What Are The Pros And Cons Of Fixed Index Annuities?

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Hi there, Stan the Annuity Man, America's annuity agent, licensed in all 50 states

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and Puerto Rico. My wife got on me for that while I was rolling my Rs. I'm like, “Hey,

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you know, I took four semesters of Spanish in college and cannot remember one word,

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but I remember to roll my Rs.” I know, Big C, you're thinking to yourself,

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“Stanhenge. I thought it was Stonehenge.” No, no, no, no. It's actually— if you go back— and it's Stanhenge,

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the mythical powerful creature, Stan, put all these stones together. They

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don't know how he did it. I don't know, but it's Stanhenge. So it's not Stonehenge.

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Today's topic is a good one: the pros and cons of fixed index annuities. Oh

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my gosh, the holy grail, Stan, you're finally going to cover index annuities and

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what Johnny Appleseed agent telling me at the Bad Chicken Dinner seminar and all

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these really cool videos on YouTube that are the exact opposite of what you

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say. I know it's going to be fun filleting these people like a flounder, factually, after this.

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So, the pros and cons of fixed index annuities. Let's go backwards. I'm going to give you

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a little history lesson. Sit down, get your pen out and your paper, or if you're typing,

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that's fine. Fixed index annu— Did you hear that, Dr. C? Fix— fixed index annuities were put on the

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planet in 1995 to compete with CD returns, to compete with CD returns, to compete with

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CD returns. They're not market products. In fact, early back in the day— and I was there

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because I know what you're saying, stand young and vibrant— I'm 62 at the time of this tape,

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and you're going, “That can be— that's some really good supplements you're taking.” No, actually,

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if you cut me in half, like when you do a tree, there's like a zillion rings, you know, for age.

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But back in the day, in 1995, they were called equity index annuities.

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The industry had to change the name because you had Johnny Appleseed agent that just has a life

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insurance license, which all it takes to sell an index annuity is a life insurance license. It's

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not a security. Well, it's like equities, you know, we're buying kind of like equities. No,

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you're not. You're buying an option on an index that doesn't include dividends. Okay? I could

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go for hours on this, and I have because, you know, I've written a book on it. If you

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go to my site at the annuity man, you can get a fixed index annuity owner's manual.

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Okay, they had to change the name to fixed index annuity because it's a fixed annuity

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regulated at the state level. It's not a security. You have to score 70 on

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a life insurance state licensing test to be able to sell it. So I always say

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you could be the biggest sociopath in the world, pass the test on a Monday,

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give a seminar on index annuities on a Friday, and then sell it to you on a Monday.

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That's called a low bar. Okay? That's the lowest bar of all time.

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The pros of a fixed index annuities— index annuity, number one, it's a fixed annuity.

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It doesn't go down. But this is where the game starts from the stand sales pitch standpoint.

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They start playing with that a little bit. So number one, it's a fixed annuity. You're not

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going to lose any money. Okay. Number two, if the planets align themselves,

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you're going to get CD-type returns, not market returns. You're going to get CD-type returns,

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not market returns. You're going to get CD-type returns, not market returns. If anybody says

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otherwise, they're pushing the truth. Let's just say it like that. Okay.

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The other positive about fixed index annuities is you can attach what's called an income writer to

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them. Writing on top of the policy for lifetime income. Give an example. Draw a line down a blank

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sheet of paper. Index annuity over here. Income writer over here. Two separate ledgers. This is

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the lifetime income guarantee. That's where we focus. So when you go to our site and you

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run an income writer quote, it's on top of an index annuity. But we don't care about that.

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So, index annuities— okay— if you buy it without the income writer,

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there's no annual fees and no moving parts. At the time of this taping— check the date— I don't know

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why you would do that. Maybe that'll change in the future, but I don't see that

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happening. I've been doing this for a long, long time, and since 1995, I've not seen one

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that's a standalone because multi-year guarantee annuities, the annuity industry version of a CD,

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outperforms index annuities regardless of what Johnny Appleseed agent says.

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Okay? So, it's fixed. You're not going to lose any money. Okay? You're going to get

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CD returns. Okay? And you get to attach an income writer for lifetime income at

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the time of application. If you're looking for lifetime income, remember the two questions:

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what do you want the money to contractually do? When do you want those contractual guarantees to

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start? If you answer the first one— lifetime income— and then the second one, 2, 3, 4, 5,

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6, 7 years down the road, 10 years down the road, we want income to start— that's an income writer.

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So that's the positives of index annuities. We don't hate them. We hate how they're sold,

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which leads us to the negatives. The negatives to index annuities primarily

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revolve on how they are promoted, pitched, sold— high pressure.

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Index annuities can have what's called an upfront bonus. Upfront bonus is not free money. Upfront

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bonus is candy for the stupid. If you bought an annuity— an index annuity— for the upfront bonus,

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go to the car dealership and buy a car for the stereo system because it makes

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that much sense. It's stupid. Yes, I'm saying that. If you said,

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"That bonus is good,” you're stupid. And I'm just smacking the stupidity out of you.

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There's no person at annuity company going, “You know what? You know,

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I want to give money away. I really do. I love the people. I might even run for office, but I'm

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CEO of this insurance company, but we're going to give upfront bonus money.” Like, no, no, no. Board

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of directors will be like, “Uh, hecky no on that one.” Alright. So, that's one thing.

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The other is the index option strategies. Everybody will say you're going to get market

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upside with no downside, principle protection with market participation. Bullcrap.

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If they show you numbers— “Well, Mr. Jones, if you'd have owned it 10 years ago,

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you'd have got 7, 9, 10, 11, crapola”— that's unicorns chasing the butterflies.

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This is a stat that I don't even think agents know,

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but I'm getting ready to educate them if they're watching. And if you're watching,

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why are you watching? I'm not going to hire you. There's over 800 index option choices. 800.

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Spoiler alert: all of them are designed to create pretty much the same return,

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which is CD returns. So, I mean, what's all the hub— we have people out there going,

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“Well, you know, I'm really good at analyzing index annuity options.” Really? Okay. I'm really

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good at analyzing the palm of my hand. The other day, I counted all the hairs on my forearm,

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and you know what? It was more fruitful than looking at index annuity options and

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choosing it. You talk about a monkey throwing a dart— no offense to monkeys— that's a joke.

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The other thing that's the downside is part of that pitch. Annuity agents— “Well,

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you get long-term care, free long-term care with this income.” No, you don't. Long-term care is a

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health insurance product, not a life insurance product. So, that's fraudulent. I don't blame

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the carriers. Don't send me hate mail. You know I love you. But the agents— the sales pitch sounds

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like this: you get an upfront bonus, 20, 25, 30% bonus. You get that. You get a market upside

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with no downside. You get free long-term care. Okay. None of that is— all of that's crap.

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The bonus, as we talked about— crap. It's just part of the overall contractual guarantee. When

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we quote income writers at the Annuity Man— go to my site at the Annuity Man

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and quote income riders— we're quoting all with bonus, without bonus. Spoiler alert:

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the ones with bonuses typically aren't the highest contractual guarantee. No,

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Stan, you mean they're baiting and switching me? Maybe. Maybe.

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The negatives, the cons— and con is a good word— the cons about index annuities: if it sounds too

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good to be true, it is every single time. Okay? So, upfront bonus, market upside with no downside,

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and free long-term care— garbage. That person should lose their license immediately. And

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if they spend more than a minute on index options— “Well, this cap and this spread and

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this participation rate”— shut up. Shut up. You have no idea what you're talking about.

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And if you really want to go down that rabbit hole,

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the book that I've written— that on index annuities on my site

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for free will explain that to you if you want to go down a rabbit hole of nonsense.

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Here's the other thing on the con side. Most index annuities— that's

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index option choice and the caps and the spreads and the limitations,

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which are nothing more than levers to limit the upside— those can be changed— wait for it— at

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the discretion of the issuing annuity company without consulting you or the agent. Really?

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So, another con over here is let's just say you bought a 10-year index annuity and

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the first-year cap was 8%. You could get up to 8%. The second year could be two,

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and you're like, “How can they do that to me?” Because they're in control of pricing

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those index options. You always own annuity for what it will do, not what it might do.

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I encourage you to download my book. And if you really want to go down the rabbit

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hole and have a real conversation, then email me, [email protected],

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[email protected], and I will walk you off the annuity cliff before you

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make some ridiculous decision on hopes and dreams, unicorns chasing the butterflies.

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I'm assuming we're one of the top sellers of index annuities on the planet

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because we sell billions of dollars' worth of stuff, contractual,

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but we only look at it at the current— at the time of this taping— with income riders attached for

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the lifetime income guarantee. We don't care about that side. It's just a delivery system.

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I could keep going, Big C, but I know we're up against the clock, and that's okay. Clock is

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good. Up above me, counting clock, is a video— very important one you need to watch on

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lifetime income and how life expectancy drives the train of lifetime income. I dispel all the rumors

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and all the Fed stuff and all that craziness. Click that video. It's very, very informative,

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foundational when you're looking to put in another part of your income floor for lifetime income.

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My name is Stan the Annuity Man. See you next time.