MYGA’s and FIA Index Allocation In High Interest Rate Environments | 7FAS Podcast | Ep. 224

On this week's episode, we're going to talk about mygas and fias and high interest rate environments.

Hello, everyone. This is Chad Owen, the annuity sales coach.

Yeah.

Owner of retirement realized financial Owner of retirement realized agents academy.

John's favorite thing.

I know he loves it when I do. That's actually why I do it just for him. Yeah. Yeah. But it's actually all retirement realized financial right now.

It is.

Yeah. We consolidate our shirts. We do. Look at this. Finally we don't have to watch him wear those weird shirts with chicken.

Oh, they'll be back.

No, they won't.

Oh, yeah.

No, they won't.

Wait until, wait till Christmas time. I'll have my, my chicken ugly Christmas sweater on.

Okay. That I could go with. I'm fine with that.

Yeah, Your wife bought it for me, so.

Well, then I have to go with that. Okay. So let's go.

In August, we did a podcast and if you haven't heard it, recommend you go back and listen to it. But basically we were talking about using FIAs in a market where MYGA rates are so high.

Yep.

And how to do that and how to do that well. And all that stuff. Well, here we are in November, December, and my rates have done nothing but climb since then. I mean, when you've got three year rates 5%, you've got five year rates over 5.2. Like, it's crazy.

Which actually scares me a little bit for my clients because there's a lot of people or potential clients, there's a lot of people that are talking people into the five year rates. And you know, I'm not a huge fan of mygas unless it's. If it's not for the purpose of. If it's not for the purpose of income. Okay, do your mygas. But when it's for income and they start saying, okay, you got five years where you're gonna get 5%, so you take your 500,000, you can pull out 25,000 per year, and then five years from now you still have 500,000. What are the rates gonna be then?

Right. We don't know.

We don't know. And that's. I mean, I get. Five percent's a phenomenal rate. I get that. But. But I feel like we're potentially setting ourselves and our clients up for some problems. It's the same thing as taking these index rates and making the assumption that these are gonna make these rates in five years. Right. I just, I don't like doing that.

Yeah. I don't think most now there are some carriers that do have great renewal rate integrity. They've got great renewal rates.

Well, I have one that is the highest rate integrity company that I know of. I still do a 5050 split on indices.

Yeah.

I mean, it's just what I do. I pick the best one and I pick pretty close to the worst one. And I just balance it out that way. I just don't want my clients have these unrealistic expectations that in the next 10 years they're going to make 12%.

Right.

I don't think that's right.

You do that on the illustrations to bring it back down to earth.

Yep. And then remember, anybody who's followed me for a while know that what is the number one thing I focus on in the illustration?

Guarantees.

Worst case scenario. Yeah, yeah, that's what I focus on. I highlight it, I underline it. I do. I, this is your worst case scenario. And I would rather just focus that way. So even though we have myga rates up real high, it makes me happy because we're destroying bank rates. But even CDs are up, but they're just not as high as what we're doing.

Yeah, well, I really, my intent for this podcast today was to be kind of a dialogue. Just, just kind of a. I, I, I've got some questions that I want to run by you, and I figured we could just discuss them.

You have questions? Yeah, just. You have things you want to talk about? Yeah, of course. Surprise.

And then just, just kind of create some dialogue and around this topic because I, I, I agree with most in the idea that there's more than one way to skin a cat.

And I do think that such a nasty.

It is a disgusting.

It is. And really, how many are there?

And it makes me wonder too, like, is that a Southern saying? Like, how many agents do we have listening to this up North? And they're like, what did he just say?

You know, like, you know, it's funny. So I went on that Europe trip for three weeks and then I came back and that Wednesday night, Thursday, Friday, we had a Christian conference that we went. So, I mean, really, I only, in four weeks, I've only worked two and a half days or one and a half days running appointments. And this guy was from deep South Alabama, and he had so many Southern sayings and so funny. But yeah, that has to be a Southern. It's got, that's got to be.

So if you're from somewhere Southern people have that saying. And that was the first time you heard it. My apologies.

Yeah, no, okay. Yeah, go ahead.

Well, I mean, so we MYGA rates are compelling.

Yes.

I mean it's, when you, when you look at a fixed indexed annuity and you're, and you're thinking, okay, over the long term I'm expecting that this fixed indexed annuity will average somewhere between 5 and 7%.

Yeah. But remember, so what are our one year guarantees? In our top.

They're really good.

Four and a quarter, man.

Really good four and a quarter.

And I actually, because this company has high rate integrity that we use primarily right now. Now you guys know by now I'm not a product pusher. They change something on theirs and they're no longer competitive. I switch in a second. Yeah, I am now. It's obviously if somebody came out with a better product and they're a junk company or they don't have good financial rating or they're not good with customer service, they, that's not a switch in a second because I weigh that. But four and a quarter on a one year fixed rate, man, that's really good. That's, that's brain damage, man. I can't, I can't remember the last time I've seen this. If I ever have seen a one year rate at that. I don't, I mean, and I've been doing this a long time.

Right?

Yeah.

So your, your argument then would be are we really expecting the market to be down for three to five years? That seems elongated.

But even if it was, I mean the chances of market falling, average bear market is what, 1.5 years. And so the chances of the market being down three years from now, as far as consistent three years down. I don't know when that's happened. I know 2000, 2003, there were three years where the market went down. But before that, I mean it's, it was a long time. Right. As long term. So three years of the market going down. But then we talk about if the market goes down for three years and you have a myga, three year myga, what happens at the end of the third year? What are the rates going to be then?

What are the rates going to be? And then do you not just go back into a fixed indexed annuity, except that now you've added three years of surrender to the total timeframe.

Well, but if you're using a FIA with an income rider, that's not really that big of a deal because primary thing of the income riders, income for life. Right.

And that was actually one of the questions was when do you use FIAs? I mean, MyGas are paying crazy. When do you use FIAs? Well, it's still all things income based basically.

I'm not a big myga person.

Yeah.

I'm just not. I mean if they're over a certain age then yes, I'm a big fan of them. But when you come to, I mean I don't know what this is and I have these conversations, you know if anybody ever wanted to gave me a hot give me a hard time to say why do you use all these income riders? Why use more indices? Okay. Most of us know whether I an income rider. No income rider. The commission is the same.

Yeah.

So I'm not doing it for the commission. But what I am doing when I do an income rider is I am shooting myself in the foot for no future business with that money.

That's true. Because it's a lifetime benefit.

If I was trying to do the best thing for me, why would I ever do an income rider?

You wouldn't. You would. You would sell probably a 7 or 10 year FIA and then rewrite business.

Then I get and remember I have 260 some million under management. That means even if I only had half of that rent, that means and let's say 10. I've been doing this consistently for 15 years for the annuities. So that means pretty much every year I'm flipping $10 million.

Yeah.

Which because every year 10 years ago I would have already had people renewing their 10 year product.

Sure.

But I just don't think that's the right thing because my clients, because I do full fact finders because I do a needs based what is the purpose of the money? Right. They want income riders.

Yeah.

And so my guys just not going to be that AM IGA's not going to do that. And it's straight FI FIA won't do that.

That's true.

I mean this is why I rarely if ever lose a deal to someone else. I lose plenty of deals to myself because I have no renewals on these, you know. But I have a client that literally just reached out to me and I wrote this new annuity 2014 so eight years ago. And he has another 200,000 now. Granted. I asked, I said how much do you have an emergency fund savings. How much do you have in other accounts? 280,000 is what we're going to move now. He said can we wait till after Thanksgiving? And it's not because he didn't want to me. It's because he's literally going to be out of town for that time Frame.

Right.

So that goes back to what we talked about in the previous podcast. The objection. This is a true objection. He's going to be gone. And that, that happens as well. But in that scenario, because I did the right thing for him, and because the annuity we wrote in 2014 is doing exactly what we expected it to do, then why wouldn't he want to use me again?

He would.

Yeah. And that's what he's doing.

Yeah.

So that's good. You know, that's. And I just look at that, the FIAs and the MyGas. I mean, you have to look at safety, security, guaranteed income you can never outlive with no risk to the market. And if it's for the purpose of living plan.

What if it's not?

Well, then of course, straight fia.

Even over a myga.

Yeah. Okay, so that's a great point. If you have a fixed rate of 4,1 4% for a year. For a year, no fee. So it's true. Four and a quarter percent. And then you have another year where in this particular company, this particular product, there's a high likelihood it's going to still be four and a quarter.

Okay.

Okay. Now, market falls and then we think the market's gonna start to recover. We don't know the exact bottom, not even remotely. But that being said, we know there's a high likelihood that when the market falls, it will eventually start to recover. So then we go into some sort of indices. Now, if I illustrated properly, I'm not gonna have unrealistic expectations of what the industry can do. So even as a moderate growth of when the market's going up, they have anywhere from a 5 to a 10% realistically. So let's just say 7%. They're still going to make more.

So your, your thought process is more the long term. It's like you may give up a little bit on the front end of the contract. You may give up a percent.

Yeah.

Or so. Right. On the first year or two.

Yep.

But your, your thought process is once this market does rebound, you want to be in an index.

Yeah.

Because it could come back big.

It could come.

Because where you're, where you're going in is relatively low.

Yep. And remember, I could go back to you say, well, you just want more commission up front. No, if you take five year myga and another five year myga, I'm going to be making just as much, if not more. I mean, it just, I, I just don't even look at the commission side of things. I look at which Is the best scenario for the client what they want. When 80% of my client, well I say 80% volume wise, probably 90% client wise want guaranteed income because once again the spouse passes away, the lower of the two, Social Security goes away.

Right.

In our particular area we have a lot of people that military pensions and for whatever reason there's a lot of military pensions, they get 0 or 50% survivorship. So that surviving spouse is in deep trouble income wise. Okay, well I can put 500,000 to my guy, I can let it earn 5% per year, I don't touch it. And then I have, you know, let's just say for easy number 625,000 in five years, obviously compound it's going to be a little bit higher. Then we could do an income rider on that. That is true as well. But when I have a guaranteed stacked income rider plus the index growth plus a bonus and five years, they're going to be in a much better situation. Yeah, that's just, I mean it's just logic. I mean that's what I love about numbers, man. There is no motions to it. Numbers. And if I can separate myself from the emotions and numbers, it doesn't matter if they have $100,000 or they have $20 million. It's all the same. Because we're talking, you're emotionally attached to the solution, not the dollar amount.

Yeah, that's true. That's really good. And I've seen, I mean just even looking at your business and the mygas that you have written over the years, it's primarily older clients and it's short, it's not even five year MyGas, it's.

Like three if they're over 81. That's when I really look heavy at myg with that. You better have a ton of leftover money, otherwise I remember one time this guy, we wrote 2 million in MyGas, he was 82 and she was 84, I think. But they start another million and a half dollars left over in liquid funds. I mean even if they were both in a long term care facility for seven years they had more than enough income and by that time that MYGA is already set free anyway.

So your thought process is at 80 something years old. What really does a 3 year myga get you if you don't have a ton of money outside?

Because a lot of these annuities, if they're over X number of years, there is no well being or excuse me, no long term care, 100% withdrawal. I mean there's a lot of stipulations to that and so and plus are pulling out their RMDs if it's qualified funds. If it's not qualified funds, you know, it's non qualified. Then I just am a stickler on making sure purpose driven money.

Yeah.

You know, everything revolves around that. So it's not product driven, it's purpose driven. And then you find the right product to suit the purpose.

That's good. Well, I think it's good, good content because I've personally seen this come up real frequently lately working with agents where it'll be somebody that you know, 60, 65 year old asking for a five year myga or a seven year myga or whatever. And it's like are you really actually getting the best by the end of that time period in a myga when you do have fixed rates that are crazy high right now? And eventually, I mean this we don't know when we don't know how big, but we, I mean history says the market comes back at some point. Just like do you want to be in a fixed rate that realistically is actually more limiting than a cap?

Yep.

Versus an index with a par rate.

Yep. I agree.

Good stuff.

That's it. Of course, as usual, happy selling.