How Annuities Fit into the Current Market Conditions | 7 Figure Annuity Sales Podcast | Ep. 237

On this week's episode, we're going to talk about current market conditions and how annuities fit in.

Hello, everyone. Welcome to this week's episode. I am Chad Owen, the annuity sales coach, and we are going to have some good stuff to talk about today, mostly because I'm going to be doing all the talking and he's not talking at all.

Right.

Yeah, go for it.

Okay, so.

See, you guys got to watch the YouTube channel because we do some crazy stuff and I think we have an editor that's on some sort of drug legal, of course, but if you ever follow what he does, all.

The Dr. Peppery drinks.

Oh, it is. It's got. Gotta be. Well, Dr. Pepper is a drug because it has caffeine in it.

23 natural flavors. They don't tell you what they are.

But there's 23 of them. There's a lot of natural flavors I never want to taste. So anyway.

Natural flavors.

Exactly. I will tell you, Diet Dr. Pepper does taste like real Dr. Pepper. Nice plug.

We're not endorsed.

We are not endorsed. I can't tell you the last time I drank a diet Dr. Pepper.

That might kill you.

If you're up to me, I just kill you.

No, diet, Doc.

Oh, diet. Yeah, you'd be all right.

Or the stuff that's still in is bad.

That's true.

Yeah. Okay.

Current market conditions and how annuities fit in.

Yeah.

Pretty fun stuff. So the s and P500, we are up 5.8% year to date, but still down 14.8 from the high last year. Nasdaq up 12.94 year to date, but still down almost 27 from the high last year. In the dow, up almost 2% year to date, but still down 8 from the high last year.

And do we think we've reached the bottom yet?

I don't.

I don't.

And it's important to remember, too, that a 20% loss in the market takes a 25% gain to recover what you lost.

Are you sure that's the right number?

I crunched the numbers. I did make sure. I'm like. I'm not just going to say it. I actually ran the numbers. You can do it, too. Yeah, but. Yeah.

So 50% loss in the market requires a.

What would that be?

That'd be a 100 gain. Oh, my gosh.

Yeah.

Don't say, yeah, you didn't know. Okay.

Just double.

I'm working with a monkey right here. Yeah, okay. But that is important to know, though. I. I'm telling you people, I Don't get it. I mean, I've been doing this for over 18 years and I just don't get people wanting to risk their money in the market right when they're within 15 years of retirement. I still don't get it. I mean we've talked about this many times.

You talk to an 80 something year old woman that's going to start day trading.

Oh my gosh, no, no, no. 85.

85, yeah.

And she had a medical issue that took her out for a while and now she wants to get back. She needs to start earning some money again. So she wants to learn about day trading. Now I'm not knocking that.

Sure it's a great story to know how it works and choose not to do it if you're 85 years old.

But the reality is there's so many people out there that day, they never make the money. You always hear about the gains they made, but you never hear about the losses. And I have lost count of the number of people that do that now there's supposedly software and everything that can time it. While I still haven't ran into people that have been successful at that. I'm hoping. I mean we talked about this this morning about AI and there may be a way that AI can figure out when to time the market at the top and the bottom. But the reality is AI would do it before the actual hit because they sense like maybe like how Seismograph senses an earthquake, you know, but it would be something through the news or something through back end areas that would, that maybe would start to sense something happening. I mean if you're a politician, you can do that anyway because they did that right before the housing crash. Mysteriously, three days before the housing crash, they shorted the market.

When some of the greatest stock pickers of all time are politicians, you, you gotta wonder. Yeah. Going on there.

There's actually a website I'm kind of following. It is politicians, they track when they.

Buy or sell stocks and then they track the performance when they do.

Well, no, so they buy and so, so the people, the theory is they start to. When they see a politician or a bunch of politicians buying a stock, they'll buy a stock and they, they see a politician selling the stocks, they'll sell the stock.

That's crazy.

It is. Well, when you look at some of these people making 20, 30, 40% more than the stock market, you can't tell me there's not insider junk going on.

That's true.

Okay.

The Fed.

Be sure, be sure. Watch our YouTube channel.

Yes, it's. There's things in there that are humorous.

To say laugh, I will give you 25 cents. So in cash, a lot of skin.

In the game.

For Chad.

All right, well, the Fed raised the target range for the Federal funds rate 25 bips again in February. Rates higher than they've ever been since 2007. And we're right about 4.75 at the federal funds rate. So we've got down market still, even though we're up a little bit year to date. And here's the thing, people are going to talk about all the markets rebounding and all that kind of stuff. You can cherry pick any time period you want and see the market doing what you want it to do. Don't necessarily look at oh, because year to date it happens to be a positive return in the first few months of the year and automatically assume that that's the new trend. We're still down drastically from the high of last year.

What I want to point out, there's a little bit of an issue we could be running into right now. There are some CDs that are actually creeping up to some really nice short term rates and that can affect our business. I was trying to look it up there, but there's some short term CDs right now, like one year that are 4%. Now granted indexed annuity, most of our one year point to points are 4% or some are higher.

You're talking about the fixed account rate.

Yes. Correct. Yeah, the fixed account rate. And so in that scenario, you know, it just becomes a little more challenging because people are looking for, hey, I just want to park my money for a little while till the market falls. But here's the reality. We don't know when the market's going to fall and we don't know how far it's going to fall and we don't know when it's going to recover. So it's so important when we're talking about indexed annuities, especially when you add income riders into it. What is the purpose of the money? Because the purpose of the money of 4% 1 year CD is not going to help if the purpose is income for life.

That's true.

And you could take, okay, so one year, I have a million dollars, I'm going to pull out $40,000. Okay, what's the interest rate going to be next year or the third year or the fourth year? So this is why I go back into. And I'm going to. I shouted every single time, do full fact. Finders complete full fact finders. Because that allows us to really determine what the purpose of the money is and it also allows us to share with them why most systems and processes don't work when you have variable accounts and none of them will be guaranteed.

That's true. So you've probably seen MYGA rates and a little bit of a hold as well. Increases have been slower to occur. I think partially because interest rates have slowed down their rapid rise a little bit. We should start to see some rates drop. We've already seen it on par rates, we've seen it on fixed account rates and FIAs. And I think we're going to probably start to see it in Mygas if we see it there. The I think ultimately you'll see it in CDs too. So I wouldn't be too concerned. Typically mygas are going to beat your CD rates anyways.

And remember, CDs do not have tax deferral. They usually do not avoid probate. So those are some big reasons why somebody will say, well why would I want to put my money into a fixed annuity for five years when I can do a bank and get the same rate? Because if it's non qualified funds you have that tax deferral. So some states too even allow full protection from lawsuits and collections and annuities. So make sure your state see what the rules are. And then of course we have avoidance of probate, which is a big deal as well. So there are a lot of benefits to having your money in an annuity versus a traditional non qualified CD or money market account.

Right. And I think regardless of whether or not you're looking at CDs or you're looking at Mygas, the question that I always like to ask is then what? So if you sell a three year myga, then what after the three years? If you sell a five year myga, then what after the five years, if somebody's buying a CD for any period of time, okay, then what? After you're done using CDs, it's like that next step is a major thing to consider on the front end because it can impact what you end up deeming best. What I mean by that is obviously MYGA rates, like I said, are in a bit of a hold. But if you look at a 10 year FIA, if you were to sell somebody, let's say a 5 year MYGA, if you and then the plan after that 5 years is to then put them into an FIA, well now you're looking at probably 15 years of surrender.

Well, and if you're well, the surrender. But remember, if you're looking for income purposes, the surrender is not a big deal.

It's not.

I mean, if you're truly doing a income for life FIA with an income rider, the surrender schedule doesn't mean anything right now. That being said, depending on their age, I always make sure they have the LTC waiver. You know, in other words, if you end up long term care facilities 100% liquid, the terminal illness, if you die, I want to make sure the accounts are liquid. But because that's just, that's an unforeseeable circumstance. But as a joint lifetime payout, you have to be careful that let's say the spouse ends up in a long term care situation. So you end up dumping all your money out of the annuity to take care of the long term care situation. But then the spouse passes away. What's left for the survivor? There's no income or any amount of money. So you have to be really wise on helping them understand that process. Because remember, most these people don't even know anything about a long term care type situation for themselves. They may have had a relative in that situation, but it's a lot different when it's your money, your situation, your decision on how you can take care of that spouse.

That's true. Yeah. Last year we had a major uptick in myga sales because rates were so good and rates are still strong. But I'm really looking thinking FIAs are going to be kind of the next big play this year.

I hope they will always be the big play if it's for the right reason. Short term money can be used in a myga. If it's long term money, then it should never be used in a myga. And you know, is that I hear still to this day agents going, well, you know what he told me he wanted something short term. I wanted something for five years. But then if I would have went and talked to that person a lot of times because I hear this, you know, they'll call me and they say I'm looking for a short term annuity. I'm like, oh, why? Well, because I want to start income in five years. Okay, that's an income you can still defer. They don't understand because they haven't been explained that way that you can start to draw income. Most annuities are after the first year. There are some that are before that, but most draft of the first year where you can start to draw income. So the reason why they were deferring it for a shorter time is because they're 60 years old, plan on retiring at 65, but because the agent didn't do their full fact finder, didn't do their due diligence, they didn't realize he didn't want a short term or she didn't want a short term because of the fact that they want all the money back. That's when they wanted to start to draw income.

Yep, absolutely. I noted four reasons that I think FIAs even in the current rate environment are often a better solution to problems than mygas and I'm going to go through them. First off, the one year fixed rate, the fixed account rate in FIAs is still really good and it's not that far off of mygas. I mean just, just frankly it's not.

When we, again, we don't know when this is going to be. If it's a year, if it's two, if it's three, if it's however long it is, at whatever point we start getting some kind of economic indic that markets should start to rebound. You're going to want to be an index strategies, not a set fixed rate. Because index strategies, once we hit that, that bottom, if again we're not talking about trying to time it, but if you can catch that recovery in an indexed annuity, you're going to end up crediting almost always significantly more than what you would in a myga. You have fewer years with surrender penalties if you're selling a myga and then later selling more mygas or even a fixed indexed annuity down the road so you just out of surrender sooner. Which again if you're talking income, not an issue. We're going to talk about that in a couple of weeks. But if you're looking at something strictly growth play, then yeah, you're dealing with fewer years of surrender penalty and then.

Potentially future income commission again in five years.

Yeah, that's true.

A whole nother thing. I mean, I know and you may not be that person but I run into agents that through my process of conversation I find out that they, that's why they do straight FIAs with no income rider and that's why they do mygas is they come, they want future business and that is not the best way to look out for what a client needs.

Yeah, absolutely. One thing I want to encourage you too is not to take on the client mentality of oh well, the market's down so I don't want to realize my losses and what I mean by that in relation to rates is that we should start to see rates come down a little bit. And it can be challenging for agents because now they're looking at rates from earlier this year and last year going, oh well, rates aren't as good as they were. It's like, look at rates now compared to what they were two years ago. You were doing good if you got an annual point to point on 100% participation. And now we're dealing with rates coming down at 160, 175% participation, obviously still really, really good.

Yeah, yeah, it is. I mean, I remember one of the products that I, back in the day, I had one really, really good product and their claim to fame was a 65% participation rate in the straight S and P. That's high. And that straight S and P. Really high.

Wow.

And that was their claim to fame. And man, it was really good. Especially if you timed it right, which we don't know exact time. But what I mean by timing it right is if you got that and then you got them into a fixed first and then the annual reset came around and you moved them into the participation rate, it was phenomenal. But remember, I'm not a big fan of the brats. The brats are the S and P, the Dow and the nasdaq. They throw temper transoms. They go up, they go down. I mean, if you've ever watched a kid for any period of time, you'll know they are very moody.

They are.

And so the brats are the same way. Yeah.

And I'll add to just from an insurance company perspective, it is more expensive to offer volume non volume control strategies, which is obviously why rates are lower, your caps and your pars and why spreads would be higher. But the other thing you got to consider is that because of the price of the options for those, they tend to move more. I've talked with insurance companies before about setting rates and things and I've consistently heard that par rates on the S&P 500 will have more volatility in the renewals than any other possible strategy. Caps or spreads on anything or par rates on low volume indices, fall control indices, they're all going to be more consistent and easier to plan for than pars on the S&P 500. So just something worth considering if renewal rates are. Obviously renewal rates are important, but renewal rates to me become an even heightened thing when you're dealing with just purely protection and growth straight accumulation plays. So that's a wrap for today. Next week we're going to talk about index allocations. In the current rate environment. So we'll do some more index things next week.

Awesome. You have a great day. And of course, happy selling.

Sam.