Michael Finke: Why Annuities Make Sense Right Now

About Fun With Annuities Episode #132

In the world of retirement research and common-sense annuity strategies, Micheal Finke is one of the four faces on Annuity Mount Rushmor along with mine, of course.  The ongoing work and effort to help consumers make better retirement decisions is a legacy Michael should be very proud of.  I’m just glad he’s so young and will be helping the industry for a long time to come.

I always enjoy when he is on my Fun With Annuities podcast because it is a true edu-tainment (entertainment + education) session.  This was a fun show because we laughed a lot about the phrases that smart people like him use and the simple Southern ways I translate those ivory tower retirement thoughts.  Think of me as Michael’s annuity translator for the rest of us.

Michael and I jumped off the cliff together to discuss the current rising interest rate environment and the attractiveness of contractual annuity guarantees.  Not only are fixed rate annuities like MYGAs (Multi-Year Guarantee Annuities) attractive for their high guaranteed yields, but Micheal also pointed out that lifetime income products like SPIAs (Single Premium Immediate Annuities), DIAs (Deferred Income Annuities), QLACs (Qualified Longevity Annuity Contracts), and Income Riders are at very high payout levels as well.

I was interested to see what Michael had to say about current and future inflation and how he thought annuities should be utilized.  He agrees with me that there are no perfect annuity solutions for inflation, even though that sales pitch is fraudulently common with too many annuity salespeople.  Facts are facts, so if the sales pitch sounds too good to be true, it is every single time.

The only item we kind of disagreed on was the topic of target-date funds.  I’m not a fan, but he definitely is and joins my friend Paul Merriman (another podcast guest-link) in praising this relatively new choice within most 401k’s and retirement plans.  As we dug in further, one of the main reasons he likes these funds is because they “lovingly handcuff” people to stay the course and not make emotional, financial decisions.  I agree with that sentiment, and that’s why I only sell contractual guarantees.  It takes all emotion out of the retirement math.

I laughed out loud when Michael referred to him and his colleagues as “Retirement Dorks,” which led me to encourage him to buy that website domain and start a side business.  I’m always in marketing mode, as you know.  He surprisingly invited me to join that group, and of course, I declined because The Annuity Man is no dork.  You already know that, but I might fly in and buy them pizza one day and give an annuity motivational speech.

Time will fly by when you listen to this podcast: book smarts (him) and street smarts (me) combined for a winning factual combination.  Enjoy!

"If we model out 1000 different potential retirements, the ones who will have an annuity will, on average, be happier, but the ones with an investment portfolio might have a slightly higher probability of success. But there is no information about what failure means." —  Michael Finke.

Brief Bio on Co-Host: Michael Finke

Michael Finke, Ph.D., is a Professor of Wealth Management, Director for the Granum Center for Financial Security, and the Frank M. Engle Distinguished Chair in Economic Security at The American College of Financial Services. He joined The College in June 2016, having served since 2006 as a professor and Ph.D. coordinator in the Department of Personal Financial Planning at Texas Tech University. From 1999 through 2006, he served as the Director of Graduate Studies at the University of Missouri.

Finke is a nationally renowned researcher focusing on the value of financial advice, financial planning regulation, investments, and individual investor behavior. He was named to the 2012 Investment Advisor IA 25 list and the 2013 and 2014 Investment News Power 20. His research conducted with fellow professor Wade Pfau questioning the 4% rule of retirement planning was published in the Journal of Financial Planning and won the 2014 Montgomery-Warschauer award for the most influential article. He previously won the award with Thomas Langdon in 2013. He was also selected to present his financial literacy and aging research at the 2015 MIT Center for Finance and Policy Conference.

Finke has published over 50 peer-reviewed articles and is widely quoted in many of the nation’s leading consumer publications, including The Wall Street Journal, The New York Times, Time, and Money Magazine. He also has worked on white paper research projects for companies that include MetLife, Northwestern Mutual, OneAmerica, the Society of Actuaries, and TIAA.

Finke received a doctorate in consumer economics from The Ohio State University in 1998 and in finance from the University of Missouri in 2011, and his CFP® in 2006. Source: michaelfinke.com.

In this episode, The Annuity Man® and Michael Finke discuss:

• Annuities are more attractive today
• Protecting your future lifestyle
• Cutting little slices on the birthday cake
• There’s no perfect product to solve for inflation

Key Takeaways:

• At the time of this episode’s taping, near-retirees can lock in 5.2% on five-year MYGAs for the next five years; however, it may go up or down.
• When buying an annuity, you're essentially buying yourself a minimum standard of living forever, no matter how long you live. You have to choose if you want to shoulder the risk or transfer it. Your future lifestyle is at stake.
• It’s not going to be easy, but you must first recognize that you’re not going to live forever. You have to decide how you could spread out your savings to accommodate your lifestyle until you die or if you want to spend more money to have less worry.
• If you can be more flexible, then inflation’s impact won’t be that big of a deal. Also, there’s no perfect product to solve for inflation. There are options that could help you have some stability through it, like social security and I Bonds.

Fun With Annuities® Podcast is hosted by America’s Annuity Agent®, Stan The Annuity Man®, and a Celebrity Co-Host. Hear facts with no sales pitches from the top independent agent in the country, licensed in all 50 states. Stan and his guests dive deep into topics such as annuities, finance, retirement, and so much more. It’s fun learning the facts and seeing if they’ll fit your personal retirement lifestyle. Thanks for being here!

Listen in on how you can be livin’ the reality, not the dream®. Listen and subscribe on Libsyn, Stitcher,Apple Podcasts, Google Podcasts, Amazon Podcasts, and Spotify.