Income Riders and Why the Fee Shouldn’t Scare You | 7 Figure Annuity Sales Podcast | Ep. 239

On this week's episode, we're going to be talking about income riders and why the fee shouldn't scare you.

Hello, everyone. Welcome to this week's episode. I'm Chad Owen, the annuity sales coach. And here's Caleb, the income projection slash planning coach. Cool.

Yeah, that's fun.

We could do. What's it called? Case design coach.

I do love case design. I nerd out over it.

There you go. You're the case design coach.

I'll take it.

We finally figured out a title for you. What? Three. How many years have you worked with me?

Three and a half, going on four.

Gosh. Do you know I used to have a lot of hair and it was dark.

Dark. And now it's very light and gray.

And almost not very light and very gray.

Well, it's. This is the chin or that's mostly white.

Yeah, it should be white around the ears because I have to listen to.

You talk all the time.

That's where most of the stress comes in, is when I hear you talk. So. Well, then I have to come up with the rebuttal. Caleb, stop. Caleb. Caleb. Caleb, stop. Caleb, don't do this. Caleb, stop.

It's always the. It's always the.

Okay.

Okay.

Yeah, okay. That's true. I never realized. I never realized how much I do that till we were just on vacation. I'm like, okay.

Sitting at the dinner table.

Okay, that's it. Yeah. It's so true.

Little.

Little things that I have going that I never realized.

It's true.

Okay, so income riders, why the fee shouldn't scare you.

Before we even talk about the fee and why it shouldn't scare you. I want to build a case for income riders, period. Because there's still people out there that even if the income rider was free, I think they would look at that and go, I don't see the benefit. So I want to make a case for income riders and then address the fee and a couple of other common objections about the way that the annuities are structured. But 1 in 3Americans use Social Security as their primary retirement income source.

That's a scary thought.

It's rarely adequate to create any kind of surplus. So there's a case for it right there. Number two, approximately 1/4 of retirees have a company pension. 25% alone have a company pension. And there's. I didn't find any statistic on joint survivorship or any kind of.

If I go off mine, I'd probably say 50% is single and 50% joint.

And full joint, like 100% survivorship?

Yes. Okay, well when I'm talking about full joint, that means 100% survivorship.

Right.

When I'm talking about single, I'm talking about one's down. Either the income goes away or it's greatly diminished.

Right?

Yeah.

The rebuttal to that or I guess the strength of the annuities. Annuities effectively create what is like a personalized pension plan. And if you look specifically at FIAs with income riders, there's an even greater amount of individual benefits in the product. Number three, women are proportionately significantly underprepared financially for retirement than men. But you have joint lifetime income options and fixed indexed annuities with income riders.

Better if I wasn't around financially.

Maybe psychologically. She worked really hard to keep me alive.

It's dangerous being worth more than you dead than you are alive.

Actually, I'm not worth more dead. Okay. I have a lot of potential. You have potential?

Oh, yeah.

Okay.

Number four, almost 60% of retired Americans rely on Social Security. That means that without Social Security, their income is. That seems not good.

Way too high. 60%, that seems way too high.

It was literally 57 and change. So I just said almost.

If they didn't have Social Security, they would be in deep trouble. Yeah, vast majority. Wow, that's interesting.

Yep. So an alternative stream of guaranteed lifetime income. It helps pad that the resounding biggest fear amongst retirees is outliving their funds. I mean, do a simple unbiased Google search about what is retirees biggest fears and you will see article after article after article about outliving retirement funds.

And I think that started around the 2010-2012 timeframe when that really became a thing. Because before that, by far their biggest fear was death.

When did pensions start being more frequently replaced at large by 401ks, man.

So I would say probably early 2000s, latter 1990s where you started to see that shift. Now I think it's much less common for people to have any sort of pension whatsoever. And almost Everybody's going to 401k, with the exception of a lot of unions are still doing pensions, teachers programs are doing pensions, cities are still doing pensions. But I mean, some of these cities, there's Dallas, this was a year or two, maybe three years ago. The other day I heard, remember the other day yesterday. Or it could be 10 years from now.

That's right.

Or in the back. But they drop police officer and firefighters pensions by 8%. And I'm like, so most cities I would not trust to be managing the Pension money. I mean, unless of course, it's backed by an annuity. But I don't know if I've ever ran into a city pension that uses an annuity for its pension plan.

Interesting.

Yeah.

Well, I would be curious to see. I mean, if you look at happiness studies, people with pensions tend to be happier because they know that there's checks coming. And that brings me to my sixth point, my sixth argument for lifetime guaranteed lifetime income is a handful of studies indicate that people with guaranteed lifetime income are happier and live longer than those who don't.

I would agree with that completely. Yeah. And think about that. You're on a cruise ship and you don't have to worry about what the market's doing right when your income's coming in.

Totally, totally. I would be really curious and I, well, this was a thought I just had, Chad, and it might be too open ended. You're the agent in the field, so I'd be curious what your thoughts are. But this idea of you're working with somebody who has a 401k, you feel like, you know, a 401k rollover into an IRA and an annuity with an income rider is like a great option for them. Just simply the question of, hey, if 35, 40 years ago you could have opted for a pension plan rather than a 401k, would you have done it?

That's an interesting question because you most would say yes.

And if they would, then rolling that 401k into an annuity that essentially creates a personalized pension would be a no brainer for them.

Huh. You may have just gave me a new idea during appointments I'm going to test.

I'd be really curious. I mean the challenge is it opens it up for a no. I would totally take the 401k and then the follow up to, well, why, you know, why would you take the 401k over the pension? Try and get behind the scenes to understand.

Most people nowadays with what the market's doing would not have taken the 401k if they'd be honest. Huh.

So I'd be curious if you were to try that question. Think of this like while we're sitting here talking.

Oh, okay. Thought of this before. I would have smacked you in the head.

I've been sitting on that one for five weeks.

That's a great question. Question to ask. I think I'll add that into the fact finder.

All right, well, there's going to be an updated fact finder coming your way. Agents academy members. All right. Well, let's talk about the fee. And there's actually. When I look at fixed indexed annuities with income riders.

Did you really just come up with that right now?

I did.

That was super smart.

Bingo.

Impressed?

That's my nugget for the podcasters.

Holiday Inn last night.

I did not.

Oh, why? You haven't seen that commercial? No, they're in there, they're operating on a patient and they go, where's the doctor? This isn't the normal doctor. And are you doctor. And he goes, no, I'm not a doctor, but I did stay at a Holiday Inn Express last night and it talks about how you get such a good night's rest the night before, you can do anything the next day.

Oh, my God.

They have a whole series on.

That's pretty clever. That's good marketing.

Okay.

All right. Talking about the three, quote unquote, and I have in air quotes. So if you're watching YouTube, you see this. If you're on the podcast, you don't, but I am air quoting one time.

I'll tell you, don't watch YouTube.

The three costs to the lifetime income benefit rider, the fee surrender period and limitation on gains. And before you get too riled up, Chad, I understand your thought process on the ladder. Well, I actually understand your thought process on all three, but I want to handle all three because they're all three. Could be objections that arise in positioning a fixed indexed annuity within.

But I would like to say the greatest cost of an income rider is not having one when it's needed.

That's a good point.

Yeah. Boy, we're full of wisdom today.

That's right.

I couldn't think of alternative drawbacks to the structure of FIAs with income riders other than those three. And realistically, all three of them are mute points when you actually consider them deeply correct.

I mean, think about this. If you have a broker that charged you one and a half percent fee to manage your money, what does that fee get you? Absolutely nothing. You add mutual funds in that, now it's 2 to 2.5%, 3%. What does that fee get you? Absolutely nothing. What does this fee get you? It gets you income for life without market risk, right? Yeah.

I mean, generally, the income rider fees, you're looking at anywhere from 0% to about a percent and a quarter on the high end. There's some that are north of that and everywhere in between, generally calculated on the benefit base deducted from the account value. Again, there are exceptions to that rule. And yes, some income riders are Free. But you have to remember that if the insurance company's giving it in one area, they're taking it in another. There's only 100 pennies in every dollar. So it's got a. It's got to go round. I would also argue it's nearly impossible to find a free rider because of that concept that is as beneficial as a writer that has a fee. But even with the lot that like.

To pitch that free rider.

Oh, it's true.

Wait a second, man. Come on.

The numbers just aren't the same. The benefits just aren't the same. And for me, it's. Consider the two options like of market performance. You have the guaranteed worst case scenario, and you have this possible scenario where there's actually market returns.

I'd like to say this is why I love our fmo. I mean, we own Retirement Realized Financial. And I'll tell you, you know, I plug that shamelessly because after being in this business for 18 years, I am so tired of the number of marketing organizations that push product, push product even so much over the years. Where this was before, I really, you know, understood the number of products out of there as far as I never thought someone would actually do that intentionally. And then I went out to this one appointment. This was, well, probably 15 years ago. I went out the appointment and I used the illustration my marketer gave me, and I said, oh, here's the best product out there. And they go, oh, really? So and so just showed me this, and this one's better. Sure enough, they were right. I looked at them going, dang, this is better. I went back to my marketer and I said, you're fired. I mean, that literally was it. Because I sat there and I'm going, you lied to me. Well, I didn't say. I said, it's the best product we have. I said, no, no, no. You said this was the best product, not the best product of what you guys carried. And I always want to be real clear on that because there's marketing organizations that funnel through a particular organization, and I've lost count of the number of different scenarios we have with a number of different companies. I mean, if you go into my office, I have awards from being, from doing this for so long, but there's so many different companies up there. And it's because. And there's some that I have nothing. Because you're not going to get an award for writing 250,000. But because you wrote it with that company, it was because that was the best product for that situation. And so you know, there's a lot of companies that I write little cases with. When I say little, I write under a million with them. And once again, that doesn't get you any award, but it does from the standpoint of your clients getting the right product. And so we just, I mean, we look at the income writers, we look at the index strategies, we look at the bonuses. I mean, it all has to equal out. My end result for picking the right company with the right income rider is which one gets the client the best payout with the best benefits and great customer service, all while having a super financially stable company.

Right.

And so that's how I pick it.

Yeah, I.

I look at the two options of what could happen. In this scenario, you sell an income rider, what with a fee.

Okay.

And you have the guaranteed worst case scenario where the market literally is either negative or zero for a 30, 35 year block there. If the client outlives the account value, which is likely to occur in that scenario because that account value is only going to last 10 to 15 years, depending on how much, how high the income amount is, let's say even 20, they're 65, they make it to 85. Now they're completely in the insurance companies pocket, insurance company's pocket, continuing to get that guaranteed lifetime income in a scenario that if they were at risk, that money would have already been dissolved half a decade before or a whole decade before.

You just, I just had, somebody asked me that, well, you know, I can get almost this amount for the next 20 years if I just pull it out from my current account and I don't make anything. And I said, oh, that's interesting. Said, so you're dying at 85? Well, I don't know. Okay, then what do you do if you lived 86, 87, 88. What about your wife? You know, she's five years younger than you. What happens there? And they're like, oh man, you know.

Totally. 80% of my, I say 90% of my applications have an income rider on that. 80% of my volume is with income riders. I say that's probably an accurate statement.

Yeah. Because it's the, you'll have big cases throughout the year where their income is so gargantuan already that it's not even a concern. It's just purely protection and accumulation. The alternative option is that the index strategies elected. Actually there's actual market performance. We're positively moving, we're crediting back to the. And within the product design itself, the interest credits more than cover the fee. So it's like at that point, whether the market tanks for 35 years or the market performs, you're better off in the annuity where it covers the fee itself.

I go back to what I said at the end of our last podcast. You know, got so many people that are anti income rider fee, but they'll put a fee on the actual indices that they have them. Sure. That doesn't make sense. And then you look at people that are so used to paying fees, so then you got a fee on top of an Indy. No wonder the SEC wants to try and take over our business because we're adding fees fees on indices. But the reality is the fee and the income rider is not based off of the success of the index. From the standpoint of your primary concern is income for life. So the fee in a variable account will take away and whether it's gaining or losing where the fee and an indexed annuity with an income rider, its primary purpose is to provide income for the rest of life.

Yeah.

And that's it. It's a purpose driven. I mean, I don't even know honestly what the fee is for in a brokerage accounts when they can't even guarantee any sort of success whatsoever. Right. You know, I mean especially when you run into most institutions right now, if you don't have a lot of zeros after your account, they're not managing your money, they're putting you into computer program and they're doing age based rebalancing and they have a way to figure out how to move things around to where they make the most. I mean it's just a fact. I have no problem with people making money, but I have problem with people making money at the cost of someone else. In other words, there's products out there that are available that can do better for what the client needs. But because you want to get your management fee every single year, that's a problem. You have no right to be your client's annuity. That's a fact.

Clients have no. You have no right making your clients your annuity.

Yes, I think. Didn't I say that?

You said you have no right to be your client's annuity.

Yeah. Oh, I'm sorry, I just want to.

Clarify what you have.

No, please. Yeah. When your client is paying you fee year after year, no matter how long you live, you know, they, that's. You're literally. That annuity is your annuity is the fee that that client is giving you. You have no guarantees. And once again, I'm going to Balance this out. I don't hate brokers. I don't hate variable accounts. I just hate it when somebody uses a variable account to try and do guarantees for income. And that's probably because my worst appointments by far are the people that are at age to where they can no longer work and they've ran out of money because their broker told them they should have enough to last them the rest of their life and they run out while they're still alive. And a lot of them run out when they're still pretty healthy too. So. Yeah.

Which I think that brings up Chad, your argument of if it's a plan for living lifetime guaranteed income, it makes the surrender period a mute point which is another thing that people tend to balk at. Clients, particularly agents, not so much, but clients. Well, I don't want to lock my money away. It's like well you're, you're generating a lifetime benefit. So a 10 year surrender period is. What does that even mean? It's a lifetime benefit.

Make sure they have enough emergency funds, savings and liquid accounts. That should never be an issue.

I've had agents before ask hey Caleb, I need an income product but I need a five or seven year surrender period. And I'm like well okay, look, we can look at that and I can show you why that's actually less advantageous. But again it comes back to a lifetime benefit and where the insurance for.

An income rider that has a guaranteed increase in it but you're planning on walking away with this seven years which you lose the income rider benefit to.

Yeah. If you're planning to walk away from it at the end of the surrender, you shouldn't buy an income product in the first place.

Correct.

And then the third one that sometimes again not agents as much but clients may balk at is this concept of well, you get a portion of the gains.

Yeah. I'll tell you what though, there's a lot of indexed annuities out there that not a lot. There's some really, a few really good ones that have really good index growth with a good income rider. And if you want to know about those products, reach out to Caleb, he can. I mean there's a few that are really good right now.

Yeah.

And you good index growth with good income. I'll take that all day long.

It's true. And I sent out a sequence of returns the training video last this would have been at this point a few weeks ago and I showed how 50% par rate in the S&P 500 over the last 22 years has a lower average return than the full just straight s and P500. You only get a portion of the gains, but none of the losses. A lower average and you end up money ahead. So just because it's a quote unquote portion of the gains, you can have a lower average and still end up ahead at the end of any time period, depending again, on the sequence of returns. So a limitation on gains is kind of a mute point, especially again when you're not dealing with any kind of having to make up losses. So.

Well, that should be it, right?

We a wrap for today.

So I hope this helps you guys. You have a great day. And of course, happy selling.