Annuity Black Swan Event

Today's topic is a very unique one because we're in unique times and I call it the Annuity Black Swan event. Now, what's the Black Swan event? That might give away that I used to work on Wall Street for Dean Witter, Paine Webber, UBS, and Morgan Stanley, all fine firms. Something that happened kind of strange. We called it a Black Swan. Black Swan is something that you can't prepare for, you're not used to seeing a black swan. So when one shows up, it's a unique event. I don't know who came up with that, but it's a pretty interesting way to explain it.

The Black Swan event is Russia and Mr. Putin invading other countries. The Black Swan event has created some things that we haven't seen in a long time in the Annuity industry and let me give you an example. I was talking to my CEO earlier this week and we have never seen this happen. Well, it's been a while. We've seen annuity companies raise interest rates in preparation for the FED saying they're going to raise interest rates, et cetera. We've seen those interest rates rise. But all of a sudden, once Putin invaded, now we're seeing companies scale that back and they're actually decreasing interest rates. So in a less than a 60-day time period, or let's just say a 90-day time period we've seen interest rates move up, and then we've seen interest rates go down after this invasion. That's a Black Swan event and that is a very good example of not being able to predict this and not being able to time it, and not being able to find the sweet spot to buy an annuity of any type.

I always tell people you can't beat the annuity companies, they have the big buildings for a reason, especially with lifetime income. You're talking about the pricing being primarily based upon your life expectancy, if it's joint life expectancies, at the time you take the payments, then also Tom Hegna calls them mortality credits. Same thing, it's based on your life expectancy, similar to social security. The older you are, the higher the payment. Right? Nod your head. AIn actual interests rates play a secondary pricing role, a very minor role. A lot of people say, "Well, I'm going to wait to buy when interest rates move". Well, you have to factor in the payments that you missed and also too with a deferred type of lifetime income deferring for the future, the longer you allow an annuity company to hold onto that money, the more they're going to enhance the payout. Bottom line is the annuity companies are sitting around the big marble table and they're asking the same exact questions that's in your head, “Should I buy it now?” They're pricing the products and the guarantees whether you turn on income now or turn on income later or if you're locking in a Multi-Year Guaranteed Annuity fixed rate, they're thinking like that. There's no sweet spot or arbitrage.

I know it's interesting because I came from the stock market world. We were always looking for what's called arbitrage. In arbitrage, I guess in Southern speak, is finding the time to buy it or, people used to do it with mutual funds a long time ago before the global world, they used to buy mutual funds here based upon pricing overseas with international mutual funds, et cetera. That was an arbitrage-type play. But there's no arbitrage with annuities. You either like the guarantees or you don't.

The other thing that these Black Swan events do is they change what you think's going to happen. So before Putin invaded and no one really knew if he was going to. Anyone who's rational right here going, “Really, you're going to do that?” I mean, the repercussions are unbelievable as he is finding out and we're finding out, and then it's going to hurt us as well as the country from gas prices and food prices and all that stuff. But people were talking about the FED increasing over the next couple of years. Three times, four times seven times. I heard as high as eight times. All that's off the table, all of it. Now, could the FED continue to raise interest rates, which like I said, with lifetime income, it's a minor pricing part of the equation. But everything helps. If the did raise it for three or seven or eight times, that's great, but it's going to be hard for me to believe that they're going to continually going to do that because this Black Swan event affects everybody, affects the stock market, it affects food prices, it affects distribution. It affects us coming out of COVID looking for the bright sunshine and all of a sudden there's no more bright sunshine.

So I guess the lesson for all of us here with these Black Swan events is or in general with annuities and trying to price annuities and time annuities and quote annuities and make decisions on annuities of all types. Remember, there's many types of annuities. It all comes down to what you're trying to do. I always asked two questions. What do you want the money to contractually do and when do you want those contractual guarantees to start because you're buying a contract? But the decision has to always be based on that contractual guarantee and does it make sense for you right now. Forget the Black Swan event, forget the FED, forget the markets. It's about your situation. It's about what you're trying to do right now.

I was on a phone call this morning with a gentleman, when you set an appointment with us, you might get me or you might get one of our other employees who is an annuity specialist, annuity strategists as we call them. But he got me and we're talking about his situation and his comment was, “Well, should I wait to buy this? Or should I buy it now and turn on the income stream in May as I planned all along?” I was saying I have all these sayings because I'm from the South, I'm from North Carolina. When we talk in cliches, I said, "Hey, there's no good answers, just bad sales pitches." Everybody nod your head he goes, "Yeah, there's there's no good answers." I said “If you liked the contractual guarantee for the lifetime income stream for you and your wife that we just ran the quote on, and you ran the quote on my calculators the evening before. Then implement it. It's about your lifestyle, it's about your life.” Black Swan events they're always going to happen.

By the way, the interesting part here with this black swan event is it might create another one and the other one is China. China looking lovingly at Taiwan and wanting to, or the Asian countries on their radar or whatever countries on their radar to do similar things as what Mr. Putin is doing. Hopefully, that won't happen, but it might, and it might be another black swan. You know, another Black Swan maybe is Bitcoin, I heard that they're trying to figure out how to regulate Bitcoin because Russia is using Bitcoin. That's a Black Swan event that we could have never predicted the Bitcoin, Crypto blockchain people could never have predicted. Hopefully, that doesn't happen. Hopefully, China doesn't do the same thing as Russia, but it might happen.

Now the other part about the Black Swan events that drives me crazy, is this is when the fraudsters and the hucksters and the sociopaths come out. I'm not just talking about in the annuity world I'm talking about anywhere. You have the people that are putting up websites to give money to Ukraine and it's fraudulent. I mean that's horrific. Those people, you're not to get religious, but they should go straight to hell. Straight to hell, just straighten line, get in the front of the line, if you're doing that. But I have a little disdain as well for my compatriots in the annuity industry that use these Black Swan events to scare the hell out of people. Then they're scaring them with, "Hey, you can come over here, we can get you this up-front bonus and you can get market upside with no downside." A lot of the fraudulent sales pitches are around Indexed Annuities, unfortunately. We love Indexed Annuities. We use them as CD products and delivery systems for Income Riders. But they're not too good to be true and they're not where you need to go because of a Black Swan event. You don't need to buy an Index Annuity because Russia invaded Ukraine. You don't need to buy an Index Annuity because Bitcoin is being looked at by the United States government. You don't need to buy an Index Annuity or any annuity for that matter because China might be doing the same thing as Russia, an invading and taking over things. Fear and greed always sell but please don't allow that to happen to you.

Black Swan events do happen. They're going to happen. It seems like they're happening a lot. Hey, COVID was a Black Swan event. One of the worst Black Swan events of all time and it's continuing. But when it comes to annuities and the purchasing of annuities, you own them for what they will do, not what they might do and the will do is in the contractual guarantees of that policy. You make the decision on the contractual guarantees of that policy. You choose companies that are strong, that can backup the claims. That's something that we can talk about and you can choose. But at the end of the day, you cannot put your retirement plans on hold for a Black Swan event. You cannot go to the bad chicken dinner or expensive steak dinner seminar and be scared into signing paperwork to lock your money up long-term for this mythical up-front bonus. When you and I both know there's only 100 pennies on the dollar. You can't fall for that.

Are we going to get through the Black Swan events? Absolutely. We're the United States of America not to pound the table here and get patriotic. But that's what we do. We get through it. But for all of you that are looking at retirement, considering retirement, in retirement and you need contractual guarantees, put the blinders on, watch the news, get informed, but put the blinders on and base your decision on those contractual guarantees. Whether it's a Black Swan event or not, if the contractual guarantees makes sense for you, then put them in place. Period. Because it's about you, it's about your lifestyle, and just remember, do not let a Black Swan event affect all of this hard work and planning that you've done over these decades. It's about you. It's about your family, it's about your spouse, it's about your lifestyle. It's about checking those boxes in the chapter two of your life.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.