Increasing Income or Level Income? | 7 Figure Annuity Sales Podcast | Ep. 260

So one of the common things people ask is increasing income or level income. And I guess that depends, obviously, on one thing. And I know we're going to talk about it, but it's what is the purpose of the money? Yeah. And that's really what it comes down to. How do you find out the purpose of the money? Good fact finding.

That's right.

How do you get in front of someone? Fact finding. You have good branding. You know, we're talking. You just go back to this podcast we've been doing. That's really what it comes down to. So I am Chad Owen, the annuity sales coach. This is Caleb, the wonder and fascinating, most interesting person when it comes to case design.

It's almost. It's almost hard to even hear you say things like that. It is so contrary to normal.

That is not true. You know what? Anybody who watches our podcast and feels sorry for this guy. You know, I had a little brother, and my little brother used to do this. He'd go and punch me and. And then he'd run behind mom and dad. Now what I do is right in front of mom and dad, I'd clock him right in front. I knew the consequence, but he's not hiding. You're not going to give me. This guy does stuff like that all the time. Jab, jab, jab, jab. Okay, we're recording. And then he's a little angel. Angel. And we're not talking the halo effect like we talked about last week. It is this dude. He's. He's an instigator. Big time. The only bigger instigator in this entire office is Josh.

That's true.

Yeah. Our executive vp, he will. He will poke and prod, and then once you get all route up, he's going, no, no. Okay, we're good. Let's not do that. Okay. So obviously, income increasing versus low. Not decreasing, not decreasing. There's some that do. Decreasing income. Do not do that. That is just. I. Oh, my God.

What's funny is they actually call that, from what I've seen, a similar term to what you use is about lifestyle and their assumption or their thought. It is let's front load the income. Because generally when they're younger, they're going to be spending more in lifestyle and then it drops, you know, over time.

But the problem with that is they have people convinced that you start to do that 60 to 65. And with longevity happening, how long people are living in inflation and all these other things, why would you do that?

And most people don't want to see the income go backward because they know inflation is going up upward.

Yes, well, I mean, it's a fact. I mean deflationary periods are very, very short. But if you look at what something cost 10 years ago, what it costs now, it doesn't matter any time frame. I, I don't think I've ever heard of a time even in five years where something is cost less overall.

Sure. I mean, I'm sure over a five year period.

Yeah, you've definitely seen, you know, times depend on the administration. You'll see gas at $5 a gallon and then it goes down to, you know, $2 a gallon. But that's, that's not an overall picture. Homes will be more expensive. It's kind of interesting. You talk about kind of a diversification type deal. You know, you have gas prices way up high and then they decrease, which causes home prices to go up because they're able to move more material and produce more homes and people have more income coming in because not spending as much on gas. It's, it's an interesting scenario.

It is interesting.

Yeah. But what's your thoughts on.

Yeah, well, I have a couple.

There's increasing.

Couple of. Just baseline.

Actually, let me rephrase that. You have no thoughts on decreasing income. It sucks. Period. That's it.

Yeah, I would say generally, okay, I have, I have created decreasing ladders before if.

But that's because. Debt reduction.

Exactly.

Yeah, that's a totally different thing.

But I will say there's a couple of assumptions here. And we're talking FIAs with income riders. We're not talking about annuitization and we're not talking about RMDs coming out. We're talking about guaranteed streams of income via an FIA with an income rider. And my thoughts here are most of the time a good level income product will end up paying more income than most increasing income product options. There are exceptions, but both ways. You can have a level income product that is paying next to the dirt and then a very mediocre increasing income product could pay more over time. But if you have a good level income product that's paying, you know, in the top, I would say 10 products or so for that particular case scenario is probably going to pay more over the life of that client than most increasing products. The other thing, especially if you have.

To do the ones that the income rider starts off, I saw one the other day that had a 3% cost of increase no matter what. So in other words, the income rider just continued to go up and up and up 3%. But if they would have activated. No, the unknown is how long are they going to live for. But they were already 80 years old. But the unknown comes into if they would have taken out the higher amount in the beginning, they would have had more income if they would have taken out the higher amount in the beginning.

Right.

So.

Right. The reason that I think a good level product will pay more income over the life of that client than most increasing products is because of where the increasing product starts paying and then the way that a lot of them are designed. So you gotta ask the question, how is the increasing income actually being attained? Is it based on guarantee increase? Is it based on purely performance or is it some kind of mix of the two where you have a guaranteed roll up and you getting some index credits and there are products that have it all three different ways. If there's, if the product is increasing that income by way explicitly of index performance, you've got to consider renewal rate integrity of that company for sure. And you've got to consider what happens if you have a prolonged period here of market regression. In other words, you have zero credits because there is no guaranteed roll up rate there. You have 0% credits and you're drawing income now. Your benefit base is way lower and the odds of that ever catching back up is way, way, way slim. So there's, there's a lot that can go the wrong way when you're using explicitly performance driven increasing income products. I personally like to see a hybrid. I like to see if we're looking at increasing income, I like to see a guaranteed roll up rate that will continue to credit after income tax credit with the index performance on top of it.

And realistic numbers too because once again I saw an illustration the other day that said 500,000 would turn into 3.2 million. I'm like, come on, let's be real, we got to work on getting these illustrations right because it's going to bite all of us. Yeah. But a decent, well balanced mix of the indices will give a really realistic type of performance. Sure. And so we use a product right now that I love probably what 90%, 85% of my business about. No, it's actually about 75% of my business because I've had some huge mygas this year. But you know, client wise, 80% at least has went into this particular product, particular company because as a 5% bonus, a 4% minimum roll up rate plus a really good fixed rate and, or an index rate. And it illustrates very well when you're being Conservative.

Right.

It would be stupid when it, you know, as far as the numbers, if you put the highest index in there, which I don't, I balance it out. But I'm telling you, that is the way to go.

Yeah.

Vast majority of people, they want to. They want a living plan, not a death plan, but they don't want a living plan at the expense of everything going away to zero. Totally. And that's just, it's funny because we've talked about this so many times. They'll say, well, I want a living plan. I don't care what passes on mayors. But then you show that illustration and it's all gone. Year 17. They're like, wait, what happened to this? You just told me.

Right?

So that balance is very, very important if you don't have access to really good products. I, I say this all the time. We're not pushers. As far as, hey, come on over to retirement Realized Financial. Although we are more than happy to have people at least interview with us and we get interviewed at the same time, because it is not a done deal. If somebody wants to come on board with us, it's not a done deal. Just as if we talk to you, it's not a done deal that you want to come on board with us. But at least to have a chance to see these products out there that are so great, great, honestly, that works so well. You know, I think that's, that's important to have that balance. And of course, you got to have, like, there's a guy meeting with. There's a huge gap between him and his wife. And he flat out told me, he goes, man, he goes, my wife is set when I'm dead. We have plenty of life insurance. We have plenty of assets. And he went into what is $2 million do. Because they're 13 years different in age. And that payout percentage for that level annuity was substantially, I mean, way higher. So common sense would tell you, this guy's 62 years old, he retires. Excuse me, 66 years old, he retires in four years, his wife is set no matter what. Yeah. So, yeah, absolutely.

Another thing you got to consider is, does the worst case scenario of the increasing income product cover the needs that the client has? Because if you're trying to put together a plan where you're dependent upon that income increasing to actually meet their needs, you're. That's not a good, that's not a.

Good product at a client. Once again, last week, Ben has a busy week. Last week, talked about how, you know, he goes, I don't know if I can live off of this. I said, you can't. You're going to need to keep working. He's like, I kind of figured that. So now if we went with this straight income rider annuity, you would be able to do that, but that would meet your needs at that date of retirement, but it wouldn't meet your needs beyond that.

Right.

And he had that revelation. Yeah, I'm going to probably have to keep working.

Geez, man.

Yeah, that's crazy.

The fourth thing to consider here is if you're looking at the increasing income product, does the reasonable increase and when I see reasonable, I'm not talking about you illustrating 8, 9, 10, 11, 12% return.

The illustration shows me it's done 15% over the past 10 years. Right guys, I'm going to hound up for a while. I think I've mentioned that the last few podcasts stop doing that. I'm realistic rate of return is between 4 and 6% and that may be a little high. Depend on the 10 year timeframe. But try not let any renewal rate integrity. Now we have some that I have actually seen higher than that and I've seen great renewal rate integrity. So they're one of the companies I use, so I've seen that. But that's not what I tell people. I tell people the guaranteed page I highlight guaranteed. This is what we want to focus on. Anything beyond that is just icing on the cake. And I hit that so hard.

Right.

And we got to talk about guarantees first.

I agree. So to put this into numerical perspective, it's like if you were to look at an income, increasing income product that let's say the worst case scenario was it was paying them out $12,000 a year. And then you were to take that same scenario and you were to put that into a level product that let's say was just paying double that 24,000 a year. Does with a reasonable rate of return, does that 12,000. What point does that 12,000 actually overtake the 24,000? And does it ever? Because if it never does, then there is no benefit to the increasing income at all. In fact, it's actually worse if it takes 15, 20 years for it to.

Overtake, depending on what the purpose. Because that's so important to know. Because if they have a higher income but they lose control of something that they wanted to do, then that doesn't mean anything as well.

Correct? Correct. So if, if maintaining that account value is important, then yeah, selecting a level income product may still be Advantageous. But you're going to intentionally select one with way lower level income.

It's not always maintaining account value, it's just having something. Sure.

Trying to protect it to some degree.

Because you'll get the people out there. I want to die with my last chick bouncing. Well, that's dumb too because you don't know what your age is going to be die. I mean that's. I know they say that for a reason, but you know, it's usually pent up bitterness of kids being ungrateful. I mean that really is, that's why a lot of that happens. Why? To make my way my entire life. So why should I pass anything on to others? Why don't you do it this way? Why don't you succeed in life and you get a good income and enough to pass it on to your children's children. Yeah. Sounds biblical to me.

Yeah, it does. So the fifth thing to look at is if you're looking at increasing income, almost always there's going to be some correlation between the income increasing and there being index credits, interest credits, as by way of the index strategies. So you got to consider what's the renewal rate integrity of the company that's selling the product? Are they notorious for having these really great first and second year rates and then they kind of dwindle off or do they tend to hold their rates pretty well over the life of their contract?

It's a very frustrating thing too when you do see a company that does have really good renewal rates and then they change, you know, and fortunately I see them kind of bouncing back. There's a company I used for a while where their renewal rates just were not good and they had such a good history of that, but now they're coming back around again. And so, you know, you just have to make the best educated guess you can because you do not own the company, you cannot predict what the company's going to do. But you can use past performance to kind of speculate what they will do in the future. Sure. And I think for the most part, you know, I'd say there's probably seven or eight companies out there that have been very impressed with the rate integrity. But then there's some out there that I will not sell. I don't care if I lose a $10 million deal. I will not put my clients money into one of those companies. And so you just have to really do your research and it goes back into confidence. You know, we talked about this a previous podcast. You cannot be confident if you don't know the company inside and out. You can't be confident if you don't know how the product works inside and out. You can't be confident if you don't feel like the company's looking out for the best interest of your client. And once you get that confidence in that, then you can start to talk about increasing income level income, not decreasing income, not decreasing income. I'm going to. I just. I think that is such a huge opportunity for future lawsuits.

Totally.

And I tell agents all the time when I'm training them. My job, obviously, number one, is to make sure you're doing the right thing for the client. But number two, I want to make sure you have a successful lifestyle. But number three, I want to make sure you can keep that. And if you do things that are not ethical and not honest, it will 100% come back and bite you. So make sure you're understanding when it is the right time to use increasing income level income, not decreasing income. So I hope this helps you guys. You have a great day and happy selling.

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