090 Michael Finke: Keys to Goal Based Retirement Planning

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welcome to fun with annuities with your

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host me stan the annuity man america's

0:09
annuity agent can annuities be fun can

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contractual guarantees be fun

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absolutely they can find out the brutal

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facts about annuities with no sales

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pitches or high pressure nonsense just

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the brutal and factual annuity truth

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which is all you need to hear

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let's have some fun with annuities and

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let's have that fun start right now

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[Music]

0:39
welcome to fun with annuities i'm your

0:41
host stan the annuity man america's

0:43
annuity agent license in all 50 states

0:45
i'm so happy that you joined us on all

0:47
major podcast platforms or if you're

0:49
watching us on the fun with annuities

0:51
youtube channel um today's

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today's guest is a monster monster iq

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dude is what i'm going to call him his

1:00
name is michael finka and let me tell

1:02
you a little bit about him before we

1:03
jump in

1:04
he is a professor of wealth management

1:08
and a distinguished at at the frank m

1:11
engel distinguished chair in economic

1:13
security research at the american

1:14
college of financial services i know

1:16
that sounds like a lot and it is and it

1:18
should be okay he received a doctorate

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in consumer economics from the ohio

1:24
state university go buckeyes in 1998 and

1:27
in finance from the university of

1:28
missouri go tigers in 2011

1:31
he led the retirement planning and

1:33
living consortium

1:34
at texas tech university go red raiders

1:37
before moving to the american college

1:39
and he is definitely known nationally as

1:41
a researcher in the areas of retirement

1:43
income planning retirement spending one

1:46
of the things we're going to get into he

1:47
also specializes in is life satisfaction

1:50
we're going to dig into that and

1:52
cognitive aging issues he's a frequent

1:54
speaker at financial planning

1:56
conferences i mean he's known in the

1:57
business he is he's he's the michael

2:00
jordan he's on you know he's on the um

2:03
uh mount rushmore of retirement

2:06
that to wait foul and motion moleskine

2:08
those guys his face is on there too and

2:10
he was recently named one of the 25 most

2:12
influential people in the field of

2:13
investment advising

2:15
and and uh by investment advisor

2:17
magazine and if there were any other

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awards he would have won those as well

2:21
with that being said michael fink uh

2:24
welcome to fun with annuities

2:26
stan it's great to be on this show and

2:29
thank you for totally overselling me no

2:32
no i am i am i'm going to be your agent

2:34
after this and we're going to go

2:35
nationwide even more than you are right

2:37
now

2:38
let's just jump right in um

2:40
you know a couple of the topics that i

2:42
wanted to cover with you and with with

2:44
us doing the research on you which is

2:46
extensive

2:47
uh you've done a lot of stuff let's jump

2:49
into the importance of of using you know

2:52
goal-based a goal-based type of process

2:56
when you're looking at

2:58
spending legacy liquidity and then

3:01
taking a look at the products that will

3:03
solve for those goals i know that's a

3:04
big huge question

3:06
but you certainly have the brain to to

3:08
nail it so jump in

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well i think too often when people think

3:12
about retirement planning they think all

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right i just need to have a number i

3:16
need to have a million dollars or i need

3:17
to have two million dollars and that's

3:18
gonna solve all my problems

3:21
the best way to approach it really is

3:23
what are you gonna use the money for

3:24
because the money is just green paper

3:25
it's just dots on a computer screen uh

3:28
what you're trying to get out of the

3:29
money is

3:30
living better so

3:32
why not begin with how do you want to

3:35
live in retirement and what sort of a

3:37
legacy do you want to lead and then

3:39
let's think about the most efficient way

3:42
to meet each one of those goals

3:44
stan i think a lot of people never get

3:46
to that point i've talked to a lot of

3:47
retirees who are so proud of the fact

3:50
that they're not spending very much

3:51
money in retirement you know they're

3:53
using coupons they're they're going to

3:55
they're they're they're using the the

3:58
cheap rooms on the cruise and you ask

4:00
them like why are you not spending your

4:02
money and they say well you know

4:04
we we just want to be able to preserve

4:06
our savings and then you say well

4:09
what are you doing that for i mean do

4:10
you have you want to give the money to

4:12
your kids like do you think they need

4:14
more and they say no you know we paid

4:15
for their education they got plenty of

4:16
money they earned more than we ever did

4:18
and then people forget that there's only

4:20
two outcomes in retirement you either

4:23
spend the money and live better or you

4:26
pass it on that's it those are your only

4:28
two choices and then the question

4:29
becomes how do you do each one of those

4:31
better

4:32
and i think what you and i focus a lot

4:34
on is all right if we take a portion of

4:37
our investment portfolio and say

4:39
the goal of this is lifestyle i have

4:41
bought life insurance i have taken care

4:44
of my legacy maybe i'm just setting some

4:46
money aside to fund some kind of

4:48
specific long-term goal i'm going to

4:50
invest it in stocks it's going to do

4:52
better probably over the long term

4:54
but i also have this goal which is

4:55
lifestyle then i'm going to take i'm

4:57
going to carve off a portion of my

4:58
savings and say

5:00
my goal is to be able to spend the most

5:03
money each year with that savings and

5:06
that's where things start getting really

5:07
interesting and that's where this

5:09
conversation of when does annuitization

5:12
is have value and what is the value of

5:14
annuitization because

5:15
we then we start thinking about an

5:17
annuitization in english for the people

5:19
out there hold on a second annuitization

5:21
means creating payments

5:23
and one of the things i try to do on

5:24
this podcast is strip down the language

5:27
to where people are talking about

5:29
annuitization

5:30
is creating pavements it but but in the

5:32
world of annuities just for the people

5:33
out there listening you don't have to

5:36
lose control of the asset to create

5:37
those lifetime income streams with some

5:39
of the products so with that keep going

5:42
right and when i say annuitization and i

5:44
like i like stripping things down to its

5:47
essence also but maybe more from an

5:49
academic perspective because there's so

5:51
much emotional baggage that's associated

5:54
with the idea of an income annuity or of

5:58
an annuity product in general or

5:59
different types of financial products or

6:01
investments or you know

6:02
let's not get caught up in any of that

6:04
right we can we can distill it to its

6:07
essence and it's at its essence we have

6:09
safe investments like bonds we have

6:12
risky investments like stocks and the

6:15
reason in retirement why anybody would

6:18
invest in a risky asset like a stock is

6:21
because they hope to get a higher rate

6:24
of return from that investment

6:26
the key word here is hope it's not

6:28
guaranteed it is on average historically

6:32
investors have gotten a bonus a premium

6:35
for investing in stocks instead of

6:38
investing in bonds but the problem is

6:39
that risk is real and what risk means in

6:42
retirement is variability in the amount

6:45
of money that you can spend every month

6:48
in retirement and if stocks don't do

6:50
well

6:51
then you had better be willing to be

6:53
flexible about your lifestyle so that's

6:56
the essence of

6:58
spending in retirement is you've got

7:00
safe assets and the purpose of safe

7:03
assets is to fund inflexible spending

7:05
and then you've got risky assets and you

7:07
can fund more flexible goals with assets

7:11
whose value is going to fluctuate over

7:14
time

7:15
and so what i tell people is no you

7:17
cannot view a risky asset

7:19
as funding

7:21
safely

7:23
a steady income stream in retirement

7:25
because you may be one of those who just

7:28
gets unlucky we run these what we call

7:30
these monte carlo analyses i'm sure

7:32
people on your show have talked about

7:33
milani carlos sure sure it's been around

7:35
for a long time

7:37
what a monte carlo does it just sort of

7:39
simulates you know a thousand different

7:41
retirements and sometimes retirees get

7:43
lucky in the monte carlo and sometimes

7:45
they get unlucky and what we're really

7:48
concerned about here are the unlucky

7:50
retirees can you live with that outcome

7:54
if you do get unlucky and what that

7:57
means is that instead of running out you

8:00
know if you invest in stocks uh instead

8:02
of that lifestyle being able to

8:04
be maintained over the course of 30

8:06
years maybe you could only maintain that

8:08
lifestyle for 15 years because you got

8:10
unlucky especially at the very beginning

8:12
of retirement right what that means is

8:14
that you've got to be willing to cut

8:16
back on that spending if you're not

8:18
willing or able to cut back on that

8:20
spending then risky investments are not

8:23
appropriate for that spending goal yeah

8:26
and i i always tell people you know what

8:28
we do here primarily with with annuities

8:30
and i only sell contractual guarantees

8:32
and

8:33
we're doing this out of the will do not

8:35
might do studio you

8:39
you understand it's a transfer of risk

8:41
and and primarily solves for four things

8:43
acronym i use is pill principal

8:45
protection income for life legacy

8:47
and long-term care those are the four

8:49
items that and primarily principal

8:51
protection and lifetime income but that

8:53
income floor that that people need to

8:55
build in combination with the the

8:57
another annuity that they already own

8:59
that they don't know its annuities

9:00
called social security is that that

9:03
amount of money that's hitting your bank

9:05
account every single month regardless of

9:07
what happens to take you through

9:09
chapter two of your life i think that on

9:12
my frustration michael and i tell most

9:14
of the guests this is you know the

9:16
annuity industry has has a monopoly on

9:18
lifetime income and somehow

9:20
all of the messages out there are about

9:22
growth

9:23
i don't know what the annuity industry

9:24
is doing but we have a monopoly on

9:27
lifetime income and i think that having

9:28
people like you on here

9:30
is fantastic because we start drilling

9:32
down on

9:34
on with smart people in the room saying

9:36
hey this makes sense to transfer risk

9:38
there's no roi until you die because

9:40
it's a transfer risk and and they're on

9:42
the hook the annuity company until

9:44
you're breathing

9:45
um

9:46
when wade foul was on here he kind of

9:48
destroyed the four percent rule of

9:50
taking four percent of the portfolio i

9:51
enjoyed listening to him do that um i've

9:54
read some stuff on uh that you have said

9:56
on that as well concurring when people

9:58
have income goals

10:00
describe to people in your in your

10:02
opinion because people certainly

10:05
they're they're familiar with mine on

10:06
how

10:07
annuity types and there's four different

10:09
types of lifetime income annuities allow

10:12
us to spend more

10:13
um than using just a portfolio alone

10:17
so

10:18
let me take a step back and and tell a

10:20
story it's one of my favorite stories so

10:23
imagine that um you get a phone call

10:26
from your wife

10:28
and she says hey you know there's a

10:30
birthday cake in the fridge

10:32
and there's gonna be some kids coming

10:35
over to celebrate your son's birthday um

10:38
and i'm not sure how many of them are

10:39
gonna come over because they just

10:41
mentioned it to a few parents at schools

10:43
and you know maybe it's five kids maybe

10:45
it's 40 kids i don't know

10:47
uh and then you say well okay and and

10:50
the first kid comes in the room and you

10:52
take out the birthday cake

10:53
and you have to decide how big of a

10:56
slice you want to give that first kid

10:59
now if five kids show up and you gave

11:02
the first five kids a really tiny slice

11:05
then they're gonna think you're a

11:06
cheapskate they're gonna be really

11:07
disappointed so what happens if you cut

11:10
a really big slice well if you got a

11:12
really big slice and the 21st kid comes

11:15
in and you've got no more cake left then

11:17
he's going to be really disappointed so

11:20
generally speaking what happens when

11:23
we are not sure how many pieces of cake

11:26
we're going gonna have to slice up is

11:28
that we're gonna be very conservative

11:30
we're gonna make sure that the worst

11:32
thing does not happen that that 25th kid

11:34
comes in and there's no more cake left

11:37
well you have the exact same decision to

11:40
make at the beginning of retirement you

11:42
have a certain supply of investments and

11:45
you have to decide how much of your

11:48
investments you want to cut to fund

11:50
spending that first year

11:52
and naturally because we are what's

11:54
known as risk-averse we want to avoid

11:56
the possibility that if we live to

11:59
age 95 or a hundred that we're going to

12:01
run out of money so we're going to cut

12:03
that slice of cake small

12:05
smaller than we would if we were able to

12:10
somehow get together let's say we have a

12:13
deal with the company that made the

12:15
first cake and the deal is if i run out

12:18
of pieces after 20 kid kids come in then

12:22
you come and bring me a second birthday

12:24
cake and everything's gonna be fine so

12:26
maybe we'll get 40 kids coming in but i

12:29
know

12:30
that i can cut a big piece of birthday

12:32
cake because if i run out after 20 kids

12:35
come through someone else is gonna come

12:36
through the door and give me a second

12:38
birthday cake that's the value of

12:40
annuitization that's the value of

12:43
pooling what you said is an

12:45
idiosyncratic form of

12:47
risk which is longevity risk if i bear

12:49
that myself

12:50
then

12:51
naturally and optimally i will not live

12:55
as well as if i pooled that risk by

12:58
sharing it with other retirees so by

13:01
sharing that risk then i can make an

13:04
agreement with the insurance company if

13:05
i live longer than my average longevity

13:08
you will continue to make payments but

13:11
between now and my average longevity i'm

13:14
going to be able to cut bigger pieces

13:17
because i know i'm never going to run

13:20
out that is the mathematics of

13:22
annuitization the the theoretical value

13:24
of annuitization is that there is an

13:26
institution that is

13:28
providing a backstop in case retirement

13:31
gets really expensive now if i just

13:34
tried to do that using safe investments

13:37
like bonds alone

13:38
and i'm 65 years old and i want to build

13:41
bond investments to a specific age let's

13:44
say i'm a healthy 65 year old woman now

13:47
one of the things i think your your

13:48
listeners need to recognize is that

13:50
they're probably going to live longer

13:52
than the average american and in fact

13:54
healthy people healthy higher income

13:56
americans have made significant gains in

13:59
longevity over the last 20 years a 65

14:03
year old healthy woman on average has

14:06
gained about three and a half years in

14:07
longevity over the last 20 years a

14:09
healthy 65 year old male has gained six

14:12
years of longevity over the last 20

14:14
years that's crazy that is enormous

14:17
improvement in longevity which means

14:19
that they need to fund more years of

14:22
spending so if you're a 65 year old

14:25
healthy woman you've got about a 26.7

14:29
chance you're going to live to the age

14:30
of 95. so do you cut your slices small

14:33
enough that they last to the age of 95

14:36
well what about you the age of 100 well

14:38
then you've still got a 9 chance of

14:41
living to the age of 100. so maybe you

14:43
cut the pieces so small that they last

14:46
up to the age of 100 but you still got a

14:48
nine percent chance that you're going to

14:49
outlive your savings and you're cutting

14:51
really tiny pieces that's not the right

14:53
way to live the right way to live is to

14:56
go to insurance companies and say i'm on

14:58
average gonna live to the age of 89 i'm

15:01
gonna cut a slice of my savings

15:04
just enough that i would have run out

15:06
about age 89 or 90. but the agreement is

15:10
if i live beyond age 90 you can continue

15:12
to provide me payments so i get to spend

15:14
more each year and i don't have to worry

15:17
about the risk of running out now this

15:19
is what's known as the annuity puzzle

15:21
why don't people annuitize and in the

15:24
united states it's been very uncommon

15:27
for people to buy an income annuity now

15:30
they'll do it through their pension and

15:31
be very happy about it but they won't

15:33
necessarily do it on their own it's the

15:35
annuity industry

15:36
michael is the annuity industry

15:38
you

15:42
essentially what is the killer app for

15:44
rollovers in retirement everybody should

15:47
be doing it they should be defaulting at

15:49
least a portion of their savings into a

15:51
realization but in many ways the name

15:54
that that the well has been poisoned by

15:56
a lot of short-term thinking by the

15:58
industry a lot of lower quality products

16:00
that um have harmed the long-term growth

16:04
and benefit and it's also really harm

16:06
consumers because they that

16:08
that well has been poisoned and i also i

16:11
just want to blame some financial

16:12
advisors who have cynically tarnished

16:15
the name of annuities as a way of

16:18
burnishing their own business now when

16:20
they say well i would never consider

16:22
annuity or annuities or either i hate

16:25
all the news ask them

16:28
ask them if if you run out of money

16:31
will you provide a backstop will you

16:34
support my lifestyle if i run out of my

16:37
savings and they will tell you no

16:39
because that that would cost them money

16:41
that would be too risky for them well

16:43
another institution insurance company

16:45
will say yes i am willing to do that i

16:47
will i'm willing to provide that

16:49
backstop if you run out i will continue

16:51
to provide payments

16:53
that's the value of insurance and you

16:55
pay for it but the cost is actually

16:58
pretty reasonable for the protection

16:59
that you get and what people need to

17:01
understand is with lifetime income

17:03
streams you can annuitize it which is in

17:05
your vocal income stream that's that

17:07
you're never going to outlive or you can

17:08
have what's called a withdrawal method

17:10
lifetime income stream which you you

17:12
control the asset but but you can start

17:14
and stop it and it's not a new

17:16
annuitized even though it's still a

17:17
lifetime income stream but i think the

17:19
most important thing for people to

17:20
remember and always repeat this

17:22
there's there's a bad um bad information

17:25
out there that if you buy an annuity and

17:26
you die money goes poof and the evil

17:28
annuity company keeps the money that's

17:30
only one of about 40 ways to structure

17:32
it we can customize the structuring of

17:34
the annuity so that

17:35
when your learjet hits the mountain 100

17:37
of any unused money goes to the unit to

17:39
the list of beneficiaries of the policy

17:42
the annuity company doesn't keep a penny

17:43
even though they're on the hook to pay

17:45
and if you go to my site at the

17:46
annuityman.com you can run quotes on our

17:50
proprietary calculators 24 7 365 and see

17:54
what those lifetime income payments will

17:56
be for you but to understand

17:59
that don't be a master of the universe

18:00
it's primarily based on life expectancy

18:02
and mortality credits i.e the older you

18:05
are the higher the payment

18:06
interest rates play a secondary pricing

18:08
role but

18:10
they're not one size fits all and

18:12
they're not for everyone but if someone

18:13
says i hate all annuity that

18:15
they hate all annuities then they hate

18:16
all trucks they hit all restaurants and

18:18
then they need to call social security

18:20
and say i do not want those payments

18:21
anymore because that's an annuity a

18:23
pension's an annuity so from an

18:26
economist standpoint and

18:28
how do

18:30
how do economists model

18:32
optimal spending

18:34
with that unknown lifespan

18:37
how is that

18:38
and i know you just explained it but is

18:40
there more nuance to it that people need

18:42
to understand

18:44
well i think the nuance is pretty simple

18:45
the nuance is uh

18:47
you want to

18:49
get the most out of the money that

18:51
you've saved

18:53
but you need to be aware of the

18:54
possibility that if you live a long time

18:57
or if you get unlucky with your

18:59
investments

19:00
you are going to have to spend less in

19:03
the future we can model that by showing

19:06
we can estimate how much more unhappy

19:08
you would be if you were spending thirty

19:10
thousand dollars a year instead of

19:11
spending fifty thousand dollars a year

19:14
but the bottom line is that if you do

19:16
get unlucky and you live too long or if

19:18
assets don't perform well

19:20
then you are going to have to suffer a

19:22
decline in your

19:24
in your in your standard of living and

19:26
that's basically how economists model it

19:29
and and when we model the amount of

19:31
optimal spending if you don't annuitize

19:34
if you just have stocks and bonds the

19:36
optimal amount of spending is going to

19:39
be significantly less than if you buy

19:42
some kind of a income annuity if you buy

19:44
a you know immediate annuity or a

19:46
deferred annuity or if you buy an

19:49
annuity with some kind of a lifetime

19:51
income benefit and there's some really

19:53
interesting differences between those

19:55
different types of annuities with one

19:58
one type of annuity you're taking a

20:00
portion of your savings and you're

20:02
essentially buying a promise of either

20:04
immediate lifetime income or an income

20:07
that begins later on in life and i will

20:10
tell you

20:11
that i i happen for a long time to have

20:13
been a fan of a

20:16
qualified longevity annuity contract

20:18
which i think is probably i know that

20:20
you're a big fan of this i wrote the

20:22
first book on qualified longevity

20:24
annuity contracts when they first came

20:25
out in 2014

20:27
and um i think there's about 10 or 15

20:29
000 copies of those that out there but i

20:32
think personally

20:33
and what he's talking about is a

20:34
qualified longevity annuity contract

20:36
qlex which was introduced by our friends

20:38
at the irs the department of the

20:39
treasury

20:41
um for use in your ira so when people

20:43
say never put an annuity inside of an

20:45
ira they're idiots um and they don't

20:47
understand right now for the people that

20:49
are watching us on the youtube channel

20:51
my michael has a cue lack hat on which i

20:53
think is pretty cool

20:55
um it did go right with my standing

20:57
nudity man hat and my prediction when it

21:00
did not come true when it first came out

21:01
i said this should be

21:03
the number one selling annuity type on

21:05
the planet because most people's assets

21:07
are in iras most people want to set up a

21:10
lifetime income with their spouse

21:12
using their ira they would love to do

21:14
that and most people are worried about

21:16
inflation and qlex can address that with

21:18
income starting at a later date once

21:20
again

21:21
the messaging of the annuity world

21:25
um which is horrific michael i mean i

21:28
need to be czar for a day cozar for a

21:30
day for with me and you and i think it's

21:32
game over because we would talk about

21:35
you know why these make sense one thing

21:38
i wanted to ask you

21:39
um

21:40
and i think this is a big deal and i

21:41
think people need to lean in and listen

21:44
because a lot of people that are a

21:46
personality types that

21:47
you know i call them masters of the

21:49
universe they're hitting it on all

21:50
cylinders at some point in time there's

21:52
going to be some cognitive decline it's

21:53
hard to imagine michael finkel with

21:55
cognitive decline but i mean one out of

21:57
one of us is going to get it he's just

21:59
going to be a lot smarter when he gets

22:01
it

22:02
how do we address as an industry to the

22:04
public that

22:05
hey player by the way

22:08
you need to set this up so that when you

22:10
start declining and by the way when you

22:12
do sometimes you don't know it

22:14
that you have this lifetime income floor

22:16
in place that covers not only you or

22:18
your in your spouse lives but takes care

22:20
of things so that the kids don't have to

22:22
worry

22:23
is that a big part of do you look at

22:25
that in your research are you starting

22:27
to address that more

22:30
yeah i think you know one of the

22:33
most important things that you need to

22:34
do as part of a retirement income plan

22:37
is to acknowledge that you are going to

22:39
go through different stages in

22:40
retirement so you're probably going to

22:42
spend the most at the very beginning of

22:44
retirement so 65 to 75 is very important

22:47
again it's one of the reasons why

22:50
annuitization is so valuable because it

22:52
allows you to spend more early on in

22:54
retirement because you know that if you

22:57
run out there's going to be protection

22:59
that's going to provide you a lifetime

23:01
income later on in retirement right

23:03
gives you the confidence it gives you

23:05
the license to be able to spend more

23:07
early on in retirement

23:08
you also have to recognize that people

23:10
do tend to spend less in their 70s and

23:13
80s um spending tends to jump up just a

23:16
little bit in the late 80s and early 90s

23:19
but at least it's more like the rate of

23:21
decline goes down i mean if you are

23:24
if you're uh if you're spending a lot on

23:26
the health care costs it generally means

23:27
that you're not spending so much on

23:28
cruises so the the spending doesn't go

23:31
up a whole lot and it's one of the

23:32
reasons why i don't get too hung up on

23:35
this idea of being worried about

23:38
nominal spending versus

23:39
inflation-adjusted spending because i

23:41
feel like as long as you've got a base

23:42
of social security uh and then on top of

23:45
that you've got some annuitized spending

23:47
then that's pretty much going to match

23:48
what your lifestyle is going to look

23:49
like as you go through retirement

23:52
you will experience some form of

23:55
physical decline as you get older that's

23:58
just a natural part of aging and it it

24:00
doesn't matter you know it's you can

24:02
actually look at charts of people who

24:04
run marathons or half marathons and you

24:08
can see that even the healthiest people

24:10
in the world still slow down as they get

24:13
to their 70s and 80s you know you hear

24:16
these examples of people who still are

24:18
running into their 80s well they are but

24:20
they're not as fast as they were in

24:21
their 70s it's just a natural part of

24:23
aging that we decline and it's not just

24:25
our ability to run a marathon it's also

24:28
our ability to make complex financial

24:30
decisions

24:31
so i i've been advocating for a long

24:33
time

24:34
automate that later life lifestyle and

24:38
the q lakh or the deferred income

24:40
annuity is a way to automate automate

24:43
your lifestyle once you hit your 80s and

24:45
90s uh for people who buy a q lakh you

24:48
actually get the maximum tax deferral

24:50
benefit by delaying your income to the

24:53
age of 85. and by the way for the people

24:55
that hear that pounding on the desk

24:57
that's that's michael pounding into the

25:00
desk that he really means this that's

25:02
the pounding you're hearing and by the

25:04
way um you're one of your cohorts at the

25:07
american college steve steve paris i

25:09
like what he says you go through three

25:11
phases of retirement it's go go slow go

25:15
and no go

25:16
and i like that thought you know it's go

25:18
go early you're you're in retirement

25:20
you're maximizing then it's slow go

25:22
because you're kind of feeling it and

25:24
cognitive decline and at the end it's no

25:26
go i i think that's

25:28
people need to come to grips with the

25:30
second two slogo and no go

25:33
and prepare for that like you're talking

25:36
about

25:36
um

25:37
because it's going to happen and we are

25:40
going to live longer and i always tell

25:42
people there's no u-hauls behind hearses

25:45
if you see one send me a picture

25:47
um you can't take it with you so you

25:49
need to you need to

25:53
spend you need to enjoy yourself and you

25:55
talked about that earlier in the podcast

25:56
and i'm thinking about i come from the

25:58
south deep south north carolina and i

26:00
think a lot of the spending issues

26:03
people have that they won't spend their

26:04
money they did come from that depression

26:06
era where things were tight and they did

26:08
have to go through things they came

26:10
through the world war ii era where they

26:11
had to go without and there were war

26:13
gardens and things like that and and it

26:15
was tough but i do think it's i don't

26:17
want to call it disease or an affliction

26:19
but my mom in st augustine florida

26:22
i keep showing her that hey mom if you

26:24
spend 200 a day every day

26:28
you're never going to outlive the money

26:29
we're fine you know i'm just just

26:31
drawing down from her bank account

26:32
forget annuities for a second but it's

26:35
hard for her to grasp that because she's

26:37
gone through times where she didn't have

26:39
any money and the parents didn't have

26:40
any money they were mill workers in

26:42
north carolina

26:43
how do we do a better job as the annuity

26:46
industry or retirement industry to say

26:50
this is how you live this is how you

26:53
have enough money and you don't have to

26:55
worry about how long you live how do we

26:56
do that

26:59
you know if we look at the data what we

27:00
see is there's a lot of people who are

27:03
like my mother so my mother has a lot of

27:07
money saved for retirement enough

27:09
she also gets a pension so she gets a

27:12
lifetime income which is like an annuity

27:15
a pension is a form of annuity

27:17
absolutely it's just like an income

27:18
annuity that you get from a private

27:20
company in some cases i would trust a

27:22
lot of those insurance companies more

27:24
than i trust say the state of illinois

27:26
to provide me i know you're going to

27:28
illinois love the people in illinois but

27:30
you know we're right

27:34
but you know when she gets her paycheck

27:36
every month uh from her pension does she

27:39
feel any guilt spending money from her

27:42
pension

27:43
to go out to dinner with friends or to

27:45
go out on a vacation no you know all

27:47
that and what we find is actually it is

27:49
this frivolous spending in life that

27:51
provides retirees with the greatest

27:54
amount of life satisfaction issues you

27:55
look at the kind of spending that

27:56
provides satisfaction going out to

27:58
dinner with friends social spending

28:00
showing on vacation going to a show

28:02
these are the kind of things that

28:03
provide the most happiness and the

28:04
question becomes are you going to feel

28:07
comfortable pulling money out of your

28:09
ira to fund those frivolous expenses and

28:14
is are you going to feel as comfortable

28:15
as if you were to getting that from some

28:17
sort of a guaranteed source of income

28:19
and what we see from the data is clearly

28:21
that people feel more comfortable

28:23
spending money if they know that that

28:25
money is not going to run out and when

28:28
they see that lump sum very often i

28:30
actually did a survey we're asked

28:32
what percentage of people would feel

28:35
uncomfortable

28:36
seeing the balance of their savings go

28:39
down in retirement and it was like 84 of

28:42
people would feel uncomfortable seeing

28:44
your nest egg number get smaller

28:46
that's a psychological problem and and i

28:49
think it's it's part of how we're

28:50
trained you know this habit of thrift

28:52
that a lot of us have that we we just

28:54
want to accumulate more we if we have a

28:55
nest egg we want to preserve it um you

28:58
know it's it's the old parable of the

29:00
ant and the grasshopper the ant saves

29:03
for the winter and the grasshopper

29:05
dances the summer away and then sure

29:07
comes and the grasshopper is starving

29:09
and the ant has plenty of food and uh

29:12
you know it's it's there the parable is

29:15
there to teach you

29:16
that thrift is good and we all believe

29:18
thrift is good and we get to retirement

29:20
and we've saved diligently our whole

29:22
life

29:23
and we we don't feel comfortable

29:24
spending the money

29:26
that's a problem that is a psychological

29:28
problem especially if we don't have a

29:30
strong motive to give the money away

29:32
after we die it means that you didn't

29:35
live as well as you could have lived in

29:37
retirement and we don't talk enough

29:40
about that because that's you know it

29:42
doesn't seem like a problem it doesn't

29:45
seem in a way like a waste but it is

29:48
it's a waste of enjoyment of the money

29:51
that you sacrifice during your working

29:53
years to accumulate so why did you save

29:56
all that money why didn't you just go on

29:58
more vacations when you were younger or

30:00
buy a bigger house or buy a nicer car

30:02
you did it so you could live better in

30:04
retirement and then you get to

30:05
retirement and you do not feel

30:07
comfortable actually spending that money

30:09
let's get beyond that because we have to

30:12
in the defined contribution era uh why

30:15
because especially in a period where

30:16
interest rates are relatively low stocks

30:19
are really expensive we're going to have

30:21
to become become more comfortable with

30:24
we can't live off income from our

30:26
investment portfolio it's three times as

30:28
expensive as the historical average to

30:31
derive income from a stock and bond

30:33
portfolio today as it has been in the

30:36
history of the united states so we're

30:38
going to have to get used to pulling

30:39
money out of those accounts and if you

30:41
want to maximize the amount of income

30:43
and the amount of spending that you can

30:44
get then you have to consider some form

30:47
of income annuity for the portion of

30:49
your savings

30:50
that you want to use to fund that

30:53
lifestyle goal and when michael says to

30:55
find contribution what he's saying is

30:57
401k

30:58
uh 401k in lieu of a of a pension and

31:01
the pension in the goal watch is to find

31:03
contribution in in 401k and at the end

31:06
of the your work time period you have to

31:08
convert part or some or all of that 401k

31:11
into lifetime income guarantees if you

31:14
need lifetime income um

31:17
one of the things that

31:19
that i want you to do for the listeners

31:21
because we had tom hegna on recently and

31:23
he's pounding the table about

31:25
um just like you you

31:27
all you guys are patting the table which

31:29
i love that i love the emotion but

31:31
anyway um he's pounding the table for

31:34
the fact that mortality credits credits

31:36
in his

31:37
mind right now are a bargain can you

31:41
dumb down for the all of the thousands

31:43
and thousands of listeners about

31:46
mortality pooling

31:48
and mortality credit

31:50
and why that increases

31:52
your spending helps your spending helps

31:54
that income floor

31:56
well let me just give you a simple

31:58
example

31:59
let's say that you are that 65 year old

32:03
woman and you want to fund spending to

32:06
the age of 100 because you want to

32:08
minimize the chance that you're going to

32:10
run out if you were to buy a bond today

32:13
a safe investment that would give you 20

32:15
000 of spending at the age of 97

32:20
then you would have to set aside about

32:22
12 000 today to fund 20 000 of income at

32:26
the age of 97.

32:28
but

32:29
um

32:30
if you were to say get together with

32:33
nine of your friends you're all 65 years

32:36
old right now all of you are planning on

32:38
setting aside twelve thousand dollars to

32:40
fund twenty thousand dollars at the age

32:42
of ninety seven

32:43
you get together with nine of your

32:45
friends and say hey

32:47
uh we we know that on average one of us

32:50
is going to be around at the age of 97.

32:53
so why don't we create a long life

32:55
income club we can all just pool our

32:57
money together

32:59
and instead of

33:00
each of us having to set aside twelve

33:03
thousand dollars today to buy twenty

33:05
thousand dollars of income at the age of

33:06
97

33:07
we can instead save

33:09
one thousand two hundred dollars each

33:12
pool our money together

33:13
and whichever one of us makes it to the

33:15
age of 97 gets the full twenty thousand

33:18
dollars that's that's just the power of

33:22
pooling your money together and what i

33:23
like to call a long life income club

33:25
because that's essentially what buying

33:26
an annuity is it's becoming part of a

33:28
long life income club now what it allows

33:31
you to do is for that

33:35
extra what is it like ten thousand eight

33:38
hundred dollars that you've got you can

33:40
just spend that money on whatever you

33:41
want to in retirement live better

33:44
and

33:45
you also know that no matter how long

33:48
you live you're never gonna run out of

33:49
money because you're part of the long

33:50
life income club so i can live better i

33:52
can spend more

33:54
and i'm free of the worry that i'm going

33:56
to run out of money that and that

33:58
difference between the twelve thousand

34:00
dollars and the one thousand two hundred

34:02
dollars is the mortality credit in other

34:05
words i can buy more income with less

34:09
money if i pull that goal with another

34:13
retiree and what tom i think is trying

34:16
to get across is that

34:18
that the value of mortality credits the

34:22
value of being part of a long life

34:24
income club is even higher in a low

34:27
interest rate environment uh because the

34:30
only return that you get from your

34:32
investments are the return of your

34:34
original investment plus a little bit of

34:36
interest sure but with an annuity you

34:38
get your return of your original

34:40
investment plus a little bit of interest

34:41
plus you get this value of mortality

34:45
pooling on top of it it's a source of

34:46
return you can't get from anything else

34:49
other than an annuity um and and it's

34:53
real in the sense that it allows you to

34:55
live better every year it's every bit as

34:58
real as investment returns um and that's

35:01
that's it's just a way of framing like

35:03
if you ask people

35:04
would you

35:05
rather have your money last to the age

35:08
of 100 where you have you know a nine

35:11
percent chance of running out of money

35:14
or would you rather spend more

35:17
and pull your money with someone else

35:19
and you know it may there are some

35:22
sacrifices there's always sacrifices you

35:24
can't get something for nothing and the

35:26
sacrifice is that you may lose a certain

35:29
amount of expected bequest or you may

35:31
lose a certain amount of liquidity

35:32
there's certain uh products that will

35:35
allow you to

35:36
retain more liquidity and less liquidity

35:38
there's always going to be a certain

35:40
amount of trade-offs but really the as i

35:42
said in the beginning of the podcast the

35:44
goal should be

35:46
how can i maximize the amount of

35:48
spending that i can get from the amount

35:50
that i've saved and that's the only way

35:52
to do it safely is through mortality

35:54
credits

35:55
when we talk about risk i mean um

35:58
there's longevity risk and we've talked

35:59
about that that's just the fear of out

36:01
living your money and solving for that

36:02
contractually but in retirement there's

36:04
a lot of risk um from your standpoint

36:07
when i say risk

36:09
what does that mean from your standpoint

36:12
for retirees and retirement people or

36:14
people thinking about that because we're

36:16
in these we're in the um as you know

36:18
there's

36:19
a demographic tidal wave of um 10 000

36:23
baby boomers turning age 65 every single

36:26
day that's the annuity industry is going

36:28
to be successful in spite of themselves

36:30
because we're in the way of it and we

36:31
have a monopoly on a lifetime income

36:33
product but it's bigger than lifetime

36:34
income what is what does risk mean in

36:36
retirement for you

36:39
not just lifetime income

36:42
you know as i mentioned before what risk

36:45
in retirement means is lifestyle risk it

36:48
means the possibility

36:50
that you might have to spend less if you

36:54
get unlucky if the investment returns

36:56
aren't what you expect or if you live

36:57
too long or both

36:59
then you are going to have to ramp down

37:01
that lifestyle and it's one of the

37:02
reasons why

37:03
i think you have to match the risk that

37:06
you're willing to take with your

37:07
lifestyle to the risk of your

37:09
investments uh and and one of the most

37:11
important questions i think you can ask

37:13
yourself is how much money do i need to

37:16
live on in retirement this was a a very

37:19
simple question that a financial advisor

37:21
who's a friend of mine came up with and

37:23
it really encapsulates this idea of how

37:26
much of your income do you want to be

37:27
insulated from risk and then how much of

37:30
your income do you want to expose to the

37:33
risk that you might have to spend less

37:37
now the reason that you may want to

37:40
expose yourself to that risk is because

37:41
you want to be able to spend more that's

37:44
what investment risk means investment

37:46
risk means i'm willing to acknowledge

37:49
that i will accept the possibility that

37:51
i might have to spend less in order to

37:54
on average be able to live better to be

37:57
able to spend more in retirement that's

37:59
what investment risk means and if you're

38:01
not willing to accept that then you're

38:03
not willing to accept investment risk in

38:05
retirement because a lot of like people

38:06
like to position investment risk is not

38:08
being risky if you can just invest as

38:10
much money as possible in stocks then

38:12
you're going to be able to sustain this

38:14
safe and stable lifestyle right but

38:16
that's not what risk means risk means

38:18
the possibility that you might actually

38:20
have to spend less uh and i think

38:22
everybody should own

38:24
some percentage of their investments in

38:26
stocks in retirement we should try to

38:28
capture the long-term investment premium

38:31
that we shouldn't get we get from

38:33
investing in stocks but stocks are not

38:35
appropriate for funding that number

38:37
which is how much do you need to live on

38:40
in retirement for that number you should

38:43
not be willing to take investment risk

38:47
one thing i wanted to talk to you about

38:48
and we before we got on the uh the

38:50
podcast

38:51
we were talking about a mutual friend

38:52
that we have his name is harold levinsky

38:54
and he he he started or founded or ran

38:57
the texas tech university retirement you

38:59
can get a you can get a master's degree

39:01
and a degree in retirement planning is

39:03
really cool i've been down there to

39:04
speak

39:05
michael obviously has got a large hand

39:07
in their success but one of the things

39:09
you were talking about which was

39:10
intriguing to me because i consider

39:13
harold to be one of the godfathers of

39:15
financial planning

39:16
and his partner deena katz are just very

39:18
very smart very good people but they're

39:20
very smart like you

39:22
but you said something that was

39:23
interesting i want you to expound on it

39:25
for a long long time

39:27
the the smart people in room still

39:30
pooh-poohed and that's a southern phrase

39:32
pooh-poohed

39:33
annuities annuities for lifetime income

39:36
but now we're seeing the trend where

39:38
people are now wait a minute you know

39:40
this guy on the television say i hate

39:42
all annuities but

39:43
you know all these studies said that

39:45
they work all these studies say that

39:46
that it makes sense to put in an income

39:48
for this guarantee people like michael

39:50
fink michael finka is talking about it

39:53
and he has all the the the letters and

39:55
degrees and all the stuff behind his

39:56
name

39:57
when did that start when did that start

40:00
changing because i feel that change

40:02
happening hopefully i've been a part of

40:04
it because i've been screaming into the

40:05
hurricane for a few years here

40:07
what give me kind of a genesis of that

40:10
and then kind of where you see it going

40:13
well i think you have to you have to

40:14
talk about the history of the financial

40:17
advising profession that um

40:19
there was a time not too long ago where

40:22
the majority of financial advisors got

40:24
paid through commissions

40:26
and what that meant is that if you sold

40:28
a mutual fund or if you sold an annuity

40:29
you would get a payday from that sale a

40:32
percentage of whatever the sale was

40:34
and a new

40:36
group of fiduciary advisors really

40:40
entered into the space registered a lot

40:41
of them are registered investment

40:42
advisors

40:44
and they said you know what we're going

40:46
to charge a fee and if we charge a fee

40:49
on the assets that we manage then we

40:52
won't be incentivized to sell a certain

40:54
type of financial product we will be

40:56
able to provide advice that's in the

40:58
best interest of the client but let's

41:00
stop there but stop there for a second

41:02
and it also meant subconsciously that

41:05
i'm not going to sell this annuity

41:06
because i can't charge a fee

41:10
so some of the fiduciary was thrown out

41:12
of the window with that because

41:14
if you can't yeah i my background by the

41:16
way michael i work with dean wood or

41:18
payne webber morgan stanley and ubs at

41:21
very very high retail levels very high

41:24
before i became the mythical stand

41:25
annuity man but so i understand the

41:28
pressures

41:29
from management not to sell a product

41:31
that we can't wrap in order to track

41:33
future revenue so i think a lot of it

41:36
has to do with that as well wouldn't you

41:37
agree

41:40
i would so so now we get to a new

41:43
reality which is

41:45
um you know a lot of these financial

41:47
advisors they like to work with things

41:50
that they get compensated from which are

41:52
investments

41:53
but financial products actually have the

41:55
opposite

41:57
effect so they take money off of the

41:59
table you get compensated last so there

42:02
is a disincentive to do that in fact i i

42:04
was once giving a presentation at

42:07
um a very

42:10
top-level conference of only the most

42:13
fiduciary of fiduciary advisors and i

42:16
was talking about the queue lack and i

42:18
got a question from someone in the

42:19
audience which was

42:21
well why would i recommend that a client

42:23
get a cue lack when i have to take 135

42:26
000 out of my assets under management

42:29
which just identifies him as a fiduciary

42:32
immediately you know that that statement

42:34
and and sam you saying that you and i

42:36
obviously agree on this issue yes that

42:39
you cannot be a fiduciary and at the

42:41
same time say that you would not

42:43
consider the use of a financial product

42:45
that takes income away from you right

42:47
that is clearly in the best interest of

42:50
your client and something like a q lakh

42:53
i see is a great litmus test you know if

42:55
you're not willing to consider something

42:56
like this there's no way you can call

42:59
yourself a fiduciary

43:01
you are exposing your client to

43:03
longevity risk you're not taking

43:06
advantage of essentially money that's

43:07
sitting on the ground from tax deferral

43:10
and you're exposing your client to

43:12
greater risk you know

43:13
for because you're not willing to take

43:15
135 000 out of their assets under

43:18
management um and that means that you

43:21
know everybody has their own bias

43:23
everybody has their own incentives now

43:25
the best financial advisors the ones

43:27
like the harold avinski's of the world

43:29
are open-minded to any sort of a

43:31
solution that is going to be in the best

43:33
interest of their client yeah so that's

43:35
why someone like harold is they listen

43:38
and say well you know what actually this

43:39
makes sense uh or it may make sense to

43:42
take part of their savings and put it

43:44
into some sort of a life insurance

43:46
policy where you can get additional tax

43:47
deferral benefit there may be additional

43:50
advantages to the estate etc long-term

43:54
yeah exactly yeah and they lose that

43:56
money but uh it's in the best interest

43:59
of the client so i'm going to make that

44:00
kind of a recommendation and honestly if

44:02
you're seeing a financial advisor who

44:04
says something like i would never

44:06
recommend an income annuity they're

44:09
essentially admitting that

44:11
they cannot recommend a product despite

44:14
the fact that it might be in your best

44:15
interest walk out just walk out because

44:18
that person and the whole fiduciary

44:20
thing drives me crazy because i think

44:21
involuntarily and just by default if

44:24
you're in the financial services

44:25
business and financial advice business

44:27
you are a fiduciary or get out of the

44:29
damn business okay

44:31
because fiduciary means putting uh the

44:34
client's interest ahead of yours that

44:35
should be an automatic that shouldn't be

44:37
a framed a certificate on the wall that

44:40
shouldn't be a test you have to take

44:42
that's a moral issue

44:44
and an ethical issue

44:46
that drives me crazy the other thing

44:47
drives me crazy a little bit i want

44:48
people to lean in on this one when i say

44:51
it

44:52
one of the things i hear from advisors

44:53
and then parroted back to me from

44:55
clients or potential clients is well he

44:58
said or i can

45:00
beat that cue lack with my investments i

45:02
hope so if you can't you're the worst

45:04
dart thrower in the world because it's

45:06
an apples to orangish comparison

45:09
annuities are contracts okay it's not an

45:12
investment it's a transfer of risk

45:14
contract and you cannot under any

45:17
circumstance unless you just aren't

45:18
listening

45:19
compare it to investments because

45:22
it's not the same thing

45:24
period um how

45:26
when you talk to these masters of the

45:28
universe rias

45:30
and i know that comes up well i can do

45:33
better well how do you address that

45:34
nonsense

45:37
well i mean the easy way to do it is um

45:40
annuities are

45:42
income annuities are constructed using

45:43
bonds and all retirees have a certain

45:47
percentage of their retirement savings

45:50
in bond like investments

45:52
and then the question becomes can you

45:54
get a higher rate of return after your

45:58
fees

45:59
to the expected longevity than the

46:02
expected return that you can get from an

46:04
income annuity and i'm telling you stan

46:09
like these things

46:11
when you back out the

46:13
rate of return in an like a deferred

46:16
income annuity like in

46:18
up to the expected longevity

46:20
we're talking an expected return of of

46:22
somewhere around two and a half maybe

46:24
three percent return that's what

46:26
insurance companies are assuming they're

46:27
going to get on their general account

46:29
there is not a financial advisor today

46:33
who can provide you with a guaranteed

46:36
bond return up until that age

46:40
of 3 percent after their one percent

46:44
asset management fees after their mutual

46:46
fund fees it's it's you know and if they

46:49
did provide a higher rate of return then

46:51
they're taking investment risk and the

46:54
actual return could very well be far

46:56
lower than that so you know what the

46:59
insurance company is doing is they're

47:00
guaranteeing that return so they're

47:03
they're telling you you are going to get

47:05
that three percent no matter what to

47:07
your expected longevity if you live

47:09
longer you're gonna get more than three

47:10
percent um but even if you don't live as

47:13
long as the expected longevity you still

47:14
got to spend more every year because you

47:16
knew you weren't going to run out so

47:18
that's the difference and and the way i

47:20
like to position it to financial

47:21
advisors is you wouldn't expect an

47:24
insurance company to give you much

47:25
higher than bond rates to the expected

47:28
longevity because then they go out of

47:29
business so they are this is the tool

47:32
that they're dealing you have the same

47:34
tools that you have to deal with they

47:36
just use them in their general accounts

47:38
to fund these promised future annuity

47:41
payments

47:42
and they have an expected return on

47:43
their general account that's that's

47:45
oftentimes higher than the expected

47:47
return on bond investments after aum is

47:50
applied

47:51
and 99 of people listen to fun with

47:53
annuities podcast are consumers but

47:54
they're do-it-yourselfers or if they do

47:56
have an advisor they're they're kind of

47:58
listening to them but kind of going on

47:59
their own path

48:01
so what you just said was very important

48:02
because a lot of people

48:04
um you know look at you know in in the

48:07
do-it-yourself world which is fine

48:09
um

48:10
they have those questions well my

48:11
investments could do better et cetera et

48:13
cetera i thought that was a very

48:14
poignant way to explain

48:16
transfer risk how the product is

48:18
structured and you did in a very good

48:20
way

48:20
don't have a lot of time left but i do

48:22
want to cover a couple just really one

48:24
more topic you have to come back on

48:26
michael because i haven't even gotten to

48:27
half the question so

48:29
uh we'll catch up to you in the first

48:31
quarter hopefully to get you back on

48:32
because i know the people gonna are

48:34
gonna love hearing your insight um and

48:37
and honestly your passion for it i mean

48:39
you cannot hide the fact that you truly

48:40
believe

48:41
there's value in this for retirees they

48:43
really need to look at it and you really

48:45
wanna help

48:46
change people's lives for the better by

48:48
getting this message across clearly and

48:50
succinctly which you do so well but my

48:53
last kind of question i want to talk to

48:54
you about

48:55
is the proliferation and the trend

48:58
of private equity firms which i really

49:00
call i truly call master of the universe

49:03
private equity firms

49:05
uh ie smart money getting into the

49:07
annuity space and industry you know i

49:09
have my own thoughts on that i'll share

49:11
it in a minute

49:12
what's your take on this does it make

49:14
yourself understand

49:16
and i'm going to ask you what are your

49:17
thoughts on this because

49:19
my thoughts are conflicted

49:21
okay

49:22
my thoughts on private equity and i had

49:24
um

49:25
i had someone on recently

49:28
uh to talk about this a little bit more

49:30
in depth um

49:32
my stomach hurts when private equity

49:34
gets involved and my stomach hurts hurts

49:36
when hedge funds get involved in a

49:38
highly regulated space

49:41
and it's very transparent what they're

49:42
trying to do which is get in front of

49:44
the demographic tidal wave of

49:46
10 000 baby boomers hitting 65 every day

49:48
which means money

49:50
flowing in

49:52
and

49:53
i'm just a little concerned about how

49:56
things are happening

49:57
rapidly in the industry i know it's just

49:59
pure capitalism i'm a pure capitalist

50:02
but at the end of the day we have a

50:03
promise to the retirees and the people

50:05
that are signing the contract so that

50:06
the guarantees will be there and be

50:08
intact so i

50:10
i'm not a huge fan of what's happening

50:13
in a lot of these cases because a lot of

50:15
these hedge fund guys and private equity

50:17
guys you wouldn't want them over to your

50:18
house for dinner okay so if i don't want

50:20
them over to my house for dinner from an

50:22
ethical moral standpoint then i might

50:24
not want them handling my clients

50:26
um lifetime income

50:28
portfolio and transfer of risk that's my

50:31
take i think that the industry needs to

50:33
be very very cognizant about it i think

50:36
that the fact that fixed annuities are

50:37
regular at the state level which means

50:39
it's kind of the wild wild west there's

50:41
no oversight from a federal level

50:43
which i think there might need to be

50:45
because of it um but it but it does

50:48
concern me michael it really does

50:50
because

50:51
um they're just getting in the way of a

50:54
very niche business which is the annuity

50:56
business

50:57
that um is going to grow by leaps and

51:00
bounds over the next five years and

51:01
they're going to buy and sell and flip

51:04
and trade and all this stuff of the

51:05
internal assets and i don't like that

51:07
and and they are on the honor system and

51:10
anytime

51:11
you're on the honor system even though

51:12
yes there is regulation and oversight

51:14
but you and i both know there was

51:15
regulation and oversight with mr madoff

51:18
so i'm not i'm not making that

51:20
correlation as drastic but

51:23
if people are bad people they're bad

51:24
people that's my take

51:27
wow that's pretty strong stan so um

51:31
i i share a lot of the concerns now

51:34
let's also make people aware that there

51:36
are these state guarantee associations

51:39
and all the insurance companies back up

51:42
those obligations even of the insurance

51:44
companies that are funded by private

51:45
equity agree and generally there is a

51:47
threshold and the threshold is very

51:49
often 250 000 of your investment that's

51:52
protected through these state guarantee

51:54
associations right and i think you and i

51:56
share the fear that if you get too much

51:58
higher than that you really have to pay

52:00
attention to the credit quality of the

52:02
insurer because you are

52:05
you are basing your lifestyle maybe 30

52:07
years in the future on that insurer

52:09
still being around and you want them to

52:12
be boring and that's i think one of the

52:13
reasons why you don't necessarily always

52:16
choose the quote that is the highest uh

52:19
because some quotes may be very generous

52:21
on certain types of products and i

52:23
wouldn't buy them you know i wouldn't

52:25
touch them and and i've had this

52:27
conversation with i tell people go ahead

52:28
go ahead finish that thought

52:30
as you say i've had this conversation

52:31
with david blanchett and and wade powell

52:34
sure

52:35
frequent co-authors and you know the

52:36
question is like would we

52:38
what would we do business with those

52:41
companies well we would have no problem

52:42
maybe buying a three or five-year mica

52:45
right with one of the

52:46
companies but when it comes to you know

52:48
especially like a deferred income

52:49
annuity then we start airing towards

52:53
maybe

52:54
more modest quotes of companies that we

52:56
know are still going to be around you

52:58
are you are preaching what i preach

53:00
every day we quote all carriers for the

53:02
highest contractual guarantee and then

53:03
once those numbers come up then we sift

53:05
through the bodies and talk about who

53:07
you should align yourself with if it's a

53:09
if it's a lower rated company maybe a

53:11
very short term might make sense but a

53:13
lifetime income stream attached to that

53:16
low-rated company i would say no

53:18
um you know i i think it's interesting

53:20
that that you take the same approach

53:22
because you know i look at the credit

53:24
qualities of these companies and i look

53:26
at the the numbers and i can read a

53:27
balance sheet because of my background

53:29
with morgan and ubs so i kind of know

53:31
when as i say when the son-in-law is

53:33
buying the bonds so i i can tell when

53:35
there's there's issues and games being

53:37
played but here's here's the analogy

53:39
that i'll give and i don't want people

53:41
to overreact to what i just said because

53:42
i am

53:44
very protective of of my clients and the

53:46
people that listen to me that that

53:48
aren't clients that watch my videos and

53:50
read my books

53:52
is i play college basketball when i

53:53
started playing college basketball and

53:55
that's the way i put myself through

53:56
college there were two referees on the

53:58
floor okay

54:00
the game has gotten so fast that there

54:02
are now three and maybe four referees on

54:04
the floor at the at

54:06
same game same same size of the floor

54:09
rims are still at 10 feet high but the

54:11
game's faster what i would just say is

54:13
as the annuity industry let's put a few

54:15
more referees on the floor

54:17
and let's let's keep an eye on these

54:20
uh the movements of these new people in

54:23
the industry

54:24
these these these very slick nice suit

54:27
wearing people um and and i i i think we

54:30
can solve it by just having a lot more

54:32
eyes on people and a lot more

54:34
transparency of what they're doing and

54:35
how they're doing it i mean i think from

54:37
there we'll be fine but we do need more

54:39
referees i think that's my best analogy

54:44
you know and i i couldn't agree with you

54:46
more stan and i think especially now

54:47
that more and more retirement accounts

54:49
are considering adding annuities to

54:52
their defaults

54:54
that's going to be a much bigger market

54:56
and the need for

54:58
regulation is going to be far greater we

55:00
have ripped through this time period you

55:02
are you are going to come back on i i'm

55:03
going to just tell you that right now i

55:06
want you to i'm not going to demand it

55:07
but certainly would love to have you and

55:09
i know my clients and listeners are

55:10
going to want you to be on this show um

55:13
as with all guests i'd like to for you

55:14
to have the last word on

55:16
you just either tie it up in a bow or

55:18
just some some really poignant thoughts

55:20
at the end for people to walk away with

55:22
because we covered a lot what would you

55:24
what would you tell the listener

55:26
and viewer you know i think that there

55:27
are a lot of people i was just on one of

55:29
those facebook retirement groups and

55:31
there was actually a discussion about

55:32
what do you think about annuities uh

55:34
someone actually recommended your

55:36
podcast which i thought was really very

55:37
nice um i'm a lurker i never actually go

55:40
on and i just look what people say

55:42
and

55:42
i

55:44
you know i want people to say to to be

55:46
able to first of all realize that people

55:48
are going to say bad stuff about

55:49
annuities but you need to just google

55:52
the annuity puzzle so there's a nobel

55:54
prize winner richard thaler yeah he

55:57
wrote a great new york times article

55:59
called the annuity puzzle

56:01
and richard thaler is is not really the

56:03
annuity specialist he's just an average

56:05
economist and of all us economists

56:08
there's no question about whether

56:10
annuities provide value we figured it

56:12
out mathematically back in the 1960s yes

56:15
the question is why don't people buy

56:17
more annuities that's all anybody ever

56:18
studies in economics anymore we

56:19
understand we want to understand why

56:22
people don't buy more i know i know just

56:25
put me in charge for a year it'll solve

56:27
itself michael i mean i need you as my

56:29
uh right hand guys we're both doing our

56:30
part

56:32
i'm serious it's a brand it's a very

56:33
simple branding issue it's a very simple

56:36
messaging issue you know one of the guys

56:38
uh a smart guy in the room donnie

56:40
deutsch is kind of a a guy you see on tv

56:42
and he ran a pr firm sold for a zillion

56:44
dollars it all comes down to branding

56:46
the industry has a horrific

56:48
message um you know i've talked to a lot

56:50
of people about it and um and it seems

56:53
like everyone's all over the board you

56:55
know we we underwrite rolling stones

56:57
concerts we do nonsense stuff like that

57:00
my opinion no again no no offense to

57:02
mick because i'm down there with him in

57:03
bermuda every every winter partying with

57:05
him i mean you know me and mick in the

57:07
stunts but

57:08
i i just think it's it's a very

57:10
simplistic message you either got

57:12
guarantees or you don't it's a milk ad

57:14
got guarantees and then from there you

57:16
start talking and having ads about

57:18
people's everyday lives and kitchen

57:20
table issues and how these things can

57:22
enhance how these things annuity

57:25
transfer risk contracts can enhance that

57:27
lifestyle that you're talking about

57:29
which was you know the one of the things

57:31
we talked about early that i wanted to

57:33
to dive into with you which i thought

57:35
you did a great job was the life

57:37
satisfaction

57:39
goal which i'm going to take that um and

57:42
put that beside your name

57:44
michael finka is about life satisfaction

57:47
would you agree

57:50
i think ultimately it is it's how to

57:52
live better with the money that you've

57:54
saved and if that's your goal then

57:56
you've got to consider annuities

57:58
and with that i'm going to now call him

58:00
michael jordan finca because

58:02
everything's a basketball analogy to me

58:04
but he is that good and that well

58:05
respected and that revered and can play

58:09
can play the game and i appreciate him

58:10
being there i also appreciate you

58:12
joining us for the number one annuity

58:14
podcast on the planet and that just

58:16
happens to be called fun with annuities

58:18
see you next week

58:24
thanks for listening to fun with

58:26
annuities please hit the subscribe

58:28
button and make sure to go to my site at

58:31
the annuityman.com where you can run

58:33
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58:36
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58:39
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58:41
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58:44
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58:46
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58:48
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58:52
encourage you to schedule a one-on-one

58:54
call with me stan the annuity man so we

58:56
can have a full discussion of your

58:58
specific situation it will be the best

59:01
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59:04
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59:06
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59:08
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59:10
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59:12
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59:13
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59:14
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59:18
[Music]

59:29
you