Selling Annuities From A Worst Case Scenario | 7 Figure Annuity Sales Podcast | Ep. 298

One of the main things you need to consider when you're selling annuities from a worst case scenario is not to compare apples to oranges or oranges to kiwis. Always compare apples to apples, oranges to oranges. We're going to talk about what that means in a second, but welcome back to the seven Figure Annuity Sales Podcast. Caleb north here with Chad. Chad, this is one of those things, selling annuities from a worst case scenario that I think is particularly challenging for some people, especially with the current illustrations and rates that we're seeing on indexes, and especially for people who don't emphasize guaranteed lifetime income. And I was thinking about when you're selling from a worst case scenario and you are positioning guaranteed lifetime income via an income rider, it's pretty easy to look at the guaranteed side of that illustration and show what that income would be for the rest of their life, regardless of how the stock market performs, regardless of how long they live. But on the flip side of that, if you've got somebody that's selling on the basis of protection and accumulation, the worst case scenario in an annuity doesn't look all that good. Which is why I think it's so important not to compare the worst case scenario of an annuity to the upside of the market or the downside of the market to the best case of an annuity. You've got to compare worse to worse and best to best. And I'm curious, you know, for you, obviously you're selling lots of, of income based products, but those instances where you do have more of a protection and accumulation type of play, what's the go to? How do you actually articulate selling that from a worst case scenario?

Well, that's a really good way you put that worst, worst, best to best. I mean, what's your worst case scenario? If you're doing a straight indexed annuity, what's your worst case scenario?

Zero percent.

If zero, what's your worst case scenario? If you're using stocks, bonds, mutual funds, lose it all, you end up losing money. Yeah. Now it's rare. And I do always preface this, I say there's the chances of you losing everything in the stock market is pretty slim. Of course, you know, I mean, you, you have a good chance of a 30, 40, 50% drop. But you know, we know this 2000 to 2013 in S P, you actually would have broken even in the S and P. But that doesn't account for fees, that doesn't account for inflation. You know, it doesn't account for Any of that. And so you're actually way behind, behind 13 years later. But you could also just say the same thing if you went 13, well actually mean 13 years. In an indexed annuity, a zero is almost impossible because every annuity I ever do, the longest surrender schedule is 10 years. So if you get ticked off and you say, hey, I went out the 11th year you're out, right? So, so I mean, I always look at the scenario of best to best, worst to worst. But even if I'm doing a straight indexed annuity, I look at this because if somebody's doing an index only annuity, that means they have no need whatsoever for income, which was only 10% of my clients. And I'll argue this all day long. I mean I still have people to this day. No, no, they don't need an income. They don't. If I got in there, I assure you I'd find out a reason they needed income. Because remember, income is not just for income, it's for lifestyle as well. It's for kids or grandkids, college, it's for paying taxes, it's for paying annual bills that you usually pay lump sums. I could go on and on about the reasons for income that people just, you know, agents get so narrow minded often and the incomes for income, no income is for outcome. What does it do? You know, so the income is for an outcome. So your worst case scenario in an income rider is whatever the income's producing. Your worst case scenario is you draw income for the rest of your life no matter how long you live. That is phenomenal compared to any other option anywhere. Because even if in Caleb you brought this up, and I'm trying to remember how you worded it, but basically you can have the amount of interest you make and then you have the amount of money you take. And do you remember how you worded that?

Well, yes, your wording I think is better than mine because you, you ask your clients, you know, is this, is it really about how much you make or how much you take? And at the end of the day in retirement is more about how much you take. But the way that I think about it is an interest rate of return versus an internal rate of return. So when you're in stocks, bonds, mutual funds, CDs, commodities, any kind of traditional where you don't have income being distributed, all you're trying to accomplish is some kind of interest rate of return, you want to credit that and grow that. And because that's the mentality that many people have when they're working for 20, 30, 40, 50 years, sometimes they're consumed by interest rates of return, but then they get into the distribution phase, and now they have the option to put their money in a vehicle that has the internal capabilities of creating an internal rate of return, which is basically, if you put $200,000 into an income product and you achieved no growth, no interest on that money, but you were benefited by $400,000 worth of income, well, that's a 200% internal rate of return. And you've got to consider both facets of it. Well, an indexed annuity with an income rider achieves both the opportunity for an interest rate of return via indexed credit.

A good indexed annuity.

Right. And with guaranteed lifetime income, creates the opportunity for an internal rate of return if the interest rate of return isn't there. So the worst case scenario in that type of picture is your indexes don't credit anything, so your interest is out the window. It's just zeros. And now you're taking this guaranteed lifetime income for a period of time. Once you've depleted that account value, now you're into your internal rate of return, you're in the insurance company's pocket. So in a roundabout way, either you get interest or you get an internal rate of return. But there. I've never seen a situation where somebody didn't get at least one of either one. And most of the time, they're getting some mix of both. Mm.

And that's why after Caleb just spent two minutes explaining that. So that's why I said, what's more important, how much you make or how much you take, you know, that's honest.

Is because, you know, you got to put in a way that people understand it. And when I say that, to this day, I am not. And I think I started saying this, what, three, four, five months ago, the other day. The other day. And, you know, with me, the other day is yesterday or could have been 10 years. But I started saying, what's more important, how much you make or how much you take.

Yeah.

And every single time. Well, how much I take because I said, you know, is a plan for living or plan for dying? Very, very, very rare. Like maybe 5% of the time maybe. Does. Do people say it's all about a plan for dying? Actually, it's probably lower. I say 1% of the time, someone says it's a plan, just strictly a plan for dying. Almost everybody says it's a plan for living, enjoying their money while they're alive. And so it is always the answer how Much do I get to take, not how much I make. So when we're looking at the scenario, we got to think about what is the easy way for our clients to understand the importance of not risking money that they want to live off of. And that's why you word it that way. So when you're talking about selling an annuity from a worst case scenario and you have an income rider on it, and I said this earlier, the worst case scenario is you get income for the rest of your life. If you're married and you do a joint lifetime payout, it's income for the rest of both of your lifetimes. And there's also this one, this new product now this is right now this product, but this product that I've been using a lot lately. I mean I've already written 3 million and probably 2, 3 million and probably a month just off of this one product alone. And it's, it has the well being benefit to it. So in other words, it's a five year payout where there's money in that account value or not, it pays out one and a half if you're married or two times if you're single and a wellbeing benefit. And as most people know, I'm not a big fan of long term care insurance because long term care insurance nowadays they charge you premium, but they can continue to raise it and continue to get more and more expensive or they, if you don't want to pay more, then they tell you to decrease your benefit and if you don't use it at all, you die. So there's annuities of life insurance out there that have done phenomenal as far as the, the benefit to well being or not being able to do 2 out of 6 year adult daily living activities. And I go, so worst case scenario is you have income for you and your spouse's life. If you end up in some sort of situation where you need help, you can't do two out of six of your adult day living activities, or you have some cognitive issue where you now have full blown dementia, it will pay one and a half times that amount up to five years, whether there's money in there or not. I mean, you think about that, what is the worst case scenario in the stock market? Stocks, bonds, mutual funds, you not only could have volatility in the market, lose money from the market, but then you start pulling out and then you have a long term care situation, then you run out of money, and not only money for a death benefit, but you run out of money for income and you have no help with the long term care situation. So I mean, when you think about. This is why I can go into any appointment with the utmost confidence knowing I have the best product for their situation. No, you don't, Chad. What if they want risk accounts? Then we do an indexed annuity without risk that still has some potential for good growth. And they still, in my opinion, I'll put any good index up against any stock consistently all day long. Now obviously, and I always have to say this balancing statement because we recorded I do not ever give advice on stocks, bonds, mutual fund, commodities, anything that has risk that I do not give advice. And this is where this stupid dol stuff comes into play is like, well, you're advising to get out of their 401k. No, I'm not. I'm saying here's an option that has safety and security. Do you like this better than what you're in? Well, yeah. Then it's your decision. I'm not telling them anything. I'm educating them on what's available without risk. And if they want to move their money, that is their decision. So worst case scenario is stress and rocking chairs. Best case scenario is income for life and not worrying about ever outliving your income. And you cannot ever do that in any variable account. You cannot have a long term plan on a hypothetical scenario. You cannot have guarantees on a hypothetical scenario. And so there's no such thing as safety and security in any stock, bond or mutual fund. I don't care what anybody says. I'll argue with them all day long. The fact is, is our products and have the best case scenario in the worst case situation. Period. Yes, please vote for me. I'm Chad Owen. I'm running for office.

That's, that's, that's something you need to remember right there. Our products.

Yeah. Best case scenario. Worst case scenario.

Worst case.

Yeah, I use that. Just saying.

That's pretty cool. Well, and it's. I think it is easier to see how. Okay, well yeah, I can go sell income from a worst case scenario, but people aren't buying indexed annuities for accumulation so that they can return nothing. And I agree with that sentiment. But my argument is what's unique about an annuity relative to other investment vehicles, Right. And it's that they are guaranteed a 0% floor assuming you're not putting, you know, a bunch of these index fees and all these different things on there. Try and buy up rates and whatnot where they could move backwards due to.

Let's just be clear I don't losses, I don't ever use a fee on an index.

Period. Right. So. Right. And I've done the math on it and I actually did a podcast on that a couple weeks ago talking about fees and bought up rates and the numbers shake out to be about the same. But you're adding an element of loss and you're at, and you're, you're taking away the ability to say that, oh yeah, if the market falls, you stay flat. Because no, you don't. If the market, the index is, is negative and you've got a fee on there and you would credit a zero, but with the fee you're actually taking a hit that's not staying flat. So it takes away your ability to, to say some things in a pretty easily understood way and it adds an element of, of risk to it. But I will say the annuity is unique in that it does have that 0% floor. So why I started this whole thing out by saying, hey, don't compare apples and oranges is don't compare the upside to the market, to the downside or the worst case scenario of an annuity. If we want to be fair, let's compare both to both. So you look at the worst case scenario of an annuity and that is numerically based. Minimum guaranteed surrender value, minimum guaranteed contract values, 0% floors in these indexed annuities. Like we can look at a worst case scenario and say, okay, if it all goes to pot, this is what I would be dealing with. You can't look at the worst case scenario and they can't have it contractually guaranteed in anything that deals with volatility. The other side you have to consider then is the upside. And one of the things that I'll argue all day long is that there is no investment in which you get only gains or even all the gains because all the gains come after all the losses or before all the losses. Did we know that if, if it's exposed to volatility, it goes up and it goes down. And so if you're getting all the gains and you're accepting all the losses, you're not actually getting all the gains because the two offset each other. So there is inherent limitation even in the risk based investment strategies. And I again, not advice in or out of. I'll make that clear. But it's worth considering that there is this, this. It's a different type of return than an average return and people get consumed.

If you think about it too, you know, there's always limiting factors. In other words, you never get all the gains because if you buy stock A, stock B, made more. And to get all the gains you would have had to get out perfectly the day of the second that was at its peak.

Right.

And never put back in again. That's the only way to in the gains.

Correct.

And I'll use this saying all the time. The only way someone truly wins in Vegas is if they walk away when they have all the money they've won. Because even if they win $100,000 but they lose and they have $80,000, you could say, okay, well you know, I still made $80,000. That's true. But you didn't make all the gains, you know, and the entire cities built from losers. The stock market depends on losers. That's just what it comes down to. The stock market is a gambling machine. And I'll argue with anybody on that. I'm gonna, I'm, as you can tell, I'm pretty spicy mood today. But it's because you know, when we're talking about all the gains, all the losses, worst case scenarios, I will stand passionately behind the safety and the security that I provide in the products we have. So I think the one thing to remember, and Caleb, you're right, I mean I, I've used that all the time. I probably haven't said this enough, but the, the an annuity, a fixed indexed annuity is the best worst case scenario. Did I word that right? It's the best man. See now I'm trying to remember how I did it.

It's the best case scenario or best case situation. In the worst case scenario or worst case situation.

There you go. Best case situation and worst case scenario. Because even if our clients earn zero, if everybody's learned, I mean if you look at that guaranteed part of the illustration and they are in zero for 35 years. If the market was doing zero for 35 years, that means anything and anybody, any other account is going to be destroyed because that means the stock market would have fallen for 30.

30 years. Correct.

So. Well, and I'll, I hope I'll have one more. Oh God, can I add one?

I always do this at the end of the podcast. I wanted to just finish a thought that I had earlier, but it's this idea of getting away from obsession over average returns and starting to consider annualized returns. And I'm not going to sit here and say that a vehicle that protects a client from the downside loss is somehow going to outperform on the upside, something that, that doesn't protect them from downside loss. So I'm not going to sit here and say that an annuity has more upside potential. But what I will say is that when you don't have to climb out of holes, you don't need as much upside to end up dollars ahead because you're not playing catch up from a lower spot. So do with that what you will. Go play with annualized returns. Scrap the averages because the numbers don't suggest that average means anything. Annualized means everything. And sell from the worst case scenario. Sorry, that's my last. My last minute spiel.

Is that. Is that row your last this time?

Yes. I'll have another one next week, I'm sure.

Okay, everyone, thanks for paying attention this week. You have a great day. Hey, one quick plug. If you are not part of our academy and you're not being trained in our academy, jump on board. We have annuity architects, we have annuity jumpstart. Reach out to Caleb. I'm telling you, it is the best training platform out there for annuities. So I hope this helps you. You have a great day and happy selling.

Sam.