Fixed Index Annuity (FIA) Webinar

My approach to FIAs is a unique consumer first approach based on realistic return expectations.

To read this Webinar in it’s entirety, click below: Read transcript

I really appreciate everyone being here to go over one of the most controversial products on the planet, fixed index annuities. I have a unique look at these products and how they should be utilized in a portfolio. I look at them from the standpoint of, “Do you even need one?” That’s fixed index annuities, the AnnuityMan Way.

You own annuities-any type of annuity-for what it will do, not what it might do.

I only talk about the contractual guarantees. My saying is, “Will Do, Not Might Do.” You don’t own an annuity based on some pie in the sky, hypothetical or dream return scenario. You own the contract. Annuities are not investments. They are contracts, so you own the contractual guarantees. Okay? There are four major rating services, AM Best, Moody’s, Standard & Poor’s, and Fitch. Comdex rankings are a compilation annuity carrier rating service.

You can go to my website and download a current Comdex rankings chart.

The annuity company and the annuity guarantee is only as good as their claims paying ability. We update Comdex rankings once a month, and provide this information to you for free. What I like about Comdex rankings is they rank them 1 to 100, 100 being perfect. So this is a 20 page report. When we talk about annuities, we talk about claims paying ability. I look even deeper than this. I look at the bond holdings and the SABAC ratios and things like that, because annuity guarantees are only as good as the claims paying ability of that company. I invite you to visit my website where you’ll also find The Steakhouse which shows a lot of my strategies. There’s a Resources tab with videos, articles and more. Plenty to learn from there. The word annuity comes from the Latin word annua. In Roman times soldiers and their families were meted annuity pension type payouts. That’s where annuities come from.

There are only two questions you need to ask to determine if you need an annuity:

  • “What do I want the money to contractually do?”
  • ”When do I want those contractual guarantees to start?’

That’s it. Only these two questions you have to answer. Once you have the answers, I step in. to shop for the best annuity type based on those two answers”

There are four basic places annuities fit into your portfolio:

  • Legacy- Legacy is the action of leaving money to beneficiaries. There are annuities out there that provide death benefit type guarantees, if you can’t qualify for life insurance.
  • Income- Most annuity types were developed to provide lifetime income.
  • Long-term/confinement care- You can buy annuities for long-term care.
  • Safety/principal protection- Indexed annuities were not created for income or impressive gains. Indexed annuities were developed for principal protection with a CD type return.

Notice I haven’t mentioned market growth. People say, “Well Stan, we’re talking about fixed index annuities. Isn’t that a market growth product?” Absolutely not. It’s not. So let’s talk about that and where fixed index annuities fit in a portfolio.

Annuities are transfer of risk products, not market growth products.

You’re transferring risk to the annuity company to do what you want the policy to do contractually. The acronym I use is PILL:

  • P stands for principal protection.
  • I stands for income for life.
  • L stands for legacy and the other
  • L stands for long term/confinement care.

If you don’t need to solve for any of these four things, guess what? You don’t need an annuity.

Where do fixed index annuities (FIAs) fit? Currently and historically they fill the principal protection area.

Why? F stands for fixed. It’s a fixed annuity. You’re not going to lose money if the markets go down.

Indexed annuities were introduced in 1995.

Keyport Life was one of the first carriers if you remember that carrier.

They were introduced to compete with CD returns, not market returns.

These products were designed to compete with CD returns.

The Fixed Annuities have a fixed annuity structure.

A Fixed Annuity is like an enhanced CD. Now when someone says you can get all the market upside with no downside, hopefully, you’re not the rube at the table. FIAs aren’t the greatest deal since sliced bread. It doesn’t work like that. Okay, I understand that you’ve heard talk about FIAs like “market upside with no downside”, or “market participation”. It’s not only wrong but borderline fraudulent to introduce them this way. In fact, it is fraudulent.

Indexed annuities are life insurance products, and are not classified as a security.

They’re issued by life insurance companies. You have to have a life insurance license to sell them, not a securities license. It is not considered a security. The SEC and FINRA do not oversee sales of indexed annuities unless you work for a broker/dealer or a bank etc. A life insurance sales person can sell you an indexed annuity, which in a lot of cases isn’t a good thing. The bar is pretty low.  There are multiple sales ploys that pop the top of my head off. Especially cringe worthy is calling a FIA a Hybrid Annuity. It’s not a hybrid. A hybrid is a car. A hybrid is a plant. I saw the other day that a hybrid can even be a mattress. No annuity is a hybrid. An indexed annuity is not a hybrid. Anybody out there using the word hybrid to try to sell indexed annuities is just trying to polish it up to make you think you’re getting something that’s unique or that adapts. Don’t let that person use the word hybrid, not only because you don’t want to see the top of my head pop off.

Indexed annuities are sold by over-hyped pitches that over-promise returns.

I have to explain why I hate how most indexed annuities are promoted and sold. I know you’re saying, “Stan, this is interesting, but you’re kind of going down the rabbit hole of why you don’t like them.”  I’ve got to establish what kind of false promises are out there first. I hate most of them because they’re the most over hyped and over promised products on the planet. You must be aware of some of the TV ads on cable TV, or heard radio ads, or a radio show on a Saturday morning called Safe Money. I’m not putting those people down, but they’re hyping market upside with no downside/market participation with no downside. It sounds too good to be true, because it is. Unfortunately the promoters can get away with this. Hopefully the new department of labor fiduciary rule will reel some of this stuff in.

An upfront bonus is NOT free $$.

Another angle I don’t like is people touting these up front bonuses. Let me tell you something: There are no philanthropists at any annuity company saying, “You know what? I’m going to give away money today. I’m going to give away money to the public, because we are the best annuity company on the planet.” Buying any annuity just for the bonus is a mistake. In fact, buying an indexed annuity for the bonus is like buying a car for the stereo system (FIAs are usually sold with these up front bonuses). It makes absolutely no sense. The bonus is only part of the overall contractual guarantee. When you get these upfront bonuses, they’re not thrown in for free. They’re charging for it. Typically the contractual guarantees aren’t as high either.

Income Rider percentage rates are NOT equivalent to yield.

Income riders also drive me crazy. People call me all the time and say, “Stan, I just bought an index annuity that guarantees me 7% or 6% or 5%.” Something very high that makes them think that Jimmy Carter is still in office. Income riders are attached benefits to indexed annuities and variable annuities. Primarily these are indexed annuities that you can only use for income. You can’t peel off that nice high interest. You can’t transfer that amount. You can’t get to the lump sum in any form or fashion. It’s monopoly money. So if someone says, “Hey. I can get you a 10% bonus and a 7% yield.” That’s a lot. Income riders are not yield. It’s a growth to the income account that is used solely for calculating that income stream payment.

This doesn’t mean income riders are bad. I’m saying think realistically about 7% in these times. There is no 7%. There’s no genius at an insurance company who has figured out how to take a 2.5% or 2.6% Ten Year Treasury rate and turn it into 5, 6 or7%. Okay?

Another thing, “Doublers” are NOT Long Term Care.

Doublers are also misunderstood.  A lot of these indexed annuities have enhancements to the income stream. Agents might call these enhancements long term care. It’s not long term care. Long term care is a healthcare product with its own tax benefits. There are not any indexed annuities with Doublers that qualify as long term care. Typically, these provide confinement care and this really isn’t that great of a benefit. It’s not bad, but it’s not great. Really the benefit is when you get sicker, you get your money back quicker. Okay? That’s what a Doubler does.

FIAs are NOT “hybrid “annuities.

Don’t let anybody get away with the “hybrid” pitch. It’s a joke. If it sounds too good to be true, it is. If someone pitches you a product and it really sounds too good to be true, write down exactly what that agent told you. Sign and date it and flip the page around and have that agent sign and date it. They will not sign and date it. Okay? Because they’re just pitching the bullet points. You can’t have your cake and eat it too. If you have an indexed annuity and the agent says, “Even though you’re getting income, the growth from the indexed annuity is going to offset that income”, that’s just a garbage statement. Be smarter than that. You’ve either got to buy the annuity for principal protection and CD type returns, the indexed annuity, or you buy the rider. Okay? Period.

Annuity carrier proposals will all reference back-tested numbers, but we WILL NOT focus on those numbers. Focus on the contractual guarantees available to you NOW.

Any kind of theoretical, hypothetical, back tested, projected, agent’s non-guaranteed, hopeful return proposal nonsense drives me crazy. Those planets never align themselves in real life. So, to look backwards at those numbers is a waste of time. Here’s the funny part: when you email me, say “Stan, I’m interested in taking a look at these at a rational level.” When I send you the information from the company or companies that that are approved in your state, those I think are the best in your state, every single proposal is going to show back tested numbers. Why? Because that is how the carriers present them. What I’m telling you is don’t put an ounce of reliance on those numbers. Don’t try to analyze back tested numbers drawn from when the 10 year treasury was at 4%, 4.5%, or 3.5%. All right? That’s just ridiculous.

What we do is look at indexed annuities and how they work. You make your decision based upon realistic return scenarios, based upon if those contractual guarantees. We’re seeing what will work for you.

Most people with a pitch about index annuities say, “Well listen, if you’d have owned it 10 years ago, this would have happened.” That’s garbage. We can all look back 10 years from now and make a good decision, right? Don’t allow that garbage to influence your decision about what to do now. I’m not going to show you those hypothetical scenarios.

Indexed Annuities are good if placed properly and in proportion in your portfolio.

With all that being said, I actually like indexed annuities. If they’re used properly. If they’re placed properly and in proportion in your portfolio, and if you understand the good and the bad and the limitations.

FIAs should be used for principal protection. They bridge between CD returns and the stock market.

In essence, an indexed annuity is a bridge between the stock market and total safety. It’s a product that’s in between that. It’s not a market product. Don’t let anybody tell you that it is, because it’s not. It wasn’t designed for that. You’re not going to get those type of returns. It’s not a boring old CD. It’s in the middle. It’s a bridge. It’s going to get you a little bit better returns than a CD historically, because we know those range of returns. That’s the “Will Do” part of it. You ask, “Stan, what will a fixed index annuity do?” It’s going to give you principal protection with enhanced CD type returns.

When using indexed annuities for principal protection we don’t attach riders, so there are no annual fees.

Beacon Research did a study on all indexed annuities going back way back. Typically what they saw was about a 4% annual return. That’s a rational expectation, right? Could you get more if the planets aligned themselves one year? Yeah. Sure. You could. If you decide, “Stan, I’m okay with bridging from the markets to full principal protection and a 4% type return scenario.”, then an indexed annuity might work for you. I do use indexed annuities without riders in these cases. We’re talking here about the use of indexed annuities, without the rider, for principal protection. Once you attach a rider, fees are going to be coming off the accumulation value. Fees will reduce that 4%ish every year for the life of the policy, so I don’t attach riders.

If you are looking for income later, compare Income Rider guarantees and the contractual guarantees DIAs promise.

When Some of you might be saying, “But, Stan, I bought an indexed annuity with a rider.” Yeah, in your case we were looking for income later. Remember, you ask yourself two questions to begin with, “What do I want the money to contractually do?” and “When do I want those contractual guarantees to start?”  If you start with, “Stan, I want income later. I want to control the asset and I want the income to start 12 years from now.” That indicates an income rider. Okay? That’s the guarantee the income rider provides-income.

If you want an income rider, then go shop for one, in addition shop for a deferred income annuity, because those are two comparable ways to accomplish income later. So I look at indexed annuities for a CD type return, an ASCD for tax deferred accumulation only.

Indexed Annuities can be used in annuity ladder strategies that combine FIAs and MYGAs.

I also use indexed annuities in some more complex ways. I use them in ladder strategies: 3 year, 5 year, 7 year, and 9 year. With that type of ladder, the three year is a MYGA (a fixed rate annuity). The five year can also be a MYGA, or an indexed annuity, and the seven and nine are indexed annuities.

You can also do a five, seven, and nine ladder, or what I call a mixed fixed ladder. This combining of indexed annuities and a fixed rate annuity is very popular with my client base.

My strategy sets me apart from every cat out there right now. I hope that there are some agents watching and listening to this webinar. Sometimes we want income from an indexed annuity, but we’re not really sure about the prospect of a rider attached to it. The income rider fee will eat into those gains. That’s when I do a FIA to SPIA. Start with an indexed annuity, then at the end of the contract we shop for the best immediate annuity out there, when you need income. It’s the best way to do it. You can file a 1035 transfer when it’s non-qualified, non-IRA or IRA to IRA. You transfer the gains with it. Then you buy the highest immediate annuity payment. Remember, FIA to SPIA.

I’m not saying you don’t use indexed annuities for income, but if you’re not sure you need income, then don’t attach the rider because all it’s going to do is create a lifetime fee that skims off of that accumulation value.

You can get a fixed index annuity that stands alone or you can ladder it.

So an example of laddering at the time of this recording (06.15.17) includes a three year multi-year guaranteed annuity at around 2%. You say, “Well Stan, that’s horrible.” Check the 10-year Treasury. Get your expectations in line with reality. The five year, you can either do a 3% MYGA or five year indexed annuity. Once again I hear, “Stan, 3%. That’s not Jimmy Carter.” No, Jimmy Carter is retired and building houses. Those rates are not coming back anytime soon. I don’t care what Mama Yellen’s doing nicking away at 25 basis points here and there. Okay? So on to the seven year, it’s an indexed annuity with the nine or 10 year as an indexed annuity without riders. A 10 year is as far as I’d let you go. Period. All of these would have no fees. No annual fees! If you need income, we go shop for an immediate annuity at the times they come due. So if in a laddering situation you did a 3/5/7/9, at the end of the three year I’d say, “Do you want me to mail you a check? Do you want to transfer it to another annuity and not incur any of the taxes via the 1035 rule, or do you want me to go shop for an immediate annuity (SPIA)?” And when you get the immediate annuity, there’s no fees with that as well. What’s the deal with no fees?

Let’s stop right there. Do I get paid a commission? Absolutely. It’s paid out of the reserves of the company, so I do get paid. All right? Don’t let any agent say to you, “Oh, there’s no commission.” We do get paid. I’m not a philanthropist. Simply, when I see a product with no ongoing fees that can diminish it over time it seems a product worth your consideration.

Using FIAs and MYGAs in a laddering strategy, you can do a FIA to SPIA if you need income when FIAs come due.

All right, so back to using a SPIA for income. The great part about using a SPIA is that there are no rider fees to eat into the accumulation value. For example, say your income rider grows at 7.2%. Remember this income rider is an attached benefit for income that you can only use to calculate the income stream. The fee on that income rider is 1%. If you defer for 10 years and you turn on the income, the fee is then increased to 2%. Why? Because the money’s increased 7.2% over ten years, that doubles. So if you had $100,000 it turns into $200,000 at one percent fee.

An indexed annuity without a rider can provide pure tax deferred compounding growth.

If you need a rider, fine, buy the rider. I’m not saying they’re bad, but don’t attach it if you’re not sure because it’s just going to eat into the gains. So instead an indexed annuity without a rider can provide pure tax deferred compounding growth, and then when it comes due we go shop for the best immediate annuity payouts. The immediate annuity monsters I represent are all those big companies that run the big ads. All the carriers you’ve heard of, all the ones that are high on the Comdex rankings, those are the people that play in the immediate annuity world. Okay?

A 1035 is the IRS code that allows a non-taxable event transfer from one annuity to another.

We do a 1035 transfer if it’s an IRA, or it’s an IRA to IRA transfer, or If it’s a non IRA. . The good part about deferring as in the FIA to SPIA strategy is that if interest rates do rise, then we have the option to be locking in those higher rates as well. Okay? If you think that rates will rise in the future and you’re not sure you want income but you might need it, then it’s better to not attach the rider. Do the FIA to SPIA strategy, so you can then shop for immediate annuities if need be.

You can spread out the taxes on those indexed annuity gains over your life expectancy, when transferred to an immediate annuity.

Immediate annuities are an annuitized income stream. All annuity income is a combination of return of principal and interest and mortality credits. You’re not going to pay income taxes on that return of principal in a non-IRA setting.  It sounds simple, but I’m the only guy doing this. Why? I think this is the future on how indexed annuities will be used for income in the future. Riders do have their place if you only need to know to the penny what the income stream is going to be in the future. This is also a legitimate choice going forward.

What information is needed to find the annuities right for you?

In order to search for indexed annuities in my world, I need:

  • Age and state of residence.
  • How much money you want to place (there are minimums with some of these products). Are funds used non-IRA or IRA?
  • When do you want the money back? Do you want money back or to find an immediate annuity when the fixed index annuity comes due
  • Look for a high COMDEX ranking. Personally I filter out all but those products with high Comdex rankings.
  • I’m not going to attach income riders. If you say, “Stan, I want income rider.” Then we have a whole different conversation. Then we talk about income later and I quote both income riders and deferred income annuities. If you submit a fixed index annuity quote to me, there are no income riders.
  • There are also no bonuses, and no annual fees.
  • I also look for companies that have good renewal rate histories. Is there index option choice inside the indexed annuity? When does that mature based on whether you buy a one year option or a product with a three year option? We choose companies that historically have been nice to their clients, because there’s a lot of bait and switch out there. There are a lot of tease rates. We don’t do that. We follow these companies and we make sure you’re going to be with a company that’s going to treat you right. We filter everything down to no fees, the best companies with the best renewal rates, so we can have the maximum accumulation. Okay?

 The return scenarios on these FIAs are all about index call option choices.

In essence, a call option is your bet whether the market goes up in a specific year. The option range is from the contract anniversary date to when that specific option ends. Most of the indexed annuities out there have one year call options. So, from contract anniversary date to contract anniversary date. There are some that have longer term options like a three year option. There’s even some with a seven year. So you’d have to wait seven years to lock in a rate if it goes higher.

Just like traditional investing, what we’ve seen is, the longer term options have performed better. That doesn’t mean they’re better. That just means, like anything, if you have a longer term view of any type of investments, you’re going to do better. One of the things that we look at when you email me and say, “Hey, Stan, here’s my age, here’s the state. Here’s the IRA or non-IRA here’s the money. And here’s how long I want to hold the money.” I shop for both one year options and longer. Then we can have those conversations. Sometimes it’s a mix and match.

Indexed annuities can also have a declared rate, or a fixed rate.

There’s a lot of index option choices out there, and no perfect answer. We have conversations one on one when choosing the right one for that first term. We’ll discuss caps and spreads and point to point, etc. These are all individually driven decisions. Also with indexed annuities, you can have a declared rate, we’re calling it a fixed rate. They might say, “You don’t have to do an indexed option, if you think the markets are going to go in the toilet during the next term.” If that’s the case you can tell me, “Stan, let’s just put it in a declared rate.” Lots of declared rates are 2-3% right now. So you can say, “Stan, let’s not do options this next year. Let’s just do a declared rate. Let’s keep our powder dry.” Then the next year, we might go get an option.

FIA options are based on the S&P (without dividends) or new Proprietary Indexes that have been developed.

Most of the indexed options when they first came out were based on the S&P without dividends. You’re saying, “Stan, but that’s 45% of the returns.”? Exactly. That’s the reason you can’t say fixed index annuities compete with market returns. It’s an S&P without dividends. Now there’s also a lot of new proprietary indexes. There’s probably anywhere from 35-40, however you want to count it. The JP Morgan, the Goldman, and the Morgan Stanley organizations of the world, etc. have come up with these indexes. They might be a mix of global, domestic, or whatever indexes. I’m not saying one is better than the other. I’m saying there are a lot of choices.

Fixed Index Annuity gains lock in permanently.

The good part about indexed annuities is the gains lock in permanently, and never go backwards. That’s a good thing, right? You have principal protection and whatever gains, typically those are enhanced CD type returns that lock in permanently. Dividends are not included.

What are the reasons to consider FIAs?

  • You do NOT want to lose a penny. If the markets are scaring you a bit – don’t buy things on fear – and you find yourself thinking, “You know what? I want to take a portion of my money off the table. I don’t want to go all in on a CD or money market or something like that.”
  • A FIA provides a bridge from the markets without losing a penny, this might be what you want to do. It’s a bridge. It’s a transition from the market. Connected, but not a market product.
  • You can use it in a non-IRA account for tax deferral.
  • Gains lock in permanently.
  • There are no ongoing fees without a rider attached.
  • If you need an income rider, a fixed index annuity is a very efficient delivery system.

Without using back-dated numbers think conceptually about these fixed index annuities. Say you had a one year call option on an indexed annuity and that year the S&P went in the toilet. It went in the toilet when something happened globally, and you didn’t make any money that year. You made zero, because that is the worst it can be on an indexed annuity option. When you go to buy the option for the next year, you’re going to lock in at that low S&P level. That is a positive for indexed annuities.

What are the limitations of FIAs?

  • FIAs are not stock market growth products. All products have limitations. The fixed index annuity is limited because it’s not a stock market product. Don’t think it’s even close. It’s not.
  • They have high surrender charges with limited liquidity. If you said, “Stan, I want a seven year. I want my money back in seven years, or I want my money back in nine years, or I want my money back in five years.” The surrender charges are high if you want to get all of your money out early. Yes, indexed annuities do have some liquidity provisions. Typically, it’s 10% of the policy accumulation value on an annual basis that you can get out. If you are struggling to make a decision whether to put money in an indexed annuity because of lack of liquidity, don’t buy it. Leave enough money in cash so you don’t have to make that decision. One of the biggest mistakes I see is when people put too much money in to an annuity. Don’t do that. Keep the powder dry. This is a bridge product with limitations.
  • Dividends are not included in the index returns. Period.
  • Lifetime annual fees apply, if you attach the rider. Those fees and restricted gains are the reason to consider the straight forward accumulation strategy. Notice I didn’t say growth, because when someone says growth immediately minds are set on the markets. It is an accumulation strategy with limitations.
  • Renewal pricing is at carrier discretion. They can set the caps and the spreads and the limitation on the upside without even talking to me or you. That’s the reason that we look for companies that historically have been nice to their clients.

Despite the limitations of FIAs there are benefits.

  • Full principal protection. Why? It’s a fixed annuity. If the market goes to heck in a hand basket, even though it’s not a market product, you have an index call option, the S&P or whoever. If the market goes down, you’re not going to lose your money.
  • Gains are locked in permanently
  • Gains grow, and compound tax-deferred. These are all good things. In a non-qualified type setting.
  • There are no annual fees when you don’t attach riders, which we’re not going to unless you want income later.
  • Indexed annuities have a known range of returns. What I mean by that is, it’s a fact that fixed index annuities were designed to deliver comparable to CD returns or a little bit better than CD returns. We kind of know what the returns are going to be regardless of the indexed annuity. I know there are a lot of indexed annuity promoters and agents out there that say, “Well historically ours has done seven to nine.” I’m telling you to please, base you decision on CD type returns. Do not base your decisions on those high numbers. If they happen, we’ll high five you. You get all the credit. It might happen occasionally, but it’s not going to happen all the time.
  • There are penalty free liquidity choices, you can typically get out 10% and a lot of them have provisions if you get sick as a dog, and you know you’re getting ready to die, you can get your money out.

You can change your FIA index strategy choice every contract anniversary date (1yr, 3 yr, etc.)

Just think proportion and allocation. A lot of these companies have multiple choices. We do the best we can to support you making a decision based on the best information we can get. You can change it in the future. For instance, if you have a product that has one year call options, or if you have a longer term product we get to change it every contractual anniversary date. There’s a good longer term product out there now that has a three year lock in. Every three years you get to change that strategy, or keep it the same.

Remember if the markets go down and the index goes down. You get to lock in those lower levels that next year.

I think that’s important. I wouldn’t equate that into dollar cost averaging, but it’s as close as you’re going to get to buying low in an indexed annuity world.

FIAs have declared fixed rates available, so you don’t have to do an index option choice.

Most of them, not saying all of them, have a declared rate.

You can choose combinations of the options available.

If they have five or six different index option choices, you can spread it amongst all of them, as long as the percentage equals 100. It’s customizable. There’s no perfect choice. I call it a dart throw, but we aim well for you to get you the best enhanced returns possible during that contract time.

We look for no annual fees.

  • We’re not looking for upfront bonuses. If they have it as part of the contractual guarantee great, but most of these that we’re going to be finding for you don’t have the rider. We’re just looking for guaranteed protection with accumulation, not for the bonus.
  • We don’t attach riders unless you say, “Hey Stan, I want income later.” Then our conversation completely changes.
  • There are no fees deducted from the gains, which is good. Trust me on that one.
  • Commissions are built in and paid from the company reserves. I see commissions in the DOL, Department of Labor fiduciary world going down, down, down. That’s okay. I really believe that consumers need protection from fees that drain their coffers. If a swamp needs to be drained, it’s probably in the indexed annuity world. These are good products that have been sold so improperly over such a long period of time that they’ve gotten a bad reputation. It’s sad.
  • You buy an indexed annuity and it’s a net transaction to you. So if you put in $100, you’re going to see $100.

I want to revisit the FIA to SPIA strategy.

  • Shop all SPIA carriers for highest contractual income for your specific situation. It is important if you do decide you need income. If you need income when the FIA comes due, we go shop the best immediate annuity carriers out there for the highest contractual guarantee, because those are commodity type products.
  • You annuitize that money you’ve had in the FIA finding customized income guarantees. You have choices how to annuitize: period certain, life only, and life with period certain. The insurance company doesn’t get to keep the money. You can structure it so they never keep a penny and they’re on the hook to pay you for life, if you transfer it to an immediate annuity. You say, “Stan, I want to hold the money for seven years.” At the end of the seven years I say, “Hey, I’m going to send you all of that money with the gains or we can transfer it to another indexed, fixed rate annuity, or immediate annuity. It’s really just based on what you decide you need at that time.
  • In a non-IRA setting, immediate annuities have an exclusion ratio. This means that a large part of your-of your income stream is not taxable because it’s the principal part coming out. The same scenario with an income rider is taxed LIFO (last in first out) as ordinary income. They tax all the gains first. So with an exclusion ratio with an immediate annuity in a non-IRA account, you spread those gains out over a life expectancy. I think that’s pretty powerful. It’s a non-taxable transfer from FIA to SPIA. The cost basis transfers with it. So we spread that tax liability.

Should you use IRA or non-IRA money in a FIA?

IRAs and non-IRAs can hold indexed annuities. Some indexed annuities are more RMD friendly than the others, so if you email me at age 73 looking for something in your IRA we’re going to find that indexed annuity that’s RMD friendly for you.

People always ask, “Stan, can I put it in my Roth?” The answer is yes, but I rather you use your Roth for really aggressive growth. Why? Because you already paid the taxes on it. Can you put it in there? Yes you can. Can you put an immediate annuity in a Roth? Yes you can, but I’d rather you roll the dice overhand with a running start in your Roth, if you have one.

You can set up ownership of the annuity in multiple ways: you own it, you and the spouse own it, or a trust can own it. Depending on the situation these products are all customizable. You can list the beneficiaries at the time of application. The people who are going to get the money when your Lear jet hits the mountain can be changed as well. If Johnny or Joni makes you mad, then you can remove them as beneficiaries. It’s not an irrevocable choice. It’s revocable.

We look at indexed annuities as an accumulation vehicle and strategy, with the accumulation value as the death benefit. So when your Lear jet hits the mountain that index gain plus the principal you initially put in is the death benefit.

We do Online & Hard Copy Applications

We are one of the few, if not the only agent licensed in all 50 states. We don’t often meet face to face with clients, because it’s really not needed. We’re looking at contractual guarantees. You either want that guarantee or not. Everything we do is online, or through FedEx.

  • Everything’s fully secure and encrypted. Okay? We have thousands of clients in just about every state.
  • I’ve got a great staff that handles all of the paperwork from start to finish. I’m involved as well.
  • It’s an online and phone application process.
  • No information is ever shared or sold ever, ever, ever.
  • Full confidentiality.

Look at indexed annuity return expectations that are only in line with contractual realities.

This is important, because if you go to the bad chicken dinner seminar or you look at the guy on TV that says, “I can get you market upside with no downside.” It sounds good and you want it to be true. You want people to tell you you’re skinny, right? I mean I want people to tell me I’m skinny and I’m good looking, but you saw my picture. It ain’t happening. Some guy said I looked like I was in Game of Thrones, which is some medieval thing on HBO.  Maybe it’s a mid-life crisis, but the reality is, I’m not good looking. The reality of the indexed annuity is it’s not a market product. So patience is required. Patience as a consumer to fully investigate.

Patience is required to understand and purchase and own a FIA for the right reasons.

  • I need you to be a grownup. I don’t need you to say, “But Stan, could it get 8%? Could it get 7%? Could it get market return?” It wasn’t designed for that. Could a Honda win the Indy 500- the Honda that my daughter drives? Maybe if all the other cars wrecked. Do not approach indexed annuities with some pie in the sky dream. Engage in the conversation saying, “Okay, this is a transition product. I don’t want to lose any money. I want a little bit better than CD returns. I don’t want to go all into CDs and make that transition.” If you can do that, then this is a product to consider.
  • Have a long term mindset.
  • You can own it as part of a ladder, which I recommend unless you just want to do a stand-alone.
  • Better than CD returns is the goal. What’s the goal of returns at this point (06.15.17)? 4% is the goal, right? Better than that, great. You get all the credit. If the markets go in the tank or something happens globally, you’re not going to lose any money. Full principal protection. Why? Because it’s a fixed annuity.

The Fixed Annuity structure offers principal protection. If the index option returns 0% for the duration of the policy, you still get your original principal back.

Zero change is the worst case scenario. Full principal protection and go into it knowing that if you get zero growth for the duration of the policy, you know you’re going to get all your money back. A lot of these policies do have a minimum guarantee just in case there is a zero across the board. Just go into it understanding worst case scenario, understanding the “Will Do” of the product.

FIAs are not a security, stock, mutual fund, ETF, etc. (Do NOT expect market returns!)

I just want to make a point here, it’s not a security. It’s not a stock. It’s not attached to the stock market. It doesn’t get you mutual fund returns. Remember the two questions: “What do I want the money to contractually do?”, and “When do I want these contractual guarantees to happen?” If you want market growth, don’t buy an indexed annuity.

FIAs are a life insurance product.

My favorite shtick that indexed annuity promoters use, “Reasonable rate of return.” What in the heck is that? That means nothing. Give me a number. If that number is five, six, or seven percent, you’re dreaming. Agents are out there saying, “Stan, you’re wrong.” No. I’m right. This is where the industry has earned its bad reputation. Indexed annuities are great products. They’re fixed products. They’re CD products and they’re going to get you better return than a CD historically. It’s not a security. It’s a life insurance product.

FIAs are part of the Fixed Annuity family.

I came from Morgan Stanley, and Dean Witter, and Payne Weber and UBS. I did that for a long time. Securities, stocks, bonds, mutual funds, and UTFs-that’s where real growth is. If you want real growth, that’s where you go. Securities provide unlimited potential with risk. Look at a fixed index annuity for what it really is: a product like an enhanced CD.

Keep your return expectations in line with the design of the product.

Market upside with no downside sounds great, but it’s not true. The new DOL rule coming out should help curb some of the false curb appeal. I believe that agents will be in violation using words like “market” or “stock market” unless they have the proper licensure to give financial advice. I think in the future, if an indexed annuity agent is saying, “Market upside with no downside.” They’ll get tapped on the shoulder by regulators saying, “You can’t do that.” Now you know that they can’t say that because it isn’t true, don’t allow them to do that.

Remember Beacon Research found an average of 4% returns. So use rational reasoning when considering FIAs.

What will FIAs do? They “Will Do”:

  • Full principal protection
  • No riders
  • Gains lock in permanently
  • Liquidity provisions
  • Better than CD returns
  • Full control of your money. Full control of your money. You’re not losing control of it. The insurance company’s not keeping it. If your Lear jet hits the mountain, your beneficiaries get all of it. Okay? Full control of the money.

Let me and my staff, best staff in the world by the way, find the best indexed annuities provided in your state. Not all of them are approved in every state. That’s a reason why we’re not going, “Hey, this is the best one since sliced bread.”  I don’t believe there is a best one.

  • We have to look at what’s available in your state.
  • You can use indexed annuities as a stand-alone tool or ladder them.
  • You can use a mixed-fixed strategy with indexed and MYGAs combined.
  • You can do ladders whether it’s a mixed fixed ladder or an indexed annuity ladder.
  • You can customize it the way you want to customize.

What steps can you take now to learn more about indexed annuities?

  1. If you don’t have my book, email me your physical mailing address. Please don’t email me just saying “Send it to me.” Because I can’t without your physical address. I’m going to ship it to you in a gold, bubble foil mailer. You’ll love it. Email me your physical mailing address if you don’t have the book.
  2. Let me shop for the best indexed annuities for you.
  3. Be a grownup. I’m not going to chase you. I’m going to have a professional conversation with you. I’m not going to pitch you. We’re going to talk like grownups about this product.
  4. You are going to make your decision.

All I need is:

  • Your age
  • Your state of residence
  • Whether it’s IRA or non-IRA money
  • How much money
  • When you want the money. “Stan, I think we’re looking at a seven year hold here.” Okay, great. Or five or nine or 10. Whatever you’re thinking.

If you say three years, then we’re talking about MYGAs. We’re not doing indexed, because there’s no indexed annuities at three years. I encourage you to at least look at these products now that you know their design and return expectations. You can also schedule a call with me. It’s typically 30 minutes conversation, and it’s not a sales pitch. We’re going to have a grownup conversation about these products to figure out if they fit. If they don’t fit, I’ll tell you. No pressure, no pitches, etc.

Let me shop for all of that. You can make your own decision on your own timeframe. I wish my clients could talk to those of you who aren’t clients. They would tell you that I do respect your decisions and I respect your timeframe. It’s your money. You make your call.

My job is to shop for the best products in your state based on your situation and the customization features you want, and to provide all the information you need: upside, downside, limitations and benefits. You make your own decision. Then all the paperwork is taken care of from start to finish, if we get to that point.

If you have questions email me at I will answer every single one of them. You can always call me. My clients understand what they’re buying. They’re not buying fear and they’re not buying hope. They’re buying reality.

Thanks for attending, listening to and/or reading the transcript from the Fixed Index Annuity Webinar.