dick: Right. Did I actually do the math where I said, “If you’re up 10% and you have a 3% spread, you would have 7% gain”? Let’s move on and talk about participation.

Eric: That’s the easiest thing, in the sense of it’s taking a percentage of the growth and you get a participation percentage, typically. Back in the good old days, it might have been 50%. If the gain was 10% of the market, you would get ½.

Dick: I was always a fan of participation, but because of the financial crisis we’ve been through, the Great Recession, we’ve seen all that pare back to where participation rights are now down around 25%. The market goes up, let’s use that 10%, it’s easy to figure. If the market goes up 10% and I get 25%, what did I earn?

Eric: 2½.

Dick: 2 ½%, okay.

Eric: I got my calculator in my pocket.

Dick: You’re good, Eric. Okay. We already touched on the average a little bit, in using the spread, so maybe we’ll move on to the next one. This one’s very interesting. This one, I see messed with a little bit. When I say messed with, folks, I see you messed with a little bit, unfortunately, from advisors that overstate this particular strategy.

Eric: Are we talking about the monthly sum?

Dick: Monthly sum. The monthly average.

Eric: Look at the potential.

Dick: It does have good potential. It just doesn’t usually work out, Eric.

Eric: 2% a month. There’s 12 months in a year.

Dick: If I get 2% each month, and I add those together, that means I’ve got 24% potential. If the market goes up 24%, and it does at 2% a year, I get all 24%. Is that correct?

Eric: 2% a month.

Dick: A month, yeah, keep me straight.

Eric: For the whole year, I’ll get 24%. That’s my potential in a given year.

Dick: What’s the worst thing that can happen in that year? If you’re going up 2% every month, what’s the worst thing that could happen maybe in that 10th or 11th month?

Eric: That’s where the market loses 20% in one month.

Dick: That couldn’t wipe it all out, could it?

Eric: Yes, it can.

Dick: It can?

Eric: There’s no downside protection.

Dick: Folks, that’s the problem. The monthly sum and the monthly average has a cap on the upside, but it has no cap on the downside. The companies have figured out that, yes, there are some years where you really do capture and you get those big, big returns, and it feels good and it looks good. There are times to actually use this strategy.

Eric: Now is probably one of them, actually.

Dick: It very well could be.

Eric: I always call it the homerun versus the single. We talk about annual point being the single. You get lots of singles, but the monthly sum is truly going for the homerun. We have seen returns out there in the 14%, 15%, 18% range.

Dick: Right. More often than not, what do we see?  A big 0. We may see a client go for 3, 4, or 6 years before seeing any interest crediting to their account, and that’s pretty tough for people. They’re not going backwards.

Eric: Right, and we should qualify that. While you’ve got not downside protection on the month within the index, that doesn’t apply to the account value. The account value, the worst it’s going to do, again, is 0. Even if your index finishes down on the year, what will be applied to your account is basically 0 gain.

Dick: Okay. Now we come to a very interesting one, Eric, called the blend.

Eric: The blend, the blender.

Dick: We put it in the blender. We’ll do one of these. Here we go. Let’s make this real simple. A blend is like a balanced portfolio: You put 50% in stocks and you put 50% in bonds. However in this case, what we’re doing is we’re putting 50% in some popular index. It’s not really going in the index, as we’ve discussed many times. It’s using it as a measure. We’re putting 50% in towards an index and we’re putting 50% into . . . I’m just using 50%, folks. It could be 30% or 40%, but it all equals 100%. 50% into a fixed rate of interest. We’re just saying ½ the account goes into fixed rate of interest, ½ the account goes into stocks.

Eric: Right. Then you dump them both in the blender.

Dick: Right. Exactly. There’s no cap on the 50% where the stocks are at.

Eric: Which is what makes it attractive to [inaudible: 16:08]. You’ve got unlimited upside potential on the blend side. They all have limiting factors.

Dick: It’s tricky.

Eric: What’s in that fixed rate bucket is typically, right now it’s at 1% or 2%. The best that 50% is going to do is 2%

Dick: Yeah, 2% or 1½%.

Eric: You can get 10% or 20% over here, but it has to be then blended with that fixed rate bucket.

Dick: Typically, you could take, in a year where you had the market up 10% and you had a 2% bucket and you had a 10% bucket, and they were both equal in this case. You put in the blender, you stirred it all up, what are you going to come out with?

Eric: 6%.

Dick: About 6%. Boy, you are good. Folks, we’ve done the math for you on these. When you’re on this website, we’ve got some formulas, and we broke it down in simple terms so that you can read it slowly and get a good understanding of what we’re talking about.

Eric: We try to give you at least a cursory idea of what to expect when you’re seeing some of these terms flown about.

Dick: We’ve probably . . . hopefully, we have not. Hopefully, we haven’t thoroughly confused you. What we really want you to take away from this is that these are the moving parts that give you greater potential. These are not the specific reasons, for most of you, why you would actually buy or choose to allocate to a hybrid annuity.

Eric: If you’re buying for these bells and whistles, the fit’s probably not right.  If you’re buying for the base chassis, and you can live with that **guarantee from the income rider and from the annuity aspect and the income side, or the estate planning side, whatever that need is, if this fits your need and you can just understand that there’s the potential for a little bit more extra.

Dick: This is where a good advisor comes in, because they can look at the potential, they can look at what’s going on in the economy in general. Folks, they can help you make a good decision on which way to go in this indexing. Even if the indexing really produced nothing and you had good contractual **guarantees, which is what you should have your sights set on, you’ll be satisfied.

Eric: Exactly. Buy for the basics, and be happy with the extras.

Dick: Right. Exactly.

Eric: Hope we’ve broken down and explained to you the ‘says who’ portion.

Dick: Yes, ‘says who’. Look behind the veil a little bit and see who’s telling you that they’re too complicated, because maybe from that person it is too complicated. For someone who understands a hybrid annuity and what it does for the client, it can be very effective as a good retirement financial tool.

Eric: Thanks for tuning us in today.

Dick: Thank you.

Are Hybrid Annuities too Complicated?

By

In our conversations with people considering annuities we often hear them repeat a phrase they have read or heard from someone else, “hybrid or index annuities are too complicated”. Most of the people we know drive cars even though they can’t explain how the internal combustion engine works. Similarly, hybrid annuities can have a number of moving parts — but that should not stop you from owning one if the non-moving parts (contractual **guarantees) meet your income, growth or estate planning objectives.

Dick and Eric reveal the reason why people would choose a hybrid annuity and then provide a list of the “moving parts”.

[embedit snippet=”video-specialist-button-hybrid”]

 

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Some of the “Moving Parts” that may be in a Hybrid Annuity

  • Contractual Guarantees (absolute, non-moving)
  • Income Riders
  • Index Strategies
  • Annual Point-to-Point with Caps
  • Annual Point-to-Point Average Spread
  • Annual Point-to-Point Monthly Average or Sum
  • Annual Point-to-Point with Participation Rate
  • Caps
  • Spreads
  • Fees
  • Uncapped Index
  • Blends
  • Biannual Point-to-Point
  • Quadrennial Point-to-Point

Annuity Guys® Video Transcript:

Dick: Eric, we hear it all the time.

Eric: “They’re too complicated!”

Dick: We see it all the time that hybrid annuities or fixed index annuities are too complicated.

Eric: “There are too many moving parts. How can you explain these things to me? It doesn’t make sense. There’s too much!”

Dick: Well, there has to be something to this because everywhere you look, that is one of the most prominent things that are written about annuities, in general. I don’t care if it’s a variable. Sometimes they say immediate annuities are simple and they are in general, but there are a lot of different parts to an immediate annuity.

Eric: Oh no, they’re simple.

Eric: They’re immediate, immediate gratification. I give you this much. You send me a check for this much.

Dick: Okay, so if these are too complicated, why should somebody even consider getting one?

Eric: Well, there’s the **guarantee aspect.

Dick: Right, that might have something to do with it.

Eric: Well, maybe a contractual **guarantee would be a good thing.

Dick: I think that might be one of the reasons why these have become so popular.

Eric: You think?

Dick: Folks, when you look at an annuity and you look at all the moving parts, there’s no question it can become very complex, very complicated. If you get lost in all of the things about an annuity, you’ll miss some of the main points, which are what you just said Eric, it is the contractual **guarantee.

Eric: That’s right when you go, and you start looking or considering an annuity for retirement, typically. What do you need? What are you solving for? Do you need lifetime income and if you do, how much? Then you look at what you have and if you purchase an annuity, this is what the minimum **guarantee is. That is the key element of a purchase of that level. What’s the minimum **guarantee?

Dick: So if I want to know that I have a certain level of income, at a certain age that is just flat out **guaranteed and I’m satisfied with that and that meets my retirement objective, then why do I have all these other moving parts?

Eric: Well, I think we refer to it maybe as gravy or icing, depending on which type of plate you prefer.

Dick: That’s what we talk to our clients about is if we can first of all, make sure that we’ve met your objectives, and that you’re satisfied, and that is absolutely iron-clad **guaranteed, then anything we can get that comes with the moving parts is extra.

Eric: That’s right. That’s what you have to understand. Working backwards, I think is the best way to look at it. It’s what do you need? Is it income? Is it growth? When we look at growth, what’s the **guaranteed rate? You know what’s the **guaranteed rate of return? If we get more than that, will you be disappointed? No.

Dick: And we might achieve a higher rate, by utilizing a death benefit.

Eric: Exactly. It’s another **guarantee. The **guarantee may come from the base of the contract or it may come from a rider.

Dick: That’s right.

Eric: But those riders are part of those contractual **guarantees, it’s built into the contract.

Dick: Yes, when we talk about moving parts and things being complicated, I know a lot of folks that are watching have had experience with mutual fund^s and different items of this nature. When we think in terms of prospectus, how complicated is that?

Eric: Well, you’re assuming one thing, people have read the prospectus. Most people don’t bother to pick up the prospectus they get from a mutual fund^. They don’t want to read the 40-50-200 pages of information, in print this small. They just don’t want to look at it.

Dick: And if you do read it, I mean obviously there is a certain complicated aspect to it, and yet it’s very similar when you’re looking at an annuity, from the standpoint that there are some parts of it that can seem complex.

Eric: Right and it usually has to do with the growth potential side, in both the mutual fund^ and in the annuity world. It’s that aspect that creates the sizzle, I think as you call it.

Dick: Truly, we’re aware of this because we’ve seen it, where an advisor or an agent is overzealous trying to sell an annuity. They paint this picture of all this upside potential. No downside risk, but a lot of upside potential. That is not always going to be the case. In fact, it’s just way overstated.

Eric: People take the marketing components of everything and talk about the potential. When we talk to prospects, clients, whoever here, we’ll have someone come in and say “I just talked to this guy and he talked about this 7.0% or 8.0% **guarantee.”

Dick: Right 7.0% or 8.0% growth and compounding.

Eric: Yeah, and it’s **guaranteed. And then we always have to pull them back a little bit and say that may be on the income rider portion. Now it’s a contractual **guarantee component, but they have to understand that that’s a number they can only use for income. As long as that meets their basic need, it’s part of that contractual **guarantee, but they have to understand how it works.

Dick: Right, exactly. Folks, there are genuinely a lot of different aspects, especially to a hybrid annuity or what we would call a fixed indexed annuity which is the hybrid annuity. Eric, I thought we’d just kind of run down this list and we’ll put this on the blog site.

Eric: List the moving parts here for you.

Dick: Yeah, and maybe we could aim for next week or something, to get a little more into each moving part.

Eric: I think that would benefit most of the people we speak with, because the confusing part, the complication comes from the moving parts.

Dick: And I would say, folks don’t get too hung up on this, because we’re going to make it sound real complicated here. The fact of the matter is that, if you’ll truly focus on the contractual **guarantee aspect, you’ll understand that these are just options that you have, that can be used. And that’s where you do need an advisor, to help you to make those decisions, on what might give you greater potential.

Eric: All right, so what are the moving parts? You made a list, because we didn’t want to forget anything and I’m sure we will forget something.

Dick: Our biggest challenge will be not to actually start describing these, as we go through them. He’s just going to read the list.

Eric: We decided it would take way too long to describe each one individually in this episode.

Dick: Well, I’ll tell you what, you want me to just go ahead and read it?

Eric: Yes, read them.

Dick: Okay, we’ve got first of all the annual point-to-point with a cap. There’s an annual point-to-point with an average, where the index is again, averaged over the course of a year, and typically there will be a spread in there.

Eric: See, he’s explaining them already. He’s trying to explain it. See now your head’s starting to spin isn’t it?

Dick: Okay, I’ll stay on track. Here I go, annual point-to-point with a monthly average, or also called monthly sum. Annual point-to-point, with a participation rate could be 100% could be… There I go; caps, spreads, fees, uncapped indexes, blends, two-year, four-year, three-year, five-year point-to-point.

Eric: Points, yeah. I’m sure we left out something.

Dick: I did pretty good.

Eric: He finally reined it in a little bit. He really wants; we really do want to break it down for you.

Dick: We will. It’s tough not to start explaining, folks.

Eric: We really do want to break it down for you.

Dick: We will. We’ll break it down more.

Eric: Give you a reason to come back and check the email registry.

Eric: We appreciate you tuning in today.

Dick: Thank you very much.

Why Hybrid Annuities Are Game Changers

By

Two recent studies discuss the overwhelming growth of annuities as a sought after financial product. LIMRA cited the significant growth in the number of Baby Boomers now doing their research for information about annuities online. While, Cerulli Associates in a recent survey revealed that annuities have become the most requested financial product that clients ask their advisors about. With all of the mixed press, for and against annuities, these are significant upward trends as those near or in retirement move towards the security of annuities seeking growth and income **guarantees.

These studies failed to point out the impact of hybrid annuities — Dick and Eric discuss Why… hybrid annuities are the real “Game Changers”.

[embedit snippet=”video-specialist-button-hybrid”]

 

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Advisors Say Annuities Are Now Their Most Requested Product

Advisors report that clients request annuities more than any other unsolicited product, according to new research from Cerulli Associates.

Annuities ranked sixth in 2011, but interest in the product has increased over the last year, marked by a 15% increase in the number of times clients request annuities from their advisors, according to the report, Annuities and Insurance 2012: Evaluating Growth Capacity, Flows and Product Trends.

“We’ve seen a tremendous year-over-year increase in the number of times financial advisors receive requests from their clients for annuities,” Donnie Ethier, senior analyst at Cerulli, said in a statement.

Of the advisors surveyed, 60.8% of advisors had clients who requested annuities, just above Roth IRAs, which 58.8% of advisors were asked about. [Read More…]

 

More Consumers Use the Internet to Research Insurance and Annuity Products

Study Finds Agents and Advisors Still Play a Vital Role in the Purchasing Process.

WINDSOR, Conn., Oct. 10, 2012 — Sixty-one percent of consumers who researched individual insurance or annuity products looked online, a significant increase over the 38 percent of consumers who looked online in 2006.

“With two-thirds of Americans conducting searches online, it is not surprising that the number of people seeking information about life insurance and annuity products online has increased more than 60 percent over the past six years,” said Mary Art, research director, LIMRA technology research. “However, despite the popularity of online sources, more consumers (69 percent) sought information from agents, brokers and advisors, who are often viewed as the most valuable and influential information sources.”

The top three reasons consumers sought information online are:

  1. Research companies and product offerings
  2. Seek general product information
  3. Compare prices

This is true across all age-groups and income levels.

The study found that more consumers value information gathered online in 2012 than did in 2006, although it still lags behind insurance professionals. In 2006, only 18 percent of recent researchers considered Internet sources to be their most valuable sources, significantly less than the 25 percent found in 2012. In contrast, 37 percent of consumers rate insurance professionals as most valuable in 2012, eight percentage points lower than those who did in 2006. It is also important to note that one in six (16 percent) consumers cite workplace sources as most valuable.

“Companies need to understand that one size does not fit all when it comes to educating consumers about products and services,” noted Art. “Using a multi-channel approach will reach a broader audience in the ways they want to collect information and will most likely lead to more sales.” [Read More…]

Annuity Guys Video Transcript:

Eric: Today, we’re going to talk about why hybrid annuities are game-changers in today’s environment.

Dick: They have changed the annuity world.

Eric: That’s right. It’s not just playoff time in the baseball season. It’s the game-changing time here in the annuity world.

Dick: That’s right.

Eric: There’s a couple things that have come up in the news recently, for some reports that have talked about annuities in general, so we should probably start there, in the fact amongst advisors the Number 1 question they’re getting asked now is about annuities. They want to know what’s . . . it’s the most-requested product out there.

Dick: Right. that’s moved up from a year ago, Eric, where it was asked, it was the Number 6 question on the list and now it’s moved up to the Number 1 question. What do you suppose is driving that?

Eric: Our website, probably. Obviously if you’re watching, this you’ve been driven to inquire about annuities.

Dick: You know what, that brings up our other article, which we’ll tie them all together here, is that the consumer now, about 60% of the consumers are going online, investors are looking at annuities and trying to decide how that fits into their portfolio, and they’re relying on the internet for that.

Eric: Right. There’s a lot of numbers we can throw out here: 10,000 people a day are turning age 65. People are retiring, that’s an obvious number. More and more people are retiring, so what do you want? You want safety, security, income.

Dick: Right. You want to get money over to heirs; you want to do it the most efficient way.

Eric: People are concerned. When you look at the problems that Social Security, Medicare, all these government programs are having, they’re looking to other avenues for safety and security. What better than annuity? That’s really what we talk about, with the foundational aspects of annuities being safety, security, and income.

Dick: When you look at this number, you threw a statistic out there, 10,000 a day. Folks, that equates to 78 million Baby-Boomers over the next 15 years. Baby-Boomers are some of the folks that are most comfortable with the internet. The first ones in, not so much. Now as we see this trend begin to change where folks rely on that online information to make their decisions.

Eric: That’s right. They’re turning more and more online to get a little bit of information, and they’re curious about annuities. These two articles didn’t surprise us because, surprisingly or not so surprisingly . . .

Dick: We got our beak both worlds.

Eric: . . . we tend to talk to quite a few people about annuities . . .

Dick: We’ve seen that volume go up, and up, and up.

Eric: That’s right. We can personally say from our own website that started with just our little Central Illinois focus, we now have a national focus.

Dick: It’s just mushroomed out, exactly. Yet there’s really a larger percentage still, about 69% of individuals also want to get their information from someone on a local basis. It’s a mixture of the two that work so well. I think that’s where we come in, Eric, in trying to do both. We run our local practice, so we meet with our clients. We have this national website, which is, folks, it’s loaded with information that you can do your research. Then we’ll actually take that next step and help you get involved with a local advisor.

Eric: All right. Now we’ve said all these things, now what the heck does that have to do with hybrid annuities being game-changers? I can tell you when I talk to people, and I can tell you, out of 100% of the people I’ve talked to today, almost every single one asked me about hybrid annuities and what the potential was for either inflation hedging or deferral. We know that the hybrid annuity has really become a game-changers.

Dick: What will maybe, like you say, a 100% today, and at least 10 to 1, 5 to 1, 10 to 1, when folks call in, they may have an interest in an immediate annuity or a variable annuity#, but it always tends to come back around to the hybrid annuity, which really is the fixed indexed annuity with some of these new income riders. Folks will ask us about that and kind of want us to explain it.

Eric: Really, we always talk about . . . I talk to people about working backwards from your goals to figuring out, one is an annuity a right vehicle, and then how do we meet those goals? A lot of times, we’ll end up looking at those income riders to meet those goals, because I like **guarantees. That’s what those income riders and those . . .

Dick: Contractual **guarantees. If we can live with the **guarantees, anything else is icing on the cake.

Eric: Icing. I like icing. What are the **guarantees that are possible with a hybrid annuity? You have income **guarantees; income for life without giving up your lump sum.

Dick: Right. It’s predictable income that can grow over a period of time.

Eric: You have some annuities in the hybrid world that those income riders can actually produce an increasing income **guarantee, which is unique and innovative. Then the deferral aspect of those income riders; right now, everybody knows interest rates are . . .

Dick: Down.

Eric: Boo. These unique components the insurance companies are offering on these income riders is as **guaranteed growth rollup for money that can be used for future income.

Dick: Right, while it’s in deferral. That way you have this predictable future income; there’s no surprises. The only surprise could be something that would be better than the minimum. Not likely though with today’s cap rates.

Eric: Right. It’s neat when we find something that’s innovative, that we think is going to outperform, but most of the time, we’re not trying to beat the insurance company. You want the insurance company to be in business as long as you’re going to need . We’re looking for, basically, something that provides both you and the company a **guarantee. They’re going to be both in business.

Dick: The way that the hybrid annuities really have changed the game is a lot of folks, as we would say, your parents’ annuity was an immediate annuity. That immediate annuity carried the stigma of, “I have to give the insurance company all of this money, and if I die, they get to keep it?” That didn’t go over well, as you can imagine.

Eric: It helped them build a lot of big buildings.

Dick: Yet the hybrid annuity comes along and says, “We’re going to work it out so that you can have a the rest of your life, and you can also have your lump sum. If you haven’t used it all, it can just pass on to your heirs.”

Eric: Right. If you don’t’ use it all, we’ll actually give you it back. Whatever you haven’t used, you get it back. Very unique, very innovative, taking the best of the variable world that was very indicative. Now we’ve seen, from a performance standpoint, what’s being offered in what we see people purchasing more often now. We had an article or a blog we did, it’s been about a month ago, the enhanced numbers, what you see the most growth in the annuity world.

Dick: That was the LIMRA Report. Folks you can go back, 3 or 4 blog posts back.

Eric: We’ll put a link out there.

Dick: Another link we’ll put in there. The only area there’s been growth.

Eric: Yeah, it grew, what, 10%?

Dick: Yes. Year-over-year, or [inaudible: 07:27].

Eric: Versus some of the other types of annuities that are actually . . . they’re still being sold, but there just not the growth there.

Dick: Right. Yeah, folks, the hybrid annuities have really had explosive growth and there’s a reason for that. People are cautious and careful about what they do. We live in an information age where folks can go online; they can find the truth out about things. You can fool a few people part of the time, but you can’t fool everybody all of the time. These are legitimate, suitable products if they’re used the right way, and many people are very, very pleased with them.

Eric: That’s right. If you’re looking for safety, security, but yet, not willing to give it all up, consider a hybrid annuity. It’s a game-changer.

Dick: It is a game-changer.

Eric: Thanks for watching today.

Dick: Thank you. Bye now.

 

100% Money Back Annuity **Guarantees!

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Most big ticket purchase come with a warranty or a **guarantee – including annuities. Did you know that all annuities come with a money back satisfaction **guarantee?

Eric and Dick examine one of the most unknown or misunderstood aspects of annuities available today’s market.

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**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Definition of ‘Free Look Period’

A period where a new annuity owner is able to terminate their annuity contract without penalties or surrender charges. A free look period often lasts for 10 or more days (depending on state law and the insurer’s terms), allowing the contract holder to decide whether or not to keep it; if he or she is not satisfied, the contract purchaser can receive a full refund effectvely releasing them from the annuity contract to re-consider or choose other alternatives.

Investopedia explains ‘Free Look Period’
During the free look period, the purchaser can continue to ask the insurer questions regarding the contract in order to better understand the policy. If refunded, the amount given back may equate to the value of the account at cancellation or to the amount of purchase payments, depending on the state.

Annuity Guys® Video Transcript:

Dick: Eric, you know most people don’t realize they actually have a 100% money-back satisfaction **guarantee on an annuity.

Eric: That sounds awfully tempting. Now you have to explain does this last forever for as long as I own the annuity? Oh okay, so the 100% money-back…

Dick: No, there’s a catch. You have a window of opportunity.

Eric: Could this be the free look period?

Dick: This is the free look.

Eric: Okay, so now when you say free look, now we have to explain free look.

Dick: Well, the states each state has decided that this is too big of a decision to not have a time to look at your contract, your annuity contract. A time period where you can look at your annuity contract, you can reassess your decision, and have that time period they call that free look.

Eric: Okay, so I’ve decided I want to purchase an annuity. My friendly agent shows up at my door. Mr. Van Dyke here is your policy. Congratulations, you own an annuity. So is that when the clock starts ticking?

Dick: That is when the clock starts ticking, and folks what you’ll typically have is a delivery receipt that’s signed, and when that delivery receipt is signed from that point forward, you have this period of time that’s **guaranteed by every state. That time period will vary. Each state has its own limitations on that.

Eric: Minimums, the minimums are…

Dick: Ten days are the minimum.

Eric: I don’t think I’ve seen one less ten days.

Dick: Not less than 10, but some up to 30. I don’t believe they go beyond 30. Now a lot of states will have a say 10 day, but yet the company will give 30 days.

Eric: Right, so sometimes the company’s **guarantee is better than what the state minimum is, so that provision that allows us to review the policy at our discretion, we’ve taken ownership of it; it’s in our hands, we can then truly go through it; without any penalty or ramification other than I get my money back.

Dick: Correct, and the importance of this Eric, we’ve found in our own practice so many times people have hesitation from different viewpoints. Sometimes it’s a hesitation just to get started, because their afraid once they get started and they start moving down a road, they like something, they start to question if they should move forward.

But what we’ve really been able to help our clients with is understanding that they actually do have this 100% money-back **guarantee, so that they can actually move forward with confidence. That even at the point where they’ve made their decision, the money has transferred, the company has it, they now have their contract, we can still make changes.

Eric: Right, you can still undo.

Dick: It can be completely undone, right.

Eric: It’s the major undo button, and that’s what I think works to the consumer’s advantage.

Dick: Yes, it does.

Eric: So it’s an understanding that even once you’ve made the decision, you’ve got the policy in front of you, and that’s I think the key thing. You’ve actually got what the insurance company is going to present you with. All the details, the documentation those things should be explained within the documentation.

Dick: True.

Eric: So as the agent goes over it with you, if for some reason there’s something you don’t like, you have that opportunity to still get out of that initial decision. Some people have buyer’s remorse, and we always talk about it. This is your return. Typically, you only get to do it once, so you should feel comfortable about all those decisions.

Dick: A good understanding about what you’re doing and know that your comfort level is pretty strong.

Eric: Right, and so if you’ve gone in. You’ve got the policy. You’ve asked the questions and for some reason you don’t feel good about the answers or whatever, you’ve got a period of time to either one, do some additional research, make some additional calls or to back out.

Dick: Eric, I do have to say that there are what, I guess I would call bad advisers or bad agents that don’t like this provision, because basically they’re closers. They want to go in and close an annuity and sell an annuity, and they’re not so concerned about what the clients getting. They’re more concerned about their own benefit.

But a good adviser, a credible, serious financial planner or retirement planner will actually take their time and they actually like the free look provision, because they want the client to be very comfortable, with whatever it is they are deciding.

Eric: For people like us that take pride in our practice, in what we do, we want to make sure you fully understand everything you have. Everything has pros and cons.

Dick: Right, there are tradeoffs in everything.

Eric: It’s all part of the understanding process. We’re not saying you can eliminate the cons by using a 100% money-back **guarantee in the free look provision. It’s just understanding what you own and that you’re comfortable, with all of the aspects of what you’ve purchased.

Dick: Right and when we even look at our own practice, we go back over the last seven years or so, how many free looks have we had? One; and that was just changing life circumstances that caused this person to have to rethink what they had decided, but it really can really help relieve some of the stress, from the client being able to make that decision, and at the same time make a good decision.

Eric: Yes.

Dick: So is there really, when we really think about it, is this really a 100% money-back **guarantee?

Eric: It is, because you can undo. Now the big caveat there is the time frame. You have to do it within that provision. Knowing you have at least 10 days I think for every state, but understanding that’s that your time frame. You’ve got it. Look at it. That’s your time. Once those days are gone, so is that provision.

Dick: And there’s nothing wrong, folks with asking your adviser right up front, how long would I have to look at this, before I would actually have to pretty much, stay with my decision. And that doesn’t mean you are going to free look it. It just means that you really want to know what your rights are.

Eric: Right, you want to understand everything that’s there. I think we’ve covered it.

Dick: Yes, we have. Thank you for joining us today.

Eric: Have a great day.

 

How to Get Rid of a Bad Annuity

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Do you think you made a bad decision on an annuity purchase in the past? Do you think you’re stuck due to surrenders and penalties?  What are your options?

Dick and Eric examine the options that most annuity owners do not know about to possibly move out of an annuity that was misrepresented or one that no longer fits their financial objectives.

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**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

It should be noted that prior to surrendering or replacing any annuity, careful consideration of all features, penalties and financial goals of the consumer should be evaluated — this is not a decision to be taken lightly.

Annuity Guys® Video Transcript:

Eric: Today we’re going to talk about how to get rid of a bad annuity. Well Dick, is there such thing as a bad annuity?

Dick: Unfortunately, Eric, there are some bad annuities.

Eric: Oh no, don’t tell me that.

Dick: Just like any other investment you can make a bad decision. You can buy a bad annuity. The best way I’ve found, to not have to get rid of a bad annuity, is just not to buy one.

Eric: If you don’t make the mistake upfront, you don’t have to suffer the consequences.

Dick: Right, right, right. So folks do you research, watch our videos, watch other videos. Just read, look at what’s out there, and just use some good judgment.

Eric: Well, that’s a nice summation. Are we done?

Dick: That’s the video.

Eric: Well, I guess we should define when we talk about bad annuities; it’s really a personal situation. It’s you end up with an annuity that doesn’t fit your financial goals or your objectives.

Dick: And it is possible that your financial goals or objectives change, so maybe the annuity wasn’t bad originally.

Eric: It’s just bad now.

Dick: It’s bad now and the other thing that we find happens, not so much recently as over maybe the past few years the annuities, folks, have went through quite an evolution, and we believe have reached kind of a level.

Where they’ve; I won’t say they’ve plateaued, but they’ve come out with these innovative riders, income riders; they’ve become very competitive with each other and we’ve kind of seen what would seem to be a leveling off of what we could expect for any of these annuities.

Eric: Yeah, and the nice thing is its innovation.

Dick: Yes.

Eric: You’ve got companies, there’s competition for your dollars, they want to design the best product that one, creates a need or satisfies a need for you, and those strategies make you money, make the company money, and that’s really what they’re designed for.

Dick: And unfortunately, if you were one of the early ones in, buying the annuities that were available four or five years ago and you compare it to what’s on the market today, with the contractual **guarantees, you may be a little disappointed.

Eric: It’s buyer’s envy I guess, so if I own one that I bought five, six, seven years ago and it’s not meeting my needs…

Dick: Or let’s say it does meet your needs somewhat, but not as good as some of the newer generations.

Eric: All right, so you want to tackle all these? So I’ve got one of these, how do I go about deciding what’s the next step? First of all, can I get out of a bad annuity?

Dick: Well, the answer to that is always it’s your money and it’s your decision.

Eric: And it may depend on your annuity, if you bought an immediate annuity most of the time…

Dick: That’s true, that’s true, yes.

Eric: That’s my one caveat, that if you own the immediate you pretty much…

Dick: You’ve given up your lump sum, so it is your annuity.

Eric: And that’s why we always talk about that being a make sure that’s the right decision, because usually that’s it.

Dick: So if it’s a deferred annuity there could be some extenuating circumstances, first of all. If it was really genuinely a situation, where that annuity was truly misrepresented to you; it was not what you thought you were buying; there could be some aspects of going back to the company, going back to the agent, but again, this has to be fairly well-documented. That it was misrepresented. So in those situations if it was truly not suitable, it was misrepresented, it is possible that the company would allow you to get out of the annuity with no penalty, also the possibility of litigation, that type of thing, or going through the state insurance department if it was misrepresented, but let’s just say that it was not.

Eric: It was just what was available at the time and it’s it sounded good at the time. How many times have we made a decision based off of this sounded like a good decision at the time and it might have been the best available at the time.

Dick: And now interest rates are low. Maybe your interest rates have dropped on the annuity. The cap rates have dropped. You didn’t get one of the income riders that are now available, so you don’t have those contractual **guarantees. Well, one of the things that I think that you want to look at first of all is how close are you to maturity? Will that annuity be maturing, and all of the surrender charges will be gone soon?

Eric: Now and when we talk about maturity and this is always an interesting thing when I talk about it with consumers, because they say “Well, do I lose my income at the end of that contractual, that maturity period?” Really, it’s a surrender time frame typically is what that contract. You can continue past that surrender schedule period. That annuity’s designed to keep going and going and going until…

Dick: Right, they still have contractual **guarantees in place for the client, even though the money is available surrender and penalty free.

Eric: Right, so when we’re talking about maturity in this case we’re talking about when there are no more penalties that will be incurred by basically, surrender charges.

Dick: So if you feel that your annuity is not what you really wanted, you’re only maybe a year or two away from being out of surrender charges, you may want to wait until that couple of year’s passes. You’ll also have some other alternatives. Even if you’re fairly new into the annuity, within a few years or so into the annuity, there’s things that you can look at, which could be an offset to the annuity that you have, and the surrender penalties, if the new annuity that you were looking at has a bonus or a market value adjustment.

Eric: Now and this is where market value adjustments are really kind of an interesting not well kind of…

Dick: Not well understood.

Eric: … understood. Even by some agents. I mean we’ve seen people that have had problems with understanding them and really they work in two ways.

Dick: Yes.

Eric: They can be and basically they work as an offset, for the insurance company in case of the change of rates, so what we’ve seen is they can either be, in addition to the contract at the time of surrender or a subtraction. Now if the interest rates have gone up…

Dick: They’re typically then going to add to your surrender charge.

Eric: Right, and if the rates have gone down, then we’ve seen here in the last few years…

Dick: Then you would have a positive MVA, where your surrender charge is actually reduced by a fairly large amount on the MVA.

Eric: And I know personally we’ve seen this happen. So it actually creates an opportunity for some people at times, when they’ve had an annuity that they’re not real happy with, and if things have gotten you think, surprisingly if they’ve gotten worse, there’s usually sometimes an opportunity to offset that surrender with that MVA, and the MVA is not the Motor Vehicle Association.

Dick: No, it’s not.

Eric: It is a market value adjustment, which is a mouthful.

Dick: And not all annuities have market value adjustment, so you have to look at the type of annuity. When I say the type of annuity, an indexed annuity, a fixed annuity, all of those can have market value adjustments, but not all do.

Eric: Right, so when we’re talking about this in relationship usually, it’s on a fixed or a fixed index and that’s because of what they’re using to reserve. So they’ve purchased bonds and that’s sitting behind it, and so if they have to sell them early that’s the reason usually most insurance companies use them, market value adjustment.

Dick: And the reason, another reason folks, why they have the market value adjustment is the annuities that do not have a market value adjustment on the annuity, typically cannot pay as high a rate or have as many **guarantees, as the one that has a market value adjustment. They have more latitude in terms of getting higher rates or better **guarantees, so that’s a good reason to use an annuity with a market value adjustment.

Eric: Sure. So there is one way to get rid of a bad annuity possibly, even that still has a surrender involved, because you still may have an offset from an MVA.

Dick: Exactly. Another is the new bonus or a bonus from a new annuity. So that if you have a considerable bonus from the new annuity that can help to offset some of the surrender, combine that with an MVA and the advantages of the new annuity if it makes financial sense, then it can be worth doing.

Eric: And that should be qualified. We’re not suggesting you would transfer from one bad product into another bad product.

Dick: Of course.

Eric: It’s got to meet your financial needs and this would only be something we’d recommend, if you’ve got something that’s not working, it doesn’t fit, this is an area where you can explore some options to basically, see if there’s something better out there.

Dick: Right. Unfortunately, it is a possibility that someone, Eric, would get involved in a bad annuity, and so there has to be different ways that someone could go about alleviating that situation.

Eric: Right and one of the things we’re talking about is using, usually a transfer of an annuity. We’re not talking about doing a withdrawal, and then rolling it into another one, though those are all options, but to avoid bigger taxation penalties even, we’ll typically look at transferring from one annuity company to another. So those things will keep you out of taxation penalties.

Dick: Yes, so I think that probably the best way to really avoid a bad annuity in the first place is to buy a good annuity. Do your research. Make certain that it is going to meet your objectives, and then, even if the newer generation annuity does come along, and does have a few additional advantages, if the original annuity that you set up met your retirement objectives, then there should still be some merit there and some good basis for why that was chosen.

Eric: Exactly, and you don’t want to just throw something. You don’t want to throw the baby out with the bath water I guess is the saying, and so make sure you’re not making just a rash decision to get something else.

Dick: That’s right.

Eric: And that’s why these annuities do have surrender charges, they do have these pieces, because they are designed to be long term, lifetime income generating products.

Dick: Make you think twice about messing up your retirement by ending your IRA or your annuity and that’s why these penalties are there.

Eric: Right, so as we say, you usually only get to do retirement once, so do it right.

Dick: That’s right. There are no do-overs in retirement. Thank you.

Eric: Thank you.