Annuity Awareness Month: Separating Fact from Fiction About Annuities

TPIR Ep 123 Full Show.mp3: Audio automatically transcribed by Sonix

TPIR Ep 123 Full Show.mp3: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker 1:
Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment, and is not a solicitation or recommendation of any investment strategy.

Speaker 2:
Welcome to Take Pride in Retirement, the podcast dedicated to helping members of the Lgbtq+ community protect and grow their hard earned money. Get set for a show full of education and insights with your host and advisor, Matt McClure. We recognize every family is unique. The goal of the show is to help you achieve financial freedom, so you and your loved ones can have the retirement you've always dreamed of, a retirement you can take pride in. No matter who you are, where you're from, or who you love. So now let's start the show. Here's Matt McClure.

Speaker 1:
Well hello there. Welcome to another edition of Take Pride in Retirement. Matt McClure here with your host, your advisor, your friend, your pal and your confidant.

Speaker 2:
Yes. And I am Josh noble, the attache to the advisor, aka co-host, aka Matt's Hobby.

Speaker 1:
Yes. And I want to just say a big, huge welcome to everybody who is watching on YouTube and or listening via the podcast or, you know, watching on any other of the social medias that we post these things to. Uh, June is annuity awareness month. That's what we're going to spend a lot of time talking about today. It's a financial product that probably gets a lot of strong opinions, or I guess a lot more strong opinions than any other, really, at least in my own personal experience on both sides, more so than just about anything else, I think, in retirement planning.

Speaker 2:
Yeah, you're not kidding. I always say that we should, uh, you know, sit around and whisper the word annuity because so many people say that, but every time I hear somebody mention it online, half the comments say, oh, this is so amazing. And the other half are like, this is terrible. Don't do it.

Speaker 1:
Terrible, terrible, terrible. Yeah. No, I mean, and that's exactly why I do this show to like, dispel those myths and, and really just clarify everything. I'm not here to, to sell you on something that is, you know, if we meet in person, if you sign up for a free consultation, like I can recommend something to you at that point once I take a deep dive. But here, this is all about education. This is all about saying, here is what these types of products are. Here is what we do is this is just all about education, helping you understand what, um, all of these different types of things do. And there are different kinds of annuities. That is the big thing that a lot of people don't understand. We'll get there momentarily. I'd like to again, thank you for watching and or listening. And before we get started into kind of the meat of the show here, um, we're, you know, gonna encourage you as always to, if you're listening to the podcast, subscribe to the podcast and it's wherever you get your podcasts. You can get us this. Leave us a nice rating there. And also if you're watching on YouTube, like and subscribe, subscribe, please. It's a, it's a more polite one today. You gotta please. Um, and then, you know, wherever you're watching or listening, we'd appreciate that. Uh, whether it is on YouTube, podcasts, any of the other socials, and if you would like a complimentary consultation, uh, just visit, take pride in retirement.com. Once again, it's free of any cost, any obligation. I would absolutely love to meet with you.

Speaker 1:
Talk about your own personal situation. That's when I can really dive deep into your finances and give you those personalized recommendations. Again, it's more general information here on the show and education, but those personalized recommendations can come when I get to know you personally a little bit, and especially that personal financial situation. Once again, take pride in retirement.com. You can also call 32118552469211. All right. Housekeeping. Out of the way now, Mr. Attache. Yes. So let's start with the most basic question. Before somebody even thinks about getting an annuity, what problem is it supposed to be solving that that word he just said was annuity. By the way, in case there's anyone out there who's wondering. Um, but yeah, no, it's, it's not a, it's not a dirty word. We don't have to whisper it. Um, it's just misunderstood. I feel like now, um, talking about what problem annuities are trying to solve answer is as usual, kind of it depends because different types of annuities, you know, kind of will address different specific problems in your retirement plan. Kind of overall though, like high level view here. Retirement is not just about growing money. Like you've spent your working years growing your money. Eventually Retirement comes, and that's when you want to take that money and turn it into income. And one of the ways to do that is through an annuity. You can also accumulate funds with an annuity. We'll get into the weeds on that here in a second. But the question really becomes in retirement, how do you create a paycheck in those retirement years? You're no longer getting one from your job or from your, you know, if you're a contractor, self-employed, whatever your situation is, that paycheck, those those funds are no longer coming in.

Speaker 1:
So how do you replace those sort of regular funds going into your bank account? Pensions used to be a thing that solved that problem. But you know, most people today, you know, I guess don't really get to take advantage of that so much. No, I mean, that we were talking about this earlier too. I mean, people who are retiring today, it's not like our parents, you know, their time when they were retiring because most people our age, that's probably not going to happen. Right? Yeah, yeah. With pensions, I mean, they used to be kind of the standard. And, you know, you look back in like the 70s 80s even into the, you know, sometime into the 90s, pensions were much more common than they are today. But since the 401 K came around and other types of defined contribution plans, like a pension is a defined benefit plan. And what that means is, you know, in the end, the benefit that you're going to receive X amount of dollars per month, either adjusted for inflation or not going forward. But you know, you're going to have an income stream. That's the defined benefit that you will get, right? With a 401 K or other type 403 B, T ESP if you're a federal employee. Those types of accounts that are more popular now are more not necessarily popular now, I guess I should say, but more widespread now you're going to get, um, no guarantees as far as a benefit after you retire.

Speaker 1:
It's the contributions that are defined. You make a contribution and maybe your employer also makes a matching contribution to that 401 K or whatever other plan you have. And so it shifted the burden from the company onto the employer, onto the employee rather. And so as a result, companies have said, oh, well, this is a lot easier on us. So that's why the 401 S and the other types of defined contribution plans have become much more popular over the years. And so pensions have kind of gone the way of the dinosaur. By and large. I believe the last numbers I saw. And don't, you know, don't necessarily, uh, write this on a stone tablet and bring it down from the mountain or anything, but it was about 17% of private employers offered a pension, still only 17%. And that used to be, you know, 70, 80, 90% way back in the day. So it's a big, big change. So yeah, you can't rely on that pension from work. Can't rely on that pension. Sorry you had to. Well, let's talk about this when it deals with our community, the LGBTQ plus retirees. Yeah. I mean, that's what it's all about after all for us anyway. Um, and, you know, a lot of LGBTQ people did experience a career interruptions, uh, due to their sexuality, gender identity, etc.. And, you know, I've been there. Uh, luckily this was, um, this was, you know, several years ago for me.

Speaker 1:
It didn't impact me in the long term, in a financial way, because it was not a job that I had a retirement plan through. But I have experienced that, you know, discrimination and a career interruption because of my sexuality. So workplace discrimination, though, may have impacted you and your earnings and your savings potential. And so, um, you know, maybe you delayed some, you know, marriage, uh, or forming a family like, you know, members of our community tend to be older when they have kids tend to be older when they do get married. Tend to be older when, you know, having the house and the white picket fence and all that kind of stuff. Um, you know, a lot of people don't have children. Many rely heavily on chosen family. And so a lot of those are factors that go into an annuity being something that can be a really solid tool because it can create a reliable income stream in retirement. That is kind of the main feature of the annuity, right? No matter what different type we're talking about. Um, because, you know, for a lot of LGBTQ plus retirees having that reliable income, super, super important, and it's not just like a comfort thing, it's about maintaining independence. It's about not becoming financially dependent on others later on in life, because you've replaced that paycheck that you were once getting in your retirement years. And so it's a, it's a bit of a security blanket for, for our community, especially given all those things that I just mentioned. Yeah.

Speaker 3:
All right, Matt, let's do a little myth busting. I do know you love MythBusters.

Speaker 1:
I do actually. Are we gonna, like, blow up a cement truck in the middle of the desert or something? Is that.

Speaker 3:
No. Not today. I thought we might just stick to annuities, if that's all right.

Speaker 1:
Oh, okay. All right. No explosives involved.

Speaker 3:
Darn. Okay, so what I'm going to do, I'm going to read some things people say about annuities online. And I want you to tell me whether they're true or false or somewhere in between. All right.

Speaker 1:
Cool. That's that sounds like a plan.

Speaker 3:
Myth number one, all annuities are basically the same thing.

Speaker 1:
And that one. Uh, no they are. They're not the same thing. Um, as I said, there are certain parameters that make something an annuity like it will, you know, you put in a lump sum or, you know, you could put in, um, several different premium payments over time, um, you know, a certain number of payments, but you put in a certain amount of money, then that money accrues interest over time, and then you eventually have the option to annuitize, which is to turn it into income. You can also exercise benefit riders and that type of thing to turn it into income depending on the product. But that's kind of where the similarities in general anyway, will end. You've got three different main types of annuities. You've got your fixed annuities, you've got indexed annuities, you've got variable annuities. And then we're going to get into the weeds on exactly the differences between those in just a minute. But you know, I mean, saying that all annuities are the same is like saying that, okay, every vehicle is the same because it has wheels and it's a mode of transportation, but that's just not the case.

Speaker 3:
Yeah. It's like comparing a bicycle, an SUV, or a sports car. They're all different. Yeah.

Speaker 1:
They all have different functions and different ways that it's like, I'm not going to, you know, haul a bunch of gravel on my bike. You know, I would need a pickup truck for that or something. You know, it's like a different, it's a completely both modes of transportation. They both have wheels, but they do different things.

Speaker 3:
Yeah. Myth number two. Annuities lock up all your money forever.

Speaker 1:
Also not true. Um, at least in general and in the annuities that I work with in modern day annuities, people often will have this kind of thing in mind that the your money's locked up forever, that when they think about like old school annuities, right? Like annuities that were around maybe decades ago, because it used to be true. Like you gave an insurance company your money, and then they charge you a fee for the privilege of giving you your own money back in installments. And then if you were to pass away, that money just got kept by the company. Uh, it's no longer the case anymore. There are a lot better annuity products out there right now. Um, there are, however, uh, things like surrender periods that you need to understand. So like for the first, you know, five, seven, ten years of an annuity contract and some of them are longer because they're intended to be long term products, right? They'll be a surrender charge during that surrender period. So you usually able to, uh, have access charge free, so no surrender charge to usually it's up to 10% of the principal on an annual basis, right? Sometimes it can be different than that, but usually 10% on an annual basis without a surrender charge, anything above that would incur the surrender charge.

Speaker 1:
Um, and then so that is something to keep in mind. And that usually will go down on a, on a scale, you know, like it'll scale downward, I guess, um, scale backwards, uh, as time goes on. So that by the time that, let's say if it's a ten year surrender period after that 10th contract year, there's no surrender charge anymore. You have access to everything. So basically it becomes essentially liquid at that point. Um, there are also times when you can have penalty free withdrawals. There are liquidity provisions that are in a lot of these contracts as well, that may give you access to a certain percentage, you know, separate from that, that penalty free withdrawal. Like there are just a lot of different types of products that are out there right now. And so it's not a thing where your money is just is just locked up. So if you say your money's locked away forever, that is absolutely not true.

Speaker 3:
Right. So it's not really true. But people obviously need to understand what they're buying.

Speaker 1:
Yeah. And there are a lot of ins and outs. People can be confused by this, which is, you know, why we're doing what we're doing right now to sort of hopefully clear away a lot of that confusion.

Speaker 3:
Yeah. And what I always love, I always say that Matt is the advisor that cares. He's not going to try to sell you on something that's not going to help you.

Speaker 1:
Yeah, absolutely. Right. I would not recommend anything to anyone that I did not think was in their best interest. You know, I have a fiduciary duty in, in that way. Um, and it's also just the kind of person I am, regardless of that fiduciary duty, uh, to make sure that I always act in the best interest of any client. And so, you know, if you work with me, I will only recommend things that I believe based on all the information and my education, knowledge and training that I believe is best for you in your situation. Once again, take pride in retirement.com. If you want that consultation. It's absolutely free of any cost or any obligation.

Speaker 3:
Yeah. Myth number three only rich people buy annuities.

Speaker 1:
No. Um, a lot do I. But that is absolutely not the case. I mean, I work with a lot of people who are, you know, definitely in the middle class of this country who are not would not be considered rich, but they have annuities and, and for different people, it works different ways. Right. I, I've got some younger clients who want to be diversified and instead of doing the whole, you know, old portfolio with a mixture of like 60% stocks, 40% bonds, maybe they'll take that 40% and put it in something like a fixed indexed annuity, because bond and stock relationships have kind of gone wonky over the last few years. So it's not necessarily true that like it used to be, if stocks are up, bonds are down. And if bonds are up, stocks are down, that kind of thing, that inverse relationship that has kind of changed. So for some younger folks looking for principal protection and long term growth, and then, you know, like for older folks, I mean, you don't necessarily have to be rich. You just, you know, you have to have a certain amount of money. Sometimes the minimum of these are like maybe, maybe $10,000, something like that. Um, but they, you know, they can be up to 1 million or 2 million or $3 million annuities. Like those do happen as well. So you can be rich, but you don't have to be to invest in an annuity. And if you're older, a lot of people that the goal is maybe get some growth before retirement and then turn that into an income stream that you'll never be able to, to outlive. And so that is really, um, kind of the key here that no, only rich people buy annuities. Absolutely not. They do. But I think annuities can be for a lot of different people, regardless of your sort of economic status in life.

Speaker 3:
Yeah. And I think for a lot of people, especially in our community, they hear terms like wealth management or retirement income planning, and they just assume that they don't have enough money to need that kind of service.

Speaker 1:
Yeah, it's absolutely true. And I mean, a lot of times that comes from the, you know, and I and I'm not going to obviously, I'm not going to mention any names or anything, but there'll be some other advisors out there who's like, you know, if you have at least $3 million, give us a call. That is not me. You know, it doesn't matter. I always say, whoever you doesn't matter who you are, where you come from, who you love, how you identify or how much money you have, you deserve a retirement you can take pride in. And that's what I try to live by each and every day in my advisory practice is you. It doesn't matter how much money you have. Let's get you to a point where you feel like you can retire comfortably because just, you know, because you don't have $1 million today doesn't mean you can't have $1 million a few years from now. Invest your money the right way. And yeah, I mean, you do not have to have a certain amount of money to work with me at all. Certainly not millions of dollars to deserve some sort of retirement strategy. Everybody deserves that.

Speaker 3:
Yeah. Myth number four. If I die early, the insurance company gets everything.

Speaker 1:
That also untrue? Um, you know, it used to be, and I and I sort of alluded to this a minute ago. Um, it used to be kind of the old school annuities that that was the case. Like if you were to die and there was still a balance on that annuity that the insurance company would just keep it. And that was it. Well, these days, These contracts come with, you know, death benefits for your beneficiaries. Like when you, you know, sign the contract, you name a beneficiary or 2 or 3, you know, can have contingent beneficiaries as well. Like if someone has your, your number one, your primary beneficiary, they have maybe passed away before you, well, then the money would then go to a contingent beneficiary, that kind of thing. Or it can be split between different beneficiaries at a certain percentage. So there are different types of contract structures that allow for these things. But now there will be, you know, death benefit that goes to at least a beneficiary, if not more. So that means that your loved ones can receive those annuity payments or a lump sum, perhaps after you're gone. And they can benefit from that annuity that you have taken the time to, uh, you know, build for yourself. And, um, you know, put that principle into and let it grow for several years before turning on that income stream. That beneficiary can then take advantage of that. And it's one way that you can kind of make sure that your beneficiaries, your loved ones are taken care of after you're gone.

Speaker 1:
And, you know, especially, uh, important for the LGBTQ plus community because of chosen family. Sure. Name a chosen family member as your beneficiary if that's the case. Or more. Uh, if you are unmarried, uh, but you have a partner. This is a case where name that partner as a beneficiary on one of these. That's a way to pass on that wealth to someone who is very important in your life. And make sure, and I say this until I'm blue in the face, but I but I do it for a reason, because you got to make sure that those beneficiaries are updated, check that at least like once a year. Just go in and glance at it. Make sure nothing has happened. If there's a big life event that happens, a marriage, a death or something, you know, even when you move a big life event like that. After that is over and the dust is settled, go in there and look at those beneficiaries. Make sure they're up to date, because one of the most common mistakes that I have seen is people forgetting to update those beneficiaries after those kinds of major life events. Yeah, we have friends that obviously have encountered how, how not planning ended up being a very bad mistake for them in these situations. Yeah, absolutely. You gotta, gotta have a plan. You, uh, you know, if you fail to plan, you plan to fail. That's, that's how it goes.

Speaker 1:
And that's an old adage for a reason. We always say no one wants to do these things right. It's not fun to talk about. But I mean, these are things that in the long run, are gonna be great for you and, uh, to have that security to know what's, you know, that everything's taken care of. Yeah. Well, it's, it's like one of those things though, you know, like you talk about it not being fun. And it's absolutely true, like the death benefit thing and like the yeah, like anytime you talk about that aspect of it, not fun. The retirement income part I think is fun because people want to replace those paychecks. But yeah, this type of thing goes with an annuity. I feel like it's one of the beauties of it. You can kind of go hand in hand. Um, you can talk about the fun stuff and then the not so fun stuff as well. So it kind of true. I should be so Debbie Downer, honestly, uh, income for life sounds great. Yes, it does, at least to me. Yes. Of course. All right. So I want this is what I want to do. I want to put this into simple terms for everybody. Right. Okay. So you've discussed these three types, correct. So who is a fixed annuity for? Yeah. So a fixed annuity, uh, as I, you know, explain kind of what it is. So fixed annuity guarantees a certain amount of interest annually for a certain number of years.

Speaker 1:
So like, let's say just as an example, and this is the, you know, not any specific product or anything like that by any specific company, but just as an example, let's say it guarantees 5% interest for, you know, seven years or something like that. That is an example of a fixed annuity. You know what you're getting. That interest rate is fixed for that certain time period. And so this is good for someone who maybe is more on the conservative side as far as their savings go. They value principal protection over growth over over time. And it could be for someone who is, you know, definitely getting closer to their retirement. They've done well as far as saving and investing. And they want to move a portion of that into this, like a fixed annuity so that they are sure that they have that principal protection, but they're also getting some growth on top of that. I feel like that is really who a fixed annuity could be best for. And it could be best for for others as well. It depends on how you it fits in with your situation. But in general, someone who's maybe a more conservative saver who values principal protection. Definitely. Okay, that makes sense to me. So hopefully that makes sense to our listeners. So now let's talk about a fixed indexed annuity. Like who is that for the fixed indexed annuity. It's an FIA, as we say in in the biz. There's an acronym for everything out there.

Speaker 1:
But yeah, fixed indexed annuity is similar to a fixed annuity in a way that there is a fixed portion of it where it's like there'll be a contract period, right? So let's say for the first two years, for example, you would maybe receive a certain percentage of the performance of a stock index, like the S&P 500 or something like that on the upside. So basically what a fixed indexed annuity is, is it's like a fixed annuity, but instead of that guaranteed rate of growth for a certain amount of time, the growth that you will receive is tied to a market index, which means you could get quite a bit more growth than what that fixed rate offers. Now, another thing about it that is fixed means you've got downside protection. So the principal is protected. You're not going to lose that. But the upside is tied to a certain percentage of a market indexes performance. So you want that principal protection. Still if you are someone who invests in a fixed indexed annuity but you want greater growth potential as well and less volatility. So basically it's like if you're someone who wants market like growth without the market risk, this could be somewhere for you to invest your dollars. Okay. That makes sense. All right. Another one who might be interested in a variable annuity. Well so a variable annuity sometimes people will call them a variable annuity because they are subject to market risk. So these are going to be for people who are um a little bit more risk takers.

Speaker 1:
Right. The money like the funds are invested in the market, like directly in the market. And so but they're still tied to an annuity so that you can, you know, turn them into a income stream in retirement, they'll be generally a death benefit. And all the other features that we've talked about with annuities. Um, but they are subject to market risk still. So you don't have that principal protection anymore. And so if you're someone who is willing to take greater risk with your dollars and cents than a variable annuity, could be something that is good for you. Um, I tend to kind of, you know, shy away from them in most scenarios unless, you know, you're maybe a younger investor, that kind of thing. Um, but if you're getting closer to retirement, you probably do want some level of principal protection because you have worked so hard to save and invest over the years. You don't want to, you know, throw that away in, you know, a couple of years if the market tanks and you're like, where did my annuity go? You know, so that's, that's something to keep in mind with variable annuities. Is there that market risk is a thing. Okay, well, let's put this as my late mother noble would say as a math teacher into equations. So fixed equals certainty. Indexed equals balance. And we'll say variable equals more market exposure. Yeah that's a good way to look at it.

Speaker 1:
I sort of like. So you know some people, if you are um, familiar, of course, with the story of Goldilocks and the Three Bears, it's like sometimes for a lot of people, and this is not true for everyone, but, uh, fixed may be too cold indexed or rather variable. So, so if fixed is too cold and variable is too hot, then a fixed index could be just right. You know, it's, it's the, the porridge that you want to eat. Um, but again, it's different for everybody. So somebody might a variable annuity might be right for you, or a fixed annuity might be right for you. So, you know, it just depends on your individual situation when it comes right down to it. Yeah. And if you're in Ireland, you may want Bushmills in your porridge. This is true. This happened to us in Northern Ireland when we were in Belfast. Uh, we would walk into the breakfast that morning and it's like, wait a minute, why is there a bottle of whiskey out by the porridge? And apparently it's a thing. I said, okay, well, I guess I love Belfast. All right. So what do we think is the biggest takeaway from today's episode? Well, I would say probably the biggest takeaway here is that, you know, the question is not whether annuities are good or bad. The question is whether a particular annuity solves a problem that your retirement plan currently does not address. Um, so, you know, do you have that need for retirement income that replace that paycheck in retirement? Do you have a need for principal protection? Like there are all these different questions that go into it.

Speaker 1:
So, you know, an annuity may be bad for you. An annuity may be great for you. It just depends on your situation. So like a blanket statement of, oh, all annuities are great or all annuities are bad. Misses the point. Um, and you know, you've got to keep in mind that it's not black and white like that. There's a lot of gray area here and it just depends on you and where it all fits together, how the puzzle pieces come together for you. So look, folks, if you've got any questions about anything that we have talked about and you want that free consultation, I would encourage you to reach out. Take pride in retirement.com is the website. Once again, take pride in retirement.com. You can also give me a call, 85524692178552469211. Is that number I'd be glad to talk to you. Do a deep dive into your individual situation. We'll see if an annuity is right for you and you know, happy Annuity Awareness month everybody. We're gonna, I guess, um, I wonder what the traditional gift would be for Annuity Awareness Month. A paycheck? I guess I don't know. Yeah. Money sounds good. Yeah, exactly. That's always a good gift. All right. Well that's going to do it for this edition of Take Pride in Retirement, Mr. Attache. I appreciate it as always.

Speaker 4:
A pleasure, Mr. McClure.

Speaker 1:
Thank you, Mr. McFarland, and thank you for watching and or listening to the show. Really do appreciate you again, like subscribe, sign up for notifications. All the things help us spread the word. And until next time, take pride in yourselves and take care of each other. We'll see you then.

Speaker 5:
Thanks for listening. To Take Pride in Retirement. Members of the Lgbtq+ community deserve to work with a fiduciary financial advisor who puts their needs first. To schedule a free, no obligation consultation with Matt McClure and the team at Wealth Management, call (855) 246-9211 or go online to take pride in retirement.com. Investment advisory services offered through Brookstone Capital Management, LLC. Bcm, a registered investment advisor, BCM and Active Wealth Management Incorporated are independent of each other. Insurance products and services are not offered through BCM but are offered in sold through individually licensed and appointed agents.

Speaker 1:
Registered investment advisors and investment advisor representatives act as fiduciaries for all of our investment management clients. We have an obligation to act in the best interest of our clients and to make full disclosures of any conflicts of interest. Please refer to our firm brochure, the ADV two A item four for additional information. Fixed annuities, including multi-year guaranteed rate annuities, are not designed for short term investments and may be subject to restrictions, fees and surrender charges. As described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer. Registered Investment advisors and investment advisor representatives act as fiduciaries for all of our investment management clients. We have an obligation to act in the best interest of our clients and to make full disclosures of any conflicts of interest. Please refer to our firm brochure, the ADV two A item four for additional information.

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