Retirement Withdrawal Strategies With FIAs

Hi there. Stan, The Annuity Man. America's Annuity agent® is licensed in all 50 states. Today's topic is Retirement Withdrawal Strategies. We will talk about Fixed Index Annuities, FIAs, today regarding retirement withdrawal strategies. Fixed Index Annuities are very popular, and often, they're mis-sold, over-hyped, and over-promised. But at the end of the day, they are Fixed Annuities, they're life insurance products, not securities, but when it comes to retirement withdrawal strategies, there are a couple of things that you need to know about Index Annuities before you jump into the pool and believe the "too good to be true" sales pitch.

What Are FIAs?

What are Fixed Index Annuities? You hear all this bad chicken dinner seminar, sales pitch stuff, or, if you go around on the Internet, you’ll see a lot of index annuity sales pitches. Number one, the story sounds really good. The market upside with no downside or market participation with no loss of principal. Only half of that's true. The market participation side is a push. Index Annuities were designed and introduced in 1995 to compete with normal CD returns. In this case, MIGA type returns. The 2-4 percent range is not how they're sold. They're sold as too good to be true products. I always tell people that if there's a product that could give you consistent market upside with no downside, that's all the Fed should buy.

Let's be honest. When you hear those sales pitches, just remember with any annuity sales pitch, if it sounds too good to be true, it is every single time. Unfortunately, Index Annuities are also pitched with these upfront bonuses. You don't want to buy an Index Annuity for the bonuses like buying a car for the stereo system; it doesn't make any sense.

Retirement Withdrawal Strategies

Now, with Index Annuities, I'm coming back to the retirement withdrawal strategy portion we're talking about, and this is a series that I'm doing on all annuity products. Still, the retirement withdrawal strategies with Indexed Annuities, if you're just looking at the accumulation value, that's based on an index call option. I've done a lot of videos on the Indexed Annuity call options and the caps and participation rates and spreads and all that stuff. But at the end of the day, there's a typical 2-4 percent return of which you can peel off that interest.

I think the struggle with retirement withdrawal strategies and using an Indexed Annuity from the accumulation value standpoint is that we do not know what that gain will be on an annual basis. With many Indexed Annuities, they have their two-year call options or three-year call options or four-year; most are one-year call options. But once again, the only guarantee is that if the market goes down, you're not going to lose any money. But with the accumulation value, we don't know what the interests will be, so it's hard to get in a rhythm or plan with the retirement withdrawal strategies with Indexed Annuities.

If you're interested in the Fixed Indexed Annuity, you want to see the accumulation value, how that works, you want to see some of the best quotes out there, we can provide that to you. One of the things that we do is look at the renewal rate history of that issuing carrier, meaning that what will they renew that option, that index call option every year, and what's been their history of that? Because remember, when you buy an Indexed Annuity, the guarantee is really for that one year on the accumulation value. That index call option. We
look at the carriers that are fair to the clients and what we deem as fair on the renewal rate history, and we'll show you those products, and I'll certainly walk you through how those potential gains are calculated.

Income Rider

What's an income rider? It's an attached benefit that you attach at the time of the policy that provides a lifetime income stream that you can turn on at a future date. That's an income rider. When we look at what's called income later®, if you said, there are two questions I always ask. "What do you want the money to do contractually? When do you want those contractual guarantees to start?" If your answer was, "I need the income made to start seven years from now." We're going to quote income riders, but we're only focusing on the income rider guarantee. The Indexed Annuity side, that call option side that we don't know what that will be. We don't focus on that. We focus on the income rider.

So from a retirement withdrawal strategy standpoint, Index Annuities with income riders, the income rider is contractual so we can know, to the penny, what that income streams going to be for the rest of your life or if you set it up joint with a spouse or partner, the rest of their lives. Retirement withdrawal strategies with income riders attached Index Annuities is how Stan The Annuity Man® uses this product.

Digging in a little further about income riders, many people believe that it's Annuitization. Annuitization is like ripping the knob off a water faucet. Water faucet that's flowing with water. In this case, it's income, and you can't turn it off. With income riders, the vast majority of them are not annuitized. They are a lifetime income stream, but it's a withdrawal product. The taxation, whether you have a lifetime income rider attached to the Indexed Annuity or just the Indexed Annuity, anytime you take money out, it's taxed last-in-first-out gains first at ordinary income levels.

IRA Money

With Fixed Indexed Annuities, you can use IRA money, non-IRA money, Roth IRA money. I can't think of an Indexed Annuity, and I recently talked to my CEO about this, which is not RMD friendly. Indexed annuities are RMD friendly. People ask me, "Hey, which is the best-Indexed Annuity ?" Or "I went to this bad chicken dinner seminar, and this person's talked about this one Indexed Annuity ." There's not one that's better than the other. Be careful with that when people start showing you one, or you go to the bad chicken dinner seminar, and someone's pitching one, or they're focusing on something like an up-front bonus on an Indexed Annuity. There are no philanthropists at annuity companies that are giving money away. The up-front bonus is part of the overall contractual guarantee.

If you buy Indexed Annuities for the up-front bonus, that’s like buying a car for the stereo system. Bonuses are candy for the stupid. I wish the annuity industry would either clarify that message or just stop offering those bonuses because that's 100 pennies on the dollar, so you have to be very careful when you hear the sales pitch. People always ask me, "Should I take my withdrawals from the IRA or the non-IRA or Roth IRA? Which one comes first?" Those are things that we need to talk about.

When we talk about Indexed Annuities, we talk about them as CD-type annuities because they will return the CD-type returns. They are not market products; they are not securities; they’re not overseen by the SEC or FINRA. They're issued at the state level; insurance companies issue them. Be very careful out there; it’s the go-to product. If I told you, "Hey, you can get an up-front bonus and market upside with no downside and free long-term care," and all that stuff, you say, "Man, that's great." No. It doesn't work like that. Remember, Indexed Annuities are contracts; the income rider attachment is contracted.

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.