3 Talking Points With Retirees | 7 Figure Annuity Sales Podcast | Ep. 288

Three talking points you need to be talking about with your clients. Number one, the decline of pensions and the onset of defined contribution plans like 401ks as well as Social Security. The two questions nobody can answer. How long you going to live? And what's the stock market going to do? And sequence of returns risk. Welcome back to the Seven Figure Annuity Sales Podcast. It's Caleb north here with Chad. Chad, how are you?

I'm doing pretty kichi.

Man.

I tell you what, it's been well for the agents that don't know you're still recording radio and you're up there in Colorado, you're on, you're on the radio. And I've had the privilege of joining you on some of that stuff. And one of the things we've been talking about lately is kind of these three things. We're talking about the way pensions have phased out defined contribution plans like 401ks, 457s, TSPS, 403bs, these have all phased in. And talking about Social Security and the fact that Social Security isn't enough for retirees. It was never designed to be the sole stream of retirement income. But then these retirees have all these questions about what do I do with my 401k, what do I do with my IRA? They don't know how much they can take. They don't know how long it's going to last. And so we're able to create those conversations and leverage those chunks of money into products that obviously create those guaranteed lifetime pieces of income. What do you have to say about that?

Well, I have to say you're right. These are topics we need to be talking about. I know this is like a revelatory, you know, like these are big things. But I think often as agents, we don't get into the nitty gritty, the common sense type questions. And when we're talking about people used to have pensions and now they don't, they used to have this kind of guarantee. But often, if it's done right, if you have a 401k or an IRA, you can actually make more money than what you would have if you had a standard pension. And then of course, you got to make sure, how long are people living for? Because that's a question I always go into with everybody. You know, two questions nobody can answer. How long are you going to live for? And where's the stock market going to be tomorrow, let alone five or ten years from now? There is no other product. And I challenge anybody anywhere, anytime to debunk me on this, that there's no other product. And offer that safety, the security, the guaranteed income you can never outlive with no risk to the market. There just isn't. And so when we start to ask these tough questions or these tough conversations, like just tell me, what can your broker do to guarantee you income for the rest of your life? Yeah, no stock, bond, mutual fund, commodity, no cd, nothing can do that. Well, what can your broker do that protects you from market volatility? A money market account. Well, yeah, but then often you have fees in that too. And now I've heard these things come out lately where the money market isn't guaranteed. In other words, it still can lose money in it. I'm going, wait a second. Money market used to be where that was the interest rate. And now if you read the fine print, some of these will say, well, it's based off on their ability to be able to perform enough to get you your guarantees. And I'm just like, it's just insane what's going on. So we have to be direct with our clients and let them know, hey, this is the reality, you know, this is what you need to do to make sure you don't run out of money.

Yeah, it's good. Just cause it's fresh on my mind. I'll share a little bit of the history of it. So if you go back to, I believe it was. I will. I believe it was 18, 1875, American Express Company launches the first private pension plan. Then you fast forward 60 years to 1935, and now all of a sudden you've got Social Security. And that Social Security was designed to be a supplement to what the retirees were getting in their pensions or alternative streams of retirement income, although the pension was the primary. And then you go up to, I believe it was 1973 or 1978, for whatever reason I cannot remember which one. I think it was 78. Was it 73?

I think.

It had to be a year I was born.

Oh yeah.

Special year.

In many ways.

A year.

Oh gosh, that year will never be the same.

It will never be the same.

They almost blotted that year out. They're just like going, 72, 74.

Strike it from the chronicles of history.

But the 401k rolls out. And. And so now that's the. And that's again the primary for, for people. I mean, yes, you have your 403Bs, your TSPs, your 457, all that kind of. But the 401K is a primary form of retirement plan. And most people have. Well, it does not for you agents, it does not create the same inherent benefit tied to a pension. Right. The pensions, they were literally called defined benefit laws. The income that was created from those pensions was set, it was determined, it was calculated, formulated. They knew what that was going to be and they could count on it to a relatively high degree of certainty. I say that because there have been failed pensions, but.

Well, that is the thing. You know, you do see pensions nowadays that do fail. You know, I've had a lot of friends that were pilots and their pensions just disintegrated. You know, we've seen companies go away or it's not just necessarily disintegration of the pension, it's a decrease in pay. Sure. How can you justify decrease in pay when you have a increase in expenses and you know, inflation's always going to happen. But the reality is a lot of these companies that have these pensions just don't have the backing, the financial backing that they need to, to guarantee those. Because, you know, we can think about when the pension started. You know, people were living a lot shorter back then. And at the pace of, you know, government in general or institutions in general, they rarely keep up with what's currently going on with their people.

Right.

So they keep all the pension rules the same, all the, all the ways they manage the money. They don't move it around much. And then they wonder why all sudden they have this massive shortfall in their pension. And it's generally the top, top people they don't experience that is the common worker that gets hit. And I hate saying common worker, but the reality is if you're middle management or lower, you're a common worker. I mean, those are the places that are eliminated quicker than any other spot. Is middle management lower? And so when you have these pension issues, you know, you've got to have something to supplement that. And also, I don't like the fact it's just like with Social Security, I don't like the fact that Social Security is managed by the government and, and that I put my money away every single year no matter what, and I end up only getting approximately 66% on average of what I put into it. I mean, I know I could do better with that money. I could buy some car washes and do better than that, you know, storage units, whatever it is. I think about what I put away per year for Social Security with the amount of make, and I'm going, I could do way better than that. But the point is, is we can't we can't change that. They're going to take Social Security. And so what do I do from there? Well, that's where we help our clients take these other plans, the 401ks, the TSPs, the 457s, the 403bs, and we help them turn it into their own pension like product to get them. Now it's not just that. Well, the other thing. So there's two sides to this. Not only do they generally get more, they have better control of their money and they have more freedom with it. But also the survivorship benefits are often higher. So joint lifetime payout and a defined pension is usually dramatically less if you do it based off of you and your spouse where in an annuity it often is not that big of a difference as long as the age is pretty close together.

Yeah. Well, to your point, it is phenomenally expensive for a company to have pension plans, which is part of why they transitioned over. I mean, I was talking about a pension plan being a defined benefit plan and a 401k being a defined contribution plan. So you need to understand if you're working with retirees, they don't have the same clearly outlined benefits. But here's what I find interesting. If you take the 401k, the IRA, the 457 for whatever it is, right? And you roll that into an IRA and an annuity and you create that guaranteed lifetime income, the insurance company is going to be making money on that money while they're, while they have it, right? So they're creating these lifetime payouts versus a pension plan to a company is purely an expense. Like that's just going out there. That employee isn't generating any more revenue, any more profitability for that company. It's just a massive expense. So they, I mean, it makes sense when you mix that with the reality that retirement in 1950 averaged eight years in length. Retirement now on average is 17 and a half years. So if you're a company, can you imagine paying your pension for more than twice as long? No, of course not.

Well, that's why they're moving it over. That's why they're shifting that responsibility.

It is now the employee's responsibility.

Well, if you think about it, the whole institution, I mean, I've studied a lot on why school systems were created and school systems were generally created to build the better worker. That's really what the whole purpose of it was to, to build the better employee that is more structured and obedient and, you know, things like that. And I go, wait a second, they're doing the same thing with a pension. You know, they're doing the exact same thing. They want to control how you're paid, when you're paid, and it really gets rid of the responsibility of the.

Employee to take care of their retirement. But in reality, they give up so much. Right. And so I think if we can help educate our clients the importance of saving IRAs, 401ks, you know, really building that up and then once they have it, to not lose control of it. And, you know, people often say, well, I don't want to lose control of my money. Well, go ahead, keep in the stock market, lose 30%. And how much control did you have? That 30% you lost or the 1 to 2 to 3% you have to pay your broker every single year, whether you're winning or losing, there's no control of that either. So what we're allowing our clients to do is go back to those original two questions. I'm telling you, if you ask or you state this to your client clients that there's two questions nobody can answer. Not your pension, not your broker, not your 401k, not your IRA is number one, how long are you going to live for? Number two, where's the stock market going to be tomorrow, let alone five or ten years from now? And the reality is, there are some pensions that are backed up by insurance companies. How are they done that? They pay out the pension in the form of an annuity, but often they require you to do an immediate annuity or period, certain annuity. They don't give you the flexibility that comes with an indexed annuity with an income rider.

Yeah, that's all right. Well, and that's why I put these two things in that order. If we're talking about pensions and we're talking about Social Security and we're talking about defined contribution plans, what does all of that story create? It creates an explanation for why the number one fear of retirees is outliving their money because they don't know how much they can take or for how long they can take it. And so now you segue that into the conversation about the two things nobody can answer. How long are you going to live? And what's the stock market going to do? And they don't know that. So what do you do? You build a plan that it doesn't matter how long they live or what the stock market does, their income is guaranteed, locked in, set in stone for the rest of they. And if they're married, their spouse's life if you're running joint lifetime income. Yeah, yeah, it's a good story. Those are two good talking points. The third that is a little bit more standalone but still has a relevant place when we're talking about income is sequence of returns returns. And for those of you that don't know what sequence of returns risk is, it's this concept that in the early years of retirement or right before retirement, somebody starts to make withdrawals. So they're getting into the distribution phase of their retirement. They start making withdrawals, the stock market falls. So now they have what is effectively a compounded loss in their account. So one of two things happens. Either they continue drawing out the same amount that they were so that their income as a dollar amount doesn't go backwards. The problem with that is that now as a proportion of their account value, it's a much large percentage and sustainability comes into question, or they take less income. In either scenario, it's not good. So sequence of returns risk. No, sequence of returns risk can literally put into question, can my retirement actually last my lifetime? Well, if you're subject to losses and you're making withdrawals, you don't know. So how do you mitigate sequence of returns risk?

Go ahead. Yeah, I use that analogy. You know, there's, this was something that just recently came up, you know, in the past six months or so. You know, I heard this study that says if you follow the wrong sequence of returns, you have a 30, 30% chance that you will run out of money. And there's a lot of clients that will go. That means I have a 70% chance of not running out of money. And I said, okay, so here's the question. I'm going to give you an all expenses paid trip to your dream vacation. Where's that? Well, Italy. I've always, always wanted to go to Italy. Okay, so I'm going to get, I'm going to pay for it. Would you take it? And they're like, yeah, absolutely. I said, what if that plane had a 30 chance of crashing along the way? Would you take it? And like, I don't know. I, I don't know. Now let me add this. What if you and your wife and your kids were on that plane, Would you take it? And it's always, no, I would not do that. But I paid for it all, I gave it all to you. So you're telling me if there's a 30 chance that plane was going to crash, you would not take that, you would not step foot on that plane. They go no, never. That's exactly what you're doing when you're trying to take off with your retirement. You're trying to reach this end goal, dream big dream, dream vacation retirement, that you'll live this life in paradise. But the reality is there's a 30% chance it's not going to make it. Now let's add this even more into it. So no matter. Now let's say you do get on that plane and you have that dream trip and everything and you're heading that way. Can, can that pilot or airline guarantee that you will not experience any turbulence along the way? Well, no, I mean you see it in the news all the time right now. You know, planes at this massive turbulence and it freaks people out and people get injured. I guarantee you that our financial flight will never experience turbulent due to any sort of market volatility. So when you add that into perspective of sequence of returns, the questions you can't answer, the, the guarantees that we offer you, if you set it up that way, this is how you get people full on bought into what we're talking about.

Absolutely. So all three of these things, the pensions not being a reality hardly ever anymore, but they have 401ks or whatever, the two questions nobody can answer, and then sequence of returns risk, all of these things are legitimate concerns, but they're all three things that get addressed with the products we're using. So what are you doing when you take a 401k and you roll it into an annuity? You're creating what operates like a personalized pension plan. So now you're creating from the defined contribution plan what is effectively a defined benefit plan. What are you doing with the two questions nobody can answer? Well, now it doesn't matter how long they live or what the stock market does because their income isn't going away. And then the sequence of returns risk. How do you get rid of sequence of returns risk? You take away the risk of loss and you guarantee that if that account value were to hit zero, the income doesn't stop. You've completely, you've completely addressed all three of these big major concerns.

Correct. So I think that kind of wraps it up, doesn't it?

That's it.

Okay, Well, I hope this helps you all. You have a great day and happy selling.

Sam.