Michael Finke: Why Annuities Make Sense Right Now (From the Vault)

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Welcome to Fun with Annuities, where

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every single week I welcome a celebrity

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guest expert that can help you maximize

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chapter 2 of your life. Listen, learn,

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laugh, and love every minute of the most

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unique financial podcast on the planet.

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Let's get to it.

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Welcome to Fun with Annuities. I'm your

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host Stan the Annuity Man, America's

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annuity agent, licensed in all 50

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states. I want to welcome every single

0:36
person on all the major podcast

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platforms and all of you maniacs on Fun

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with Annuities YouTube channel where you

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can see me wearing a customized Stan the

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Annuity Man sweatshirt that's been

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tie-dyed.

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Just incredible the fashion statements

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that I make every single day. And then

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over one shoulder you see four Flying V

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Gibson guitars, which is the reason is

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it's it's uh it's kind of me saying

1:00
we're getting ready to rock and roll.

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And when I say that, I have a rock star

1:03
on with me today, a repeat guest host. I

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I mean, every time I'm looking something

1:09
up on annuities, I see an article he's

1:11
come up with. And um you know, uh as I

1:14
say, I I've got a new saying for him. If

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it's time to do some annuity thinker,

1:19
let's bring in rockstar Michael Fanka.

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Hey man, how are you?

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I'm good. How are you?

1:27
Stan, where's my swag? I

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I know.

1:30
I want a tie-dyed Stan the Annuity Man

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t-shirt. [laughter]

1:33
The question is before we get started,

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if I put that up on eBay, how much would

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it fetch?

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Uh, yeah,

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I'm thinking thousands. I'm thinking

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there would be an absolute bidding war.

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Right. Right.

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Well, there's two people that bid on it.

1:49
First, people that actually like the

1:50
brand, and those are consumers. And then

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you'd have a bunch of agents that would

1:54
bid it and then burn it like have a

1:56
ceremony.

1:58
[laughter]

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And that's okay. That's okay.

2:02
Good to talk to you again, Diana, as

2:03
always.

2:04
Thanks, man. Tell me what's new with

2:06
you, Michael Fininko. What are you

2:07
looking at other than the conundrum that

2:11
we're in of large debt, rising rates,

2:14
and a retirement semiric crisis?

2:17
Yeah. Well, so let's not start on that

2:19
negative foot. Let's let's move to a

2:21
more positive aspect of what's going on

2:23
in this crazy market. And that is that

2:26
near retirees can lock in 5.2%

2:31
on Miggas on fiveyear MAS for the next

2:33
five years. at the time of this taping

2:36
at the time of this taping u you know

2:39
may go up may go down now let's talk a

2:41
little bit about interest rates because

2:42
I think

2:42
yeah let's

2:43
that u if you look at what's known as

2:46
the yield curve which is the interest

2:50
rates that you get for investing in two

2:52
years and five years and 10year bonds

2:55
what you see is that the market thinks

2:57
that these high interest rates are not

2:58
going to last forever there's what's

3:00
known as an inverted yield curve on

3:03
bonds

3:03
so what that means is that once you go

3:05
10 years out, the markets actually think

3:07
that it that interest rates are going to

3:08
be lower than they are for the next two

3:10
years.

3:11
Yeah.

3:11
Um and this presents a conundrum, I

3:14
think, for a lot of investors right now,

3:15
which is it seems like we've been

3:17
waiting forever to get high rates of

3:20
return on safe investments.

3:23
And as we know, annuities are a very

3:26
efficient wrapper for safe investments

3:29
because safe investments are very tax

3:32
inefficient. So your bond, your CD

3:35
investments, they get whacked that

3:37
you're taxed at your ordinary income

3:39
rate, state plus federal. So for some

3:43
people, you know, if you live in

3:44
California, that can be 50% uh of all of

3:47
your gains you're paying in the form of

3:48
taxation.

3:50
But if you house them within an annuity,

3:52
you're not taxed on the gains every

3:54
year. Now, when annuities were maybe 2%,

3:57
that was no not a huge deal. But when

3:59
they're when they're 5% that all of a

4:02
sudden becomes a bigger deal. So if you

4:04
put in $500,000 and you're making

4:07
$26,000 of interest on it, um that's a

4:10
significant amount of tax savings that

4:12
you can get over the course of a

4:14
fiveyear time horizon. I mean that's

4:15
that's over $125 $130,000 in interest

4:18
that you can expect to earn. And then at

4:21
retirement, so this is the play that I

4:23
think a lot of people are not giving

4:25
enough thought to. If you're 62, 63,

4:29
you're the peak of the baby boom right

4:31
now, you're planning on retiring between

4:33
65 and 67, you buy one of these things,

4:37
you pull the money out after five years,

4:40
you're in a lower marginal tax bracket

4:43
uh than you were today, and you the

4:46
interest may or may not be enough to

4:48
push you up into a higher marginal tax

4:50
bracket. If that's the case, you can

4:51
roll over part of it into another type

4:53
of annuity. you can be very strategic

4:55
about your tax planning in a way that

4:57
you can't be if your savings is not

5:00
within the annuity structure. So, you

5:02
know, a lot of us are thinking also of

5:05
locking in those high rates on future

5:08
income. So, again, if you're

5:11
55, 60 years old right now, and I just

5:13
had a conversation with a friend of mine

5:15
who works for a big brokerage company,

5:18
and he gets these quotes in on annuities

5:20
every day. Um, and he's a smart guy,

5:22
like he understands the benefit of

5:24
annuities. And we're both like, you

5:27
know, he's a little bit older than I am,

5:28
and he's thinking, I need to just take

5:30
money and buy one of these things, like

5:32
a 10-year deferred so that I can get 10

5:35
years of deferral at a really shockingly

5:38
high interest rate. Correct. And that'll

5:40
buy me a very high income in the future.

5:43
So, if I can, you know, a great example

5:45
of this is like Ulax. QAX is so

5:47
interestsensitive that it used to be

5:49
that $145,000 might buy you 35 or

5:52
$40,000 of income. Now, it'll buy you

5:54
$50,000 of income at the age of 85.

5:57
That's right.

5:57
All of a sudden, it's like I can buy

6:00
future lifestyle pretty easily. And uh

6:04
it's it's we're in a situation today

6:06
where it's far more attractive than it

6:07
was a year ago. And we just don't know

6:09
where rates are going. I mean it it it's

6:12
looking like the Fed is potentially

6:15
going to increase increase rates. None

6:17
of us know exactly what's going to

6:19
happen in the future, but there is also

6:21
this possibility that we're going to

6:24
enter into some kind of a recession. The

6:27
Fed is going to very quickly start

6:28
pulling back on those rates because it's

6:30
going to it's seeing that the economy is

6:32
starting to cool significantly.

6:34
Sure. In which case, locking yourself

6:36
into today's high rates. I mean, it's

6:38
possible they could go up a little bit,

6:39
but it's also possible that they could

6:41
go down.

6:42
The bell didn't ring at the top. The

6:44
bell didn't ring at the top, man.

6:45
You know, and you know how quickly those

6:47
things get repriced.

6:48
Sure.

6:49
You know, once things start falling,

6:51
then insurance companies are very

6:53
aggressive about reigning in some of the

6:56
generosity uh if interest rates start

6:58
going down. So that's and I think that

7:01
probably right now the biggest story for

7:02
me is that tax deferral benefit that you

7:06
get from an annuity that you don't get

7:08
from CDs. And a lot of people are

7:10
feeling like I don't want to deal with

7:12
all this market volatility on safety.

7:14
But the thing that you have to remember

7:15
about safety in a high interest rate

7:17
environment is that you pay for it. You

7:19
pay for it in the form of higher income

7:21
taxes. So you've got to give some

7:23
thought to using an annuity. I think the

7:25
annuity wrapper on safe investments the

7:28
single most underused strategy in

7:31
financial planning today.

7:32
Sure. That's because people when they

7:34
they hear the word annuity, they think

7:35
it's one product. They don't know that

7:38
there's multiple products and so

7:40
they think there's high fees, you know,

7:42
and then that on a multi-year guaranteed

7:44
annuity,

7:45
it is what it is. Like you get your

7:46
5.2%. There's no extra fees on top of

7:49
that.

7:49
Right. Right. And um you know I'm a big

7:52
proponent of what I call my goodspia. I

7:54
did a video on it that kind of went

7:56
viral. That's that you know let's strip

7:59
out all the fees. You have control over

8:00
the asset. You can pivot at the end of

8:02
the duration or you can transfer it and

8:04
shop for the highest contractual

8:05
guarantees at that time with a immediate

8:07
annuity instead of buying a deferred

8:09
income annuity or an income writer. You

8:12
know a lot of people looking at that.

8:13
The other thing the other thing I would

8:14
tell always tell people you know Michael

8:16
I'm from the deep south so I think

8:18
differently. You know, if you won the

8:20
game, why are you still playing? I

8:21
always tell people, yeah, you know, if

8:23
you got a million dollars or $2 million,

8:25
whatever it is, whatever the money

8:26
amount of money is, and you multiply it

8:27
by five or four if you're going to, you

8:31
know, pepper it around with CDs and

8:32
treasuries and never touch the

8:34
principle, can you live off that

8:36
interest? It's really that simple. We're

8:37
we're at the point now where people can

8:39
actually live off the interest. Is it

8:41
Jimmy Carter years? No. But we haven't

8:44
seen this in a long long long long time,

8:47
you know? So, it's a different and I

8:50
think a lot of people are looking at at

8:52
MIGAS, multi-year guarantee annuities,

8:54
which is the annuity industry's version

8:56
of a CD, and they never ever heard about

8:59
it before, which is interesting.

9:02
It is interesting, but Stan, they've

9:03
become a lot more popular. I just looked

9:05
at the sales data in 2022 so far. Those

9:09
fixed annuities, they're dominating.

9:11
There are

9:12
half of that was me, Michael, just

9:13
letting you know.

9:15
Um,

9:16
I'm not surprised.

9:18
We ton that and we've been doing that

9:20
for a long time. Uh what people have to

9:22
know is the commissions for all annuity

9:24
types are built in. Micah commissions

9:25
are just very very very low. That's the

9:28
reason the bad chicken dinner seminar

9:30
isn't given on micas because they don't

9:33
have that. What else is you read an

9:35
article recently about wealthy people in

9:37
annuities? I forgot the title but I read

9:39
it and it was pretty interesting. What

9:41
drove you there to talk about those rich

9:43
evil people, Michael? Well, no. I what I

9:45
was actually talking about is a new

9:48
study came out from Morning Star. And

9:50
when Morning Star comes out with a new

9:52
study, a lot of people pay attention to

9:54
it. And one of the things they said was

9:56
that for

9:57
u richer people, you know, annuities

9:59
don't really provide that much value.

10:02
And

10:02
but we got to define rich. What's that

10:04
mean? Well, I mean for them it was, you

10:08
know, people whose assets are maybe 25

10:10
times what their income is, but that

10:12
includes social security more. But the

10:16
thing is the the problem that I had is

10:18
the methodology and uh you know,

10:20
I just pointed the first one out. I

10:22
mean, some people think they're rich and

10:23
they have x amount and other people

10:25
would think that's poor. You know, it

10:27
just

10:28
the customization of it all. [snorts]

10:31
And the question is u you know is what

10:34
is the welfare benefit from and it's

10:37
it's kind of a economist word like how

10:39
much happier do you does it make you

10:41
is that what welfare benefit means

10:43
because that's a horrific phrase.

10:45
It is a horrific phrase but it's used by

10:47
us economists all the time. You know we

10:48
don't

10:49
need to up your game man. Y'all need to

10:51
bring me in and and give you

10:52
southernisms like southern saints

10:54
because we would never use the word

10:56
welfare benefit. [laughter]

10:59
Hey, you're getting a welfare benefit.

11:00
And people like, I'm never going to be

11:02
on welfare ever my life, son. Let me

11:05
tell you something. I'm a working man,

11:06
son. I mean, you gota you got to rethink

11:09
this stuff.

11:11
You are absolutely correct. Our

11:12
marketing skills are not that great.

11:14
Terrific.

11:16
But the idea is that that a lot of times

11:18
in financial planning, what people use

11:19
are what's known as a failure rate

11:22
analysis. They use what a Monte Carlo.

11:24
And what a Monte Carlo does is it gives

11:27
you it spits out this number which is

11:30
the probability of success which means

11:33
it's the probability that you can

11:34
successfully from an investment

11:36
portfolio withdraw a certain amount of

11:39
income. So let's say

11:41
I like Monte Carlo has a place and as

11:43
the race that's kind of played out

11:46
though, isn't it? all these I mean

11:47
seriously

11:48
well you know that's why economists

11:50
don't use it is is that it gives you

11:52
information that is not complete so what

11:54
it tells you is let's say you've got a

11:56
million bucks and you want to pull out

11:58
what what's a spia rate right now

12:01
on

12:02
bad bad question has to do with your age

12:03
you know that that was a setup question

12:05
don't don't do that don't even try to

12:07
play me Michael you know me better than

12:09
that

12:09
well most economist started like 65 so

12:12
65y old male

12:16
I'd have to run the quote. I'd have to

12:17
run the quote. Pick a number. Pick a

12:18
pick number.

12:21
$60,000 a year from a million bucks.

12:23
Okay.

12:24
And Okay. So, let's let's compare that

12:26
to an investment portfolio with stocks

12:28
and bonds. And let's say what is the

12:30
probability that you can successfully

12:33
withdraw $60,000 from a portfolio of

12:35
stocks and bonds. Um, and then let's use

12:38
like historical

12:41
stock return data from the United States

12:43
from back during periods when stocks

12:45
really dominated bonds, which by the way

12:47
has not happened since 1990. Um, here's

12:51
a stat for you. Since 19

12:53
since 1990, a dollar in the S&P 500 has

12:58
never grown to more than $7 over 20

13:01
years. Between 1934 and 1953, a dollar

13:06
never grew to less than $7. Every single

13:10
year during that time period between

13:13
1934 and 1953, $1 never grew to less

13:17
than $7 over the next 20 years. But

13:20
since 1990, that has never happened

13:23
once. So we're using a lot of people who

13:26
use a Monte Carlo are using these data

13:27
from

13:28
nice

13:29
a period where stocks really dominated

13:32
other types of investments and then they

13:34
project the likelihood that you can

13:36
withdraw $60,000 from a million-doll

13:39
portfolio using those historical data

13:42
which are probably not relevant going

13:44
forward. Um but and then it gives you it

13:47
spits out well there's a an 80%

13:49
probability of success. What does that

13:51
mean? there's an 80% probability using

13:54
historical data that are not relevant

13:57
that you're not going to run out of

13:58
money. What that doesn't tell you is

14:00
that when you do run out of money, the

14:02
20% of the time using these simulations,

14:05
you got to live off social security.

14:07
Yeah. So they say,

14:08
you're toast.

14:09
Yeah. And that that's what economists

14:11
say is, wait a minute, let's let's look

14:13
at how bad things can get when you

14:15
actually do run out. So, you know, if if

14:18
you buy an annuity and let's say you've

14:20
got two people, you know, one of them

14:22
has $2 million of savings. They use a

14:24
million dollar to buy $60,000 of income.

14:26
The other one just has $2 million and

14:28
they try to pull out an income. And the

14:30
one with $2 million tries to match the

14:32
same income. When they run out, they got

14:34
to live off social security. The one who

14:36
used a million dollar to buy $60,000 of

14:38
an annuity, they've got $60,000 plus

14:40
$30,000 of social security. Their worst

14:43
case scenario is that they're living on

14:45
$90,000 a year, but they both they might

14:48
both have the same failure rate or the

14:49
one who bought the annuity might have a

14:51
lower failure rate depending on how you

14:52
model it out or a higher failure rate.

14:54
But even if they do, what's the

14:57
consequences? So when you buy an

14:58
annuity, especially if you take part of

15:00
a chunk of your savings and buy it,

15:02
and you're talking about when you say

15:02
annuity, you're talking about lifetime

15:04
income annuity.

15:05
A liime income. Yeah.

15:07
Okay. and and let's say you know you

15:08
take a a chunk of your savings, you use

15:10
it to buy an annuity, you're essentially

15:12
buying yourself a minimum standard of

15:15
living

15:16
forever, no matter how long you live.

15:18
And so if we model out a thousand

15:21
different potential retirements,

15:23
the ones who will have an annuity will

15:25
on average be happier, but the ones with

15:29
an investment portfolio might have a

15:31
slightly higher probability of success,

15:33
but there's no information about what

15:35
failure means. The community college

15:38
version of what he just said was you

15:39
either want to shoulder the risk or

15:41
transfer the risk. One of the two. It

15:43
really comes down to. And yes, community

15:45
colleges are great because they teach

15:46
trades, Michael. I mean, they Yes, we

15:49
need plumbers. We need plumbers and

15:51
electricians and things like that.

15:53
What's the probability, Michael, of me

15:54
having six-pack abs? My wife wants to

15:56
know.

15:58
[laughter]

15:59
Can we run a Monte Carlo on my abdomen

16:02
muscles?

16:04
It's not good. He's allergy here.

16:07
[laughter]

16:09
I have to, man. Listen, you you come on

16:11
this on the program, you know, I'm going

16:14
to push the envelope, man. And I'm

16:15
thinking to myself, can you run a Monte

16:17
Carly? There's no chance that this

16:20
person here in this nice red tie-dyed

16:25
thing isn't going to have six-pack abs.

16:27
But that's all I care about, Michael.

16:28
Can I have six pack abs? Um, that's

16:30
that's why I always when people call me

16:32
and they'll say, "Well, this guy told me

16:34
that this and do this and this and this

16:36
and this." I'm like, "Listen, you have a

16:37
better chance of having six-pack abs."

16:39
And I don't know you, but you're not

16:40
going to have. So, that's my that's my

16:44
analogy to the good, too good to be true

16:46
sales pitches that are out there. So,

16:48
um, what else is new in the annuity

16:50
industry, Mr. Fina?

16:52
Um,

16:53
what are you working on? What's the

16:55
super secret double secret probation

16:57
project you're on?

16:59
Well, gosh. So, one of the things that

17:01
we may or may not have tal talked about

17:02
in the past is um how having greater

17:06
guaranteed income actually allows you to

17:08
take more risk with the remainder of

17:10
your investment portfolio. I think

17:12
something that not a lot of people give

17:13
thought to. First of all, when you buy

17:15
an annuity, an income annuity, that's

17:18
part of the bond portion of your

17:20
portfolio. And again, I was mentioning

17:21
before that you can use an annuity as a

17:24
substitute for part of your CDs or your

17:26
bonds.

17:27
Sure. Um, and and you get that

17:29
additional tax deferral benefit. Um, but

17:32
something that that I like to think a

17:33
lot about is, okay, you're you're close

17:35
to retirement, you've got this asset

17:36
allocation, you have some of it in

17:37
qualified, some of it in non-qualified,

17:39
you start moving the chess pieces a

17:41
little bit, and how does that impact the

17:44
optimal allocation outside of those

17:46
chess pieces? So, I have $2 million of

17:49
savings. I use $500,000 to buy myself um

17:53
an income annuity. What does that entail

17:56
in terms of what the rest of my

17:57
portfolio should look like? And what it

17:59
should look like is if I'm if I got a

18:01
50-50 portfolio, then I can actually

18:05
continue to invest a million dollars of

18:07
my $2 million in stocks, I now have

18:10
$500,000 in bonds. And in fact, I might

18:12
even be able to go to $1.1 million of

18:15
stocks and $400,000 of bonds again

18:17
because my safety net that I've built is

18:19
bigger. U the the worst case scenario is

18:22
better. So, I mean, what risk in

18:24
retirement means is spending volatility.

18:27
And if you take more risk, you're going

18:29
to have more volatility of your

18:32
spending. You're going to have a higher

18:33
probability that you're going to have to

18:34
cut back. That's really what risk means.

18:36
It means that um let's talk also about

18:40
2022 because I don't think we've done

18:41
that. And if you would have started out

18:44
the beginning of the year uh with a

18:47
million dollars and you would have you

18:50
would have done the 4% rule. Say you got

18:52
two retirees. They each got a million

18:53
bucks. One follows the 4% rule. They

18:56
think they can spend $40,000 a year plus

18:58
inflation, $43,200 next year.

19:01
Um the other one decides to wait nine

19:03
months to retire and they had a million

19:06
bucks. Now they've got $800,000 and the

19:09
financial adviser tells them, "No, you

19:11
know, we're going to follow the 4% rule.

19:12
You can spend $32,000 a year plus

19:15
inflation." That doesn't make any sense.

19:17
This this guy over here started with a

19:19
million bucks. He's now down to $800,000

19:21
minus whatever he spent over the last

19:23
nine months. He's got even less money.

19:25
And you're telling him or her that she

19:27
can spend $43,200 next year. And the

19:31
other one you're telling you can spend,

19:32
you know, 32,000 plus inflation next

19:35
year. Um, you have to be willing to be

19:38
flexible when it comes to spending if

19:40
you take investment risk. And I think

19:42
oftentimes people don't really fully

19:44
understand that. And I think people are

19:46
beginning to become aware of it. In

19:47
fact, when I look on the boards of

19:49
retirees,

19:51
what I'm seeing a lot of people talking

19:52
about these days is I did not know this

19:55
could happen. I started my advisor said

19:58
I was going to be fine. I started out

20:00
with this nest egg. I reached my goal.

20:02
You know, a lot of people hit their goal

20:03
number in 2021. They decided they were

20:05
going to retire.

20:06
Sure.

20:06
Now they got a lot less money and

20:08
they're saying I got to go back to work

20:10
or my advisor's stupid. you know, they

20:12
put me in these things and they didn't

20:14
like

20:14
my I like the my advisor stupid broad

20:17
brush because that's pretty good. Of

20:20
course, that doesn't include me. Um, but

20:22
yeah, I do like that. Now, go ahead.

20:26
It's the market, right? You know, all

20:28
all everybody that was in the market

20:30
lost that money. I lost that money. You

20:32
lost some of your money. I mean, we all

20:33
lost.

20:34
I don't do markets. Come on, man. I only

20:35
do contractual guarantees. But I will

20:37
tell people that most adviserss today, I

20:39
have cowboy boots that are older than

20:41
them. They have only seen bull markets.

20:43
They have not seen people walk out in

20:44
the front yard and vomit. You know, and

20:46
I started in the securities industry in

20:48
' 87. Uh if you that that that year

20:51
rings a bell, there's a reason. Um you

20:55
know, markets don't always just

20:57
historically go up and up and up and up

20:59
quickly. Over time, they do. But I think

21:01
for the baby boomer, the conundrum, the

21:04
headscratcher is what do I do here? Do I

21:07
have enough money to win the game and

21:08
just peel off interest or create an

21:09
income floor? or do I still want to play

21:11
the game?

21:12
My opinion, Michael, is you know the the

21:15
whole people saying to everyone, well,

21:17
you got to go to college, you got to buy

21:18
a house, you got to you got to got to

21:20
get it all. You got to be in the

21:22
markets. Do you if you have enough money

21:25
and just want to peel off interest or

21:26
create a lifetime income stream, do you

21:28
really need to be there?

21:31
It's a great question and I think most

21:33
of us who have tal I have friends

21:36
obviously we're this group of retirement

21:38
dorks who talk to each other about uh

21:40
what we hope to do with our own

21:42
retirement.

21:43
Is that retirement dorks.com?

21:45
Yes. Uh

21:47
it needs to be a special club. You're

21:49
invited by the way Stan.

21:50
Are you calling me a dork? Is that Wait

21:52
a minute. Swallow ho down.

21:54
It's it's a it's a term of endearment

21:57
thing.

21:57
It's an exclusive club.

21:58
Oh thank you very much. But we all I

22:00
mean when it comes to our retirement

22:01
that's how we want to play it. Like we

22:03
we we can take risk during the

22:05
accumulation stage, but when we get

22:08
close to retirement, we I just want to

22:09
lock it in and I don't have to think

22:11
about it. I don't have to worry about

22:12
what's going on in the markets. When I'm

22:14
deciding whether or not I can go on

22:16
vacation next year, I don't have to say,

22:18
well, wait a minute. You know, the

22:19
markets are down. I'm not going to be

22:20
able to do that. I want to be able to

22:22
lock in as much as I can lock in without

22:24
the fear. And I know the older I get,

22:26
the more it's going to bother me. And

22:27
that actually shows up in the data is

22:29
that we do get

22:30
and you're like you're like 32, right,

22:32
Michael?

22:32
Absolutely. Yes. How did you know?

22:35
I know. [clears throat] I just took a

22:36
stab at it. Just your voice. No, I'm

22:38
kidding. Um, you know, I always tell

22:39
people there's no U-Hauls behind herses.

22:41
I'm trying to I'm trying to figure out

22:42
how to quantify that with a formula. Um,

22:45
but I, you know, I do think that people,

22:48
and I'm pounding the table a little bit

22:49
out here for the baby boomers to

22:51
consider and look at their situation

22:53
that you might not only want to retire

22:54
from your job, you might want to retire

22:56
from the markets.

22:59
Um, if you can, a lot of people can't,

23:02
but if you can, um, and I think that

23:05
these choppy markets and and I think

23:07
we're getting at the time of this

23:08
taping, I think people are listening to

23:10
Stan the annuity man because, you know,

23:13
it's lifestyle in chapter two of your

23:15
life. So, what are you and the dorks

23:18
doing to get this message out?

23:22
Retirement dorks. I I've got to go get

23:24
that domain. um to get the message out

23:26
in English to people, not you know, I'll

23:29
let you finish that question. Here's a

23:31
great comment. Guy was calling me the

23:33
other day and he was looking at annuity

23:35
product, a very complex one. We won't

23:37
mention it. And his comment was in

23:39
southern he goes, you know, I didn't

23:40
know mathematical formulas had letters

23:42
in it. I'm like, it does. Okay. And

23:46
that's not a good thing.

23:47
[laughter]

23:48
So, so what's the messaging

23:52
that we're trying to get across other

23:54
than just hiring me and pay me a huge

23:56
retainer to do it right? What are you

23:58
guys doing?

23:58
You know, one one of the things that I'm

24:00
a big fan of is telling people if you

24:03
try to do it yourself. First of all, you

24:05
have to pick a failure rate, a

24:08
probability that you know what's what at

24:10
what age do you want to run out? By the

24:12
way, this is all prefaced with a

24:15
discussion that begins,

24:17
you're going to die. So, I have a friend

24:20
of mine who's a researcher.

24:21
That's beautiful.

24:22
Yeah. He's a researcher who studies this

24:25
idea of people's unwillingness to accept

24:27
their own mortality. And whenever

24:29
anybody brings up anything, I mean,

24:31
there's a reason why it's called life

24:32
insurance and not death insurance. And

24:34
even though it is death insurance, uh

24:36
it's because people don't want to

24:38
acknowledge the fact that they're going

24:41
to die. But as if you're going to do

24:42
retirement planning, right? You've got

24:44
to acknowledge the fact that you're not

24:46
going to live forever. Hopefully, you're

24:47
going to live a really long time. But

24:49
none of us know. So there's only two

24:51
places your money can go. Your money can

24:53
either go to other people. You know,

24:54
when you die, your money gets all that

24:57
all that fun that you could have had

24:58
gets spent by someone else.

25:00
My daughter showing up to my funeral in

25:01
a Lamborghini. That's what's going to

25:03
happen.

25:04
It is. And it's actually the research is

25:06
so much fun because when people get

25:08
these inheritances, it's always the ones

25:11
who like having a whole lot of fun who

25:13
spend it down the fastest. And they're

25:15
the ones, you know, every generation has

25:17
those people who who didn't really

25:19
accumulate much money in their lifetime,

25:21
but when they get the money, they know

25:22
how to spend it. Like they know how to

25:24
live. Um, so either either the money

25:26
goes to that kid who is really good at

25:29
spending money or it goes to your

25:31
lifestyle. and and if it's going to go

25:33
to your lifestyle, you got two choices.

25:35
You can uh you can try to spread it out

25:37
or you can buy yourself some sort of a

25:40
guaranteed income product that allows

25:42
you to spend. We've talked about this

25:43
before, the birthday cake problem. It

25:45
allows you to spend more every year

25:47
without having to worry about

25:48
potentially running out. That's why you

25:50
do it. That's why economists say it's a

25:51
puzzle that we're not buying more of

25:52
these things. But I think the big the

25:54
big thing you have to overcome is

25:56
recognizing that you're not going to

25:58
live forever and you either have to cut

26:00
little little slices of the birthday

26:02
cake or you can spend more with less

26:04
worry. So why not just do that?

26:06
What worries you, Michael Frinka, other

26:08
than waking up in the morning and just

26:10
continuing to be vibrant and young?

26:14
what worries me, you know, frankly, uh,

26:17
uh, right now, and it's probably the

26:20
same thing that you mentioned at the

26:21
very beginning of the podcast, which is

26:23
one of the consequences of really high

26:26
interest rates, the Fed raising these

26:28
rates, is that it's crowding out

26:30
everything in the federal budget. And

26:33
absolutely,

26:34
you know, that makes me worry about

26:36
spending austerity, which is another one

26:39
of those fun love to use. Um, you know,

26:42
that sounds like an affliction. Like the

26:44
fact spending austerity means that I've

26:46
got money, but I don't know what it's

26:48
for.

26:49
That's what that means to me. I don't

26:51
need Y'all need to come up.

26:52
The federal government only has so much

26:54
money it can spend. And if it's spending

26:56
a ton of money on interest payments,

26:58
then it's not going to be able to spend

26:59
as much money on things like

27:02
generous Medicare and Social Security

27:04
benefit increases over time.

27:06
That's good. That's good. I love your

27:09
FR. You guys need to come up with these

27:10
phrases and then sell t-shirts on

27:12
retirement dorks.com. You know, spending

27:15
austerity. What was the other one?

27:16
Welfare. [clears throat]

27:19
Welfare.

27:20
I've got I've got

27:21
I mean, it's just like what in the world

27:22
are y'all talking about, man?

27:24
Economist jargon.

27:26
And then I'm over here doing all the

27:27
southernisms like, you know, squeezing

27:30
oil out of a brick. That's what we're

27:32
doing right here. We're trying to get

27:33
the highest contractual guarantee. We're

27:35
squeezing oil out of a brick. But, you

27:37
know, I think that's part of the annuity

27:39
industry's problem is we have not

27:41
messaged it right to people in their in

27:45
English that they fully understand

27:47
because the way that we talk about it

27:49
seems complex, but truly annuity types

27:53
are very simple if explained properly.

27:56
This isn't complex.

27:57
They really couldn't be any easier.

27:59
It really I mean, yeah. I mean, I always

28:00
say if you can't explain it to a

28:01
nine-year-old, don't buy it. No offense

28:03
to nine-year-olds. It really is that

28:05
simple. ing because everyone, well,

28:07
they're expensive and they're I can't

28:10
understand them, you know, and I'm like,

28:12
you know, I told a guy the other day and

28:13
I was trying to explain my go and I told

28:15
him I said, "I'm a little frustrated. I

28:17
feel like I'm showing a painting to a

28:18
blind person, you know, because they

28:20
just didn't understand the correlation

28:21
between CD and Mike." I'm like, "It's

28:23
really that simple. Don't don't make it

28:24
any more difficult than that." Right.

28:25
And and so um so that that worries you,

28:29
but what makes you get up in the

28:31
morning, put on the running shoes, you

28:33
know, you you run seven to 10 miles

28:34
every morning, as you know, after that

28:37
run. What what makes you want to just go

28:39
get it every day?

28:40
I got to keep up those six-pack abs,

28:41
stand.

28:42
Yeah, man. I mean, you know, you're

28:43
you're my Yeah, you're kind of the idol

28:45
that I'm looking for. So, what I mean,

28:47
what what motivates you? What keeps you

28:48
going, Michael? Well, I mean, first of

28:51
all, u we have this huge baby boom

28:54
cohort, and I worry about them, frankly.

28:57
I I think that it's the first generation

28:59
that's going to have to rely entirely on

29:02
savings to fund their lifestyle. I think

29:04
they had a really great time back in

29:08
2021. The markets were doing fantastic.

29:10
All of them felt really rich. Uh, but I

29:13
I was really worried then and and I'm

29:15
worried that they don't have the right

29:18
information about what they're supposed

29:20
to do with that money after they retire.

29:22
I think we've we've really dropped the

29:24
ball as a society on those retirees. We

29:27
don't have any moment where we sit down

29:30
with them and say, "All right, you got

29:31
this pot of money. What do you want to

29:33
do with it? What's your goal? U how do

29:35
you want to live? Like let's start with

29:37
the lifestyle that you want to lead and

29:38
then let's build that plan around it."

29:40
And to the extent that I can educate

29:42
people on making some of these choices,

29:46
I see it as an opportunity to help

29:48
people live better. Um, but I think they

29:51
just have no idea. They don't understand

29:52
what these trade-offs are. Again, to an

29:54
economist, it seems pretty easy. You

29:55
know, you've got these very easy to

29:57
understand trade-offs that are all about

29:59
welfare maximization. But to the average

30:02
retiree, they have no idea what it's all

30:04
about.

30:05
Welfare maximization. So, it's our job

30:08
to try to to try to use concepts to help

30:13
people put together a plan that's going

30:14
to make them happier.

30:16
I could get elected running against the

30:19
phrase welfare maximization. Just just

30:22
bringing it up and saying, "I am totally

30:23
against welfare maximization

30:27
because you're tired of giving this

30:28
stuff away." You know what I'm saying?

30:30
And then you're stepping like Stan,

30:32
that's not what I'm talking about.

30:33
That's not welfare maximization's all

30:36
about.

30:37
I am not running on the welfare

30:38
maximization platform. [laughter]

30:42
That's a loser. But you know

30:43
the kind of messaging that usually works

30:45
well.

30:45
That's pretty. But people always talk

30:47
about fake news and political fake news

30:48
and all this stuff. Financial fake news

30:50
is as bad. It's as bad because what and

30:55
I want you to think about it from a

30:56
party standpoint. You have the party

30:57
over here of contractual guarantees and

30:59
the curse word of annuities. Then you

31:02
have the party over here of market

31:03
growth and potential and it's going to

31:05
go up. And both sides hammer each other.

31:09
Both sides say things about each other

31:12
that are unfounded to get the sale from

31:15
the other guy. Similar to a politician

31:17
saying what they have to say to get the

31:19
vote.

31:20
That's the problem. The problem is is

31:23
the master of the universe, financial

31:24
architect, wealth architect, financial

31:26
advisor saying all annuities are bad.

31:28
I'm just telling you right now, son. And

31:30
that's that's stupid as if I said all

31:33
mutual funds are bad. That's stupid. Um

31:37
and I think I don't know how to cut

31:38
through that noise. But other than you

31:41
know the annuity industry is notorious

31:43
for sponsoring the Rolling Stones tour,

31:45
which is I don't understand that unless

31:47
I'm opening for them. Um we need to do a

31:50
better job of buying airtime, I would

31:53
think. You know, I see some I've s I've

31:55
seen some stabs at that. I know you sit

31:58
in the big boardrooms with big marble

32:00
stuff and they feed you all these really

32:01
nice food and stuff. Has anybody talked

32:03
about actually marketing to the boomers

32:05
other than what I'm doing?

32:08
Well, Stan, I I have to say that's why I

32:10
recently I mentioned to you u before

32:13
this interview that I actually used your

32:15
name in a very important group early on

32:17
in this week.

32:19
Just tell me the truth because I can

32:20
take it.

32:21
They were all right. They didn't they

32:22
they hadn't heard of you, Stacy.

32:23
What?

32:24
They don't know to hate you. You got to

32:26
be kidding me. But then again, I don't

32:29
market to the financial industry.

32:31
No, you don't. And so, but no, this was

32:33
this was more like policy folks from big

32:36
companies.

32:37
And I'm saying like you've got this is

32:39
how you need to present this

32:40
information. It's it's simple. It's

32:42
straightforward. I used examples of the

32:44
way you present information on the

32:45
website because that's what the consumer

32:47
needs to know is they need to know, you

32:49
know, the quality of the different

32:50
insurance companies. They need to know

32:52
the quotes that they're getting. um you

32:54
focus on very simple products that are

32:56
very easy to explain that are providing

32:58
the kind of lifetime income that people

33:00
actually want. Um that you know it's

33:02
it's u it's something that I think

33:06
others could learn from. I'll say that

33:08
that's that's a the ultimate compliment

33:10
by the way Stan that that you I think

33:11
your marketing

33:12
skills are are exceptional.

33:15
I need to go speak in front of this

33:17
group now. I would do it with a drummer

33:18
behind me, you know, doing like a

33:20
hip-hop drum beat as I'm talking and

33:23
maybe a guy on guitar. But the point is,

33:26
it would be neat for me to talk to these

33:27
I did it one time at like the

33:29
Association of Financial Planners

33:32
in Chicago and they brought me in, they

33:34
paid me and it was like thousand people

33:35
in the room. It was like a fist fight

33:37
the whole time. Of course, I won

33:39
everyone but factually, but you know, it

33:41
was it was it was bizarre. It was it was

33:44
interesting. But I think that's what

33:46
needs to happen. We need to go into the

33:48
belly of the beast, as they say, and

33:51
factually hammer them on what this is

33:53
all about and have the people step up to

33:55
the mic and and try to, you know, stump

33:58
Michael and Stan and we just go, "Uh,

34:01
sit back down, chump, because we're

34:03
getting ready to kill you right here

34:04
with facts."

34:05
You know, I actually I don't see the

34:07
same level of antagonism towards

34:10
annuities.

34:10
Come on. That's what that's what makes

34:11
it fun. Just let me go. Let me have it.

34:13
Okay, I hear you. I hear you. You know

34:15
what? I tell you why

34:17
in general and and that is great to see

34:19
because I think especially in the

34:21
investment world, people were not as

34:22
open to having these kind of

34:23
conversations maybe four or five years

34:25
ago, but there is a general

34:26
acknowledgement. Yeah, these things

34:28
actually have a place. Let's think about

34:30
how we can position them to consumers.

34:32
Well, there's a demographic title wave

34:34
and I've got a feeling that a lot of

34:36
people are walking in whether it's from

34:38
a bad chicken dinner seminar or just

34:40
life saying, "I'm really tired of the

34:41
volatility. Do you have anything else

34:43
for me?"

34:44
Yeah. Um I I think I think as like

34:47
everything that's good, the consumer

34:48
drags the industry across the finish

34:51
line.

34:52
Oh, I want to talk about one more thing,

34:53
Stan, before we stop this this. So,

34:56
first of all,

34:57
what were we indexed annuities? Um

35:01
it is but but let's think about this for

35:03
a minute, Sam. First of all,

35:04
no, I read Jason I read I read his

35:06
article.

35:07
No, no, no. the the option but first of

35:10
all the option budgets are getting

35:11
pretty generous in those things which

35:13
means that the caps are pretty high.

35:15
They're higher than they have been in

35:16
the past.

35:17
But let's also think about

35:19
you know those those guarantees the

35:21
insurance company provided that you

35:23
wouldn't lose money on your investment

35:26
as a bond substitute. So the insurance

35:29
companies

35:30
reminder about how fixed index annuities

35:32
work.

35:33
Wait, stop. I can't make I'm gonna argue

35:35
with you here. You cannot

35:38
put fixed index annuities in the same

35:40
categories as a bond. You just can't,

35:42
Michael. Come on, man.

35:43
Well, I mean, if you look at the

35:44
historical long-term performance,

35:47
they're they're pretty close to a

35:49
corporate intermediate term bond over

35:52
time, but

35:54
but you get this downside protection of

35:57
the principal. Now, the thing I want to

35:59
talk about here, Stan, is that with

36:00
those products,

36:02
the insurance company has actually lost

36:05
the money.

36:06
So, you're right. They invested in their

36:08
general account portfolio. They assumed

36:10
it was going to provide a 5% return. So,

36:14
they have, you know, they took $95 of

36:16
your money. They are going to give you a

36:19
$100 back next year. They invested the

36:21
rest in a financial option which lost

36:23
did not pay off this year.

36:24
Sure. Sure. but of your bond portfolio,

36:28
you're not going to lose any money on

36:30
that. And the assumed rate of return was

36:33
5%. The insurance company is now holding

36:36
all of these intermediate term corporate

36:38
bonds. They saw this tremendous loss in

36:42
their general account portfolio that

36:44
they cannot transfer to you. So, this is

36:47
one of those years where a product like

36:49
a fixed index annuity that provides you

36:52
with protection against loss um it's

36:56
it's become very apparent that you've

36:58
transferred a lot of risk to the

36:59
insurance company of your bond

37:01
portfolio. Um and that's that is

37:04
and I agree with you and you said

37:06
something on a previous podcast with us

37:07
that I've attributed to you since I mean

37:10
and you probably said it by mistake. It

37:11
was so good, Michael. That's what I

37:12
mean. Yeah. Is that good? And you said,

37:16
"Let the annuity companies buy the bonds

37:17
for you."

37:18
Yeah.

37:19
With these products. And I thought that

37:20
was genius. And it still is genius. And

37:22
you still get the props and you still

37:23
get the royalties because this is a

37:26
great example of they're buying the

37:27
bonds for you and you're not suffering

37:29
in the volatility of the underlying

37:31
principle of those bonds yet you got you

37:34
have the contractual guarantees in

37:36
place. So,

37:37
and I think this is something that a lot

37:38
of people had forgotten about that take

37:41
agreed,

37:41
you know, at the beginning of the year,

37:42
some people thought, well, wait a

37:44
minute, you know, interest rates are so

37:45
low, I'm going to try to get I'm going

37:47
to buy bonds that have a higher yield.

37:49
I'm going to buy bonds that are longer

37:51
term. I'm going to buy bonds that are uh

37:53
riskier, you know, lower quality bonds.

37:55
Sure. Sure.

37:55
And those people thought, well, you

37:57
know, how how risky could bonds be? And

38:01
by [laughter] the time we get to

38:03
October,

38:04
the the Vanguard long-term corporate

38:07
bond ETF is now down more than 30%.

38:11
Like, who thought that that was even

38:13
possible?

38:14
Listen, I was there in the 90s. I was at

38:15
Morgan Stanley when that happened. I was

38:18
I was a bond guy at those big firms. And

38:21
I always tell people, you know, bonds

38:23
aren't always a safe haven

38:26
at all. you know, from a standpoint of

38:28
underlying value.

38:29
We're definitely seeing that this year.

38:31
Oh my gosh. I And I think we are in a

38:33
bare market for bonds. And I hope I'm

38:34
wrong and I'm who knows. I mean, that's

38:36
from my past, but um I don't know. Tell

38:39
me about inflation, Michael. You wake up

38:41
in the morning after the workout and

38:43
then you start thinking about inflation.

38:45
What are you thinking about?

38:48
Well, okay. So, inflation has been

38:51
really spotty. So that means that, you

38:55
know, when I look at the inflation

38:56
numbers, what I see is not that

38:59
everything is going up by a lot. I'm

39:01
seeing that some things are going up by

39:03
a lot. And and

39:04
obviously the war in Ukraine has

39:07
impacted energy costs that's gone up a

39:09
lot. Uh there are supply chain issues

39:12
that are, you know, partially a

39:14
carryover from the COVID era that are

39:17
affecting prices a lot. Some things like

39:19
health care that seniors pay a lot of

39:21
money for are really have not gone up at

39:23
all over the last couple of years. So if

39:25
you can be more flexible than like which

39:28
most retirees can be more flexible then

39:31
the impact of inflation is not as big of

39:34
a deal. One of the things I worry about

39:36
with those retirees is that there is

39:39
such a thing as inflation sequence of

39:42
return risk. And what that means is that

39:44
if inflation is really high early on in

39:47
retirement, the prices of stuff you buy

39:50
throughout retirement is going to be

39:51
more expensive. So it's worse if

39:54
inflation's high early than if inflation

39:56
is high late. Because if inflation's

39:58
high early, then prices go up and they

40:00
stay up forever.

40:02
And if inflation's high late and you pay

40:04
really high prices later on, it's not a

40:05
big deal because you were able to buy

40:06
cheap stuff for the first 10 years of

40:08
retirement

40:09
and you're going to die.

40:11
Well, don't remind people because that

40:13
freaks them out.

40:14
As a good friend of mine that does life

40:16
insurance, he always says, "One out of

40:18
one of us is going to die." I'm like,

40:19
"Thanks, mathematician. Appreciate that,

40:21
Tony Robbins." Um, but it but it is

40:24
true. And in inflation, I always tell

40:27
people, if you have enough money, like

40:30
if you call me and you have multiple

40:31
millions of dollars and you ask me,

40:33
"Let's solve for inflation," I will call

40:34
you arrogant. Um, and I will start

40:37
yelling at you at the top of my lungs

40:39
because come on, man. You can you can

40:42
afford the eggs and the bread and the

40:43
gas. You know, obviously inflation hits

40:45
people at the low end. It always does.

40:48
Um, and I always tell people there's no

40:50
perfect product to solve for inflation.

40:52
You know, you already have social

40:53
security and you can buy Ibonds, but

40:56
you know, annuity companies have the big

40:57
buildings for a reason. There's no

40:59
floating product out there that

41:00
addresses this. Even though every a lot

41:03
of people will say they have it, they do

41:05
not. In your round table of retirement

41:07
dork geniuses with advanced degrees,

41:12
what are you guys talking about from the

41:13
standpoint of future products that you

41:16
see coming down the pike that should be

41:18
developed?

41:19
Well, okay. So, one company has

41:21
developed a fixed index annuity with an

41:24
income payment that is actually allowed

41:28
to float up with inflation up to 5% per

41:30
year. I understand. Don't mention the

41:32
name. Don't mention the name. Please

41:34
don't mention it. Don't mention Do not

41:35
mention it.

41:37
No, but but they they

41:39
lower the initial but they lower every

41:41
one of these firms that have that. And

41:43
there's there's actually five or six of

41:44
these products out there that they lower

41:47
the initial payment to make up for that

41:49
potential increase. So, you have to

41:51
factor in the break even point if you

41:54
bought a static payment versus the

41:56
potential hypothetical theoretical

41:58
projected unicorn situation. the

41:59
butterflies increases that's being sold

42:01
out there. It's not as pure as you're

42:04
pushing because um social security is

42:07
the best inflation annuity on the planet

42:08
because there's no actuaries involved.

42:10
There's only politicians,

42:11
Dan. And that is the bottom line is like

42:13
if you're worried about inflation, just

42:15
wait to claim until you're 70. That's

42:18
that's the best way to deal with it.

42:19
Beyond that, yeah, that the options are

42:21
limited. Well, I always tell people, you

42:23
want to solve for inflation, reverse

42:25
engineer an immediate annuity for the

42:28
exact dollar amount that you need to

42:29
fill in the income gap. Period. That's

42:32
it. Everything else is a sales pitch,

42:35
you know. And and so the other thing,

42:37
too, is is inflation's customizable.

42:40
Um, so some people it affects

42:42
differently than others. My two

42:44
daughters have left the building and I

42:45
don't have to pay for dance classes and

42:47
drive them back and forth. So there's no

42:49
not as much gas. Am I allowed to mention

42:51
that you can even use a QAC as a way of

42:53
dealing with later retirement inflation?

42:55
You are allowed to say that because you

42:57
know I did write the first book on the

42:59
planet about QAX in 2014 as you know and

43:02
so well documented. Um but you know it's

43:05
not for everybody. It is a future income

43:07
payment that can hedge against

43:08
inflation. Why? Because you have you

43:10
have income starting at a future date.

43:13
No different than buying an immediate

43:14
annuity at a future date. There are some

43:17
tax savings etc. Do you see QAX? Do you

43:20
see our politicians who we both love,

43:22
trust, and understand, do you see them,

43:25
you're supposed to laugh at that,

43:27
Michael, comment. No,

43:28
it's it's beyond laughter at this point.

43:31
Do you see him raising it to where it's

43:33
real like a 200,000 or 250 where people

43:36
can actually whack it pretty good?

43:40
So, I mean, I the the reason that they

43:43
would do that is to develop some sort of

43:47
a workable

43:50
default in a retirement account. So all

43:54
what what is happening right now is

43:57
helax have been considered by some

43:59
companies as a default solution to

44:02
protect against longevity risk in your

44:04
401k.

44:06
And if you have a high enough income

44:09
then you're going to go over that

44:10
$145,000 limit. Are we gonna pass? First

44:14
of all, you're asking are we going to

44:15
pass secure two? I don't know. It's like

44:16
5050 shot. Um, and second of all,

44:21
is that going to be an issue? I I people

44:24
have tried to beat me down on QAX Stan

44:27
to be honest that nobody really cares

44:29
that much about them and you know,

44:31
making significant policy changes beyond

44:33
increasing it by the rate of inflation

44:34
is going to be tough

44:36
unless it's coupled with some sort of a

44:39
QDIA solution like a target date fund

44:42
solution.

44:44
Are you a fan of target date funds?

44:46
I am. I think.

44:47
Oh yeah.

44:49
The reason is and I'm just doing a

44:50
paper.

44:51
Give me the reason. Just sell me on that

44:52
because you and Paul Marryman who's good

44:55
good friend of the show are target date

44:58
fun. I mean you I mean he you probably

45:00
have a tattoo like target date fun on

45:02
your arm. I mean I don't know.

45:03
Well no just just ke

45:05
just [laughter]

45:07
why target dates? Sell me.

45:10
Um because I've seen what people do when

45:12
they try to invest on their own. So,

45:15
oh, it's it's a loving handcuff is what

45:17
you're saying.

45:18
It is. And and and you know, I was just

45:20
doing a paper. I was talking to a

45:22
reporter this morning about it where I

45:24
look at for those who have a target date

45:26
fund. How many of them phoned up their

45:30
um recordkeeper where the recordkeeper

45:32
is the one that they need to phone up to

45:34
make a change in their right

45:35
investments? And half the percentage of

45:40
those who have a target date fund versus

45:42
those who were managing their

45:43
investments on their own, half of them

45:46
called up their provider when the

45:48
markets fell in early 2020. And onetenth

45:51
of them, they're onetenth as likely to

45:54
make a change. And and by the way, the

45:56
ones who did make a change were all

45:57
pulling money out of stocks at exactly

45:58
the wrong time in March 20.

46:00
So you're dummy. So what you're saying

46:02
is a target date fund is a dummy proof

46:04
investment.

46:05
Absolutely. You know, that is its

46:07
biggest strength is that people, it's a

46:09
set it and forget it kind of investment

46:11
and people don't touch it and they

46:13
actually outperform the experts over

46:15
time in these things. It's magic. It's

46:17
really great. Now, the problem is that

46:20
it's, you know, it's not customized.

46:22
It's not tailored for every person. Uh,

46:24
everybody gets the same thing. It's uh,

46:27
you know, and the amount of money that

46:28
you save, nobody ever like figures out

46:30
whether that's appropriate for you.

46:32
Somebody with a high income is saving

46:33
the same percentage as somebody with a

46:34
low income. That's not right either. So,

46:36
probably the best kind of default is

46:39
something that's a little bit more

46:41
customized than a target date fund. But

46:42
I tell you, target date funds are

46:44
infinitely better than where most

46:46
workers were back in the early 2000s.

46:48
They were either investing in money

46:50
market accounts. Something like 70% of

46:52
the money was in money market accounts

46:53
or they were trying to invest in stocks.

46:56
And they are so bad at investing in

47:00
mutual funds. they they buy more mutual

47:02
funds after they've gone up in value.

47:05
You know, they they look at the

47:06
quarterly statements to see what

47:07
outperformed last quarter and then they

47:09
shift all their money into that and then

47:11
it underperforms. So, I'd rather people

47:13
just leave them alone. The best thing

47:15
they can do is just leave their

47:16
investments alone.

47:17
So, if I'm a bad financial journalist,

47:18
which I'm not, my quote would be Michael

47:21
Fina, quote, "Target date funds are for

47:24
low IQ, overly emotional investors,"

47:26
unquote.

47:27
Yeah, like me. So, I have [laughter]

47:30
my retirement invested in a target date

47:34
fund. Now, I'm I'm lying. Actually, half

47:36
of it's in a target date fund. Half of

47:38
it I invest on my own. And I was really

47:41
clever when I had put together my

47:43
portfolio on my own. I, you know, did

47:46
the right asset allocation. I I I did,

47:49
you know, I was very, very thoughtful.

47:52
Stan, how many times have I readjusted

47:54
my allocation since I did that seven

47:56
years ago?

47:57
50.

47:58
I haven't touched it. I haven't looked

48:00
at it. Which means it's all out of whack

48:02
right now. You know, the stock market

48:03
may have gone up. So now it was really

48:05
stockheavy, which means I lost a bunch

48:07
of money when the market went down

48:08
recently.

48:09
I'm supposed to be a finance professor

48:12
who is constantly readjusting my

48:14
portfolio. But the thing is there's

48:15
always something that's more important

48:17
to do that day and I never get around

48:18
to.

48:18
So you're a disinterested economist is

48:20
what you're trying to tell me.

48:22
I am. I'm not I'm not very good at

48:23
practicing what I preach. Um, and it's,

48:26
you know, I I just don't want to have to

48:27
think about that stuff, which is one of

48:28
the advantages of automating it.

48:31
I hear you. You know, we've talked for a

48:33
long time. This has been good. This has

48:35
been good. So, you I'm waiting for you

48:38
guys to fly me in on the Lejet to uh to

48:41
take this thing to the next level, you

48:42
know, the annuity thing to the next

48:44
level because I'm going to do it on my

48:45
own by the way.

48:46
Yeah, I've got a couple. I'll let you

48:47
borrow one anytime.

48:49
Okay. No, that's cool. That's cool.

48:50
Yeah, I was looking at the

48:51
professors.

48:52
Oh, yeah. You guys are rolling, man.

48:54
In the cash, you know,

48:55
you guys are rolling. So, uh, no, it's

48:57
good. I I appreciate you joining me kind

48:59
of out on a I read your article there

49:01
like, man, I got to call him. Um,

49:03
because I was wondering where that was

49:05
coming from. And, um, you said morning

49:07
star, but that's good. But we always

49:09
want you back on the show and we really

49:10
appreciate you working on this for the

49:14
baby boomers. All of those people, you

49:16
are doing yman's work. We just have to

49:19
shout it from the rooftops,

49:21
you know. We really

49:22
and I appreciate what you're doing as

49:23
well, Stan.

49:24
We're trying. You know, we do a few

49:26
videos, we do a few podcasts. Um, you

49:28
know, we try to get it out there the

49:30
best we can. Um, and I think we're

49:32
making an impact because people are

49:34
starting to look at it in a in a serious

49:36
way and the way they should from the

49:38
contractual guarantee standpoint of

49:40
these of these products. I just hope

49:42
that the industry continues to be pushed

49:45
or push themselves to create better and

49:48
better products, not just, you know,

49:50
repolishing up the old stuff. But, you

49:52
know, we'll come see. I I put that on

49:53
you. That's that's what you need to do.

49:56
Okay. I'll work on that.

49:58
Put it on my to-do list.

49:59
Melissa, I appreciate it. I appreciate

50:00
every single person on every major

50:02
podcast platform and on the Fun with

50:04
Annuities YouTube channel. Yes, you can

50:06
email me about those four flying B

50:09
Gibson guitars in the back that you see.

50:11
and about the my band, which by the way,

50:13
Michael, at the end of this annuity man

50:15
thing, I will go on tour. Uh, just to

50:18
let you know. So, with that being said,

50:20
we had a lot of fun. We will see you

50:21
next time on Fun with Annuities.

50:26
[music]