The Do's and Don'ts of FIAs | 7 Figure Annuity Sales Podcast | Ep. 268
Transcript of a podcast episode (7 Figure Annuity Sales Podcast Ep. 268) with hosts Chad Owen and Caleb North discussing four income strategies related to annuities: annuitization, RMDs (required minimum distributions), penalty-free withdrawals, and income riders. They compare pros/cons, emphasize when each applies, argue income riders are often the most versatile for guaranteeing lifetime income while maintaining control, and stress that agents must understand product details rather than rely on marketing. The episode includes casual banter and anecdotes about client cases and product illustrations.
Chapters
Today we are going to cover part two of income strategies do's and don'ts.
Hey, everyone. Welcome back to this week's episode. Ep. Ep. Ep episode.
And it's like, you know what? There. We're already starting off like this. Remember, we don't do a bunch of little fancy edits. Cuts. This is who we are.
The only edits and cuts that get made are ones that make this more entertaining.
Yeah. Then they actually emphasize when it. Does it emphasize. Yeah. So when we make a mistake here, it gets emphasized. And clearly you can see we don't have any makeup on and he doesn't do his hair at all, so. So evidently. And clearly you don't have beard feeler. Doesn't like.
I did get a beard roller. I bought a beard roller. It's like a.
For what hair?
I know, it's supposed to thicken your beard. I don't know. We'll see.
It's like a bald person buying a comb. It just. Why?
It doesn't supposed to help make one, is it? Yeah.
Okay, we'll see.
We'll see.
So if we have the following episode and this dude's got like a ape head of hair, you know, then we.
Know, then you know, the beard rollers work.
Then we're not selling annuities anymore. We're going into beard rolling.
True.
But this is my sidekick, boy wonder, Robin. Caleb North.
Whatever.
Yeah. What's the problem with being Robin?
There's a lot of problems being Robin.
I was gonna say, even when they.
Did one time where he was kind of cool looking, he was still kind of a dude. Yeah. Okay.
For a little bit. All right, we're gonna break down the same four income strategies that we talked about last week.
We're gonn guy who's a die hard Robin guy just hating on us.
No, they're gonna. Well, they're gonna love me. Okay, so we're talking the four same strategies that we talked about last week. Uitization, RMDs, penalty free withdrawals, and income riders. We're gonna talk about when they apply and some other alternatives we already talked.
About when they apply. There's only one that applies when we're talking true income without loss of everything.
That's true. Yeah, that's true. When you're. When you want to maintain control, you want to maintain benefits and you want me to generate income.
1 To maintain control of their money. I mean, you could say, well, there's surrender charges. Yeah. If the stock market loses 20%, that's a surrender charge, too. Well, it's only if you lose money, you know, it's only a paper loss till you get out. Yet it's only paper gain to get out too.
Right.
So.
Well, now is a note. So the first one was annuitization and I noted that rarely is annuitization the best option. Yeah, right. It's an option all the time.
If they're under the age 59 and a half. That's usually there's a 72T but.
Right.
That's generally the only reason I would ever consider it.
What if you have somebody who is single, has no beneficiaries and needs to try to maximize. I would scare you.
The one we have right now, I mean now once again, if we're talking back what we had available to us 2004 to 2000.
Say 12 maybe, you know, I mean there's a, there's an alright one. I'd say 2003 to 2009.
Right.
You know, then annuitization definitely was more viable, higher interest rates. But now with the indexed annuities we have right now that have good income riders on them, I just don't see a reason why. And if anybody disagrees with me, please put it in the comments because I have no problem. You know, this is one of the reasons why I've gotten. Where I've gotten is because I don't care if someone's been doing this for 20 years or someone did this for a month. I've learned so much from people that are experts and some of them are brand new. I mean some of the greatest things I've ever learned was from brand new people who didn't know any better. And they said well, why don't you try it this way? I'm like, huh, that's actually a great idea. So you know, it's. I am, I'm open to it.
Yeah.
But with amount I study products, I'm pretty confident you're not going to.
What if you had a client? Well, it wouldn't be your client. You had an individual who purchased an annuity, they their agent sold them an accumulation annuity in the second contract year. Still a very high surrender penalty. They realize I have a dire need for income. And there's hypothetically in this situation, not an income.
I've actually done that. I've talked to clients before where I did not sell the annuity. This actually just happened a couple weeks ago where they had an existing annuity.
Is a good value but it was still in a high surrender charge. And I said here's the option. You could do here. And they did it.
They annuitized.
They annuitized it. Yeah.
Yeah.
Because while that one actually only had the option of annuitization, there was no other option. Yeah, no.
Well. And that's the thing with a lot of those. I mean, agents sell accumulation products all the time because they don't do a full fact finder. You call them straight indexed.
You know, I've replaced a few annuities where the reason why we replaced them is because there was a married couple that only had single annuitization as an option.
Oh, my God.
I don't know what the people were thinking, but they got convinced. And I'm going, look how the difference between joint and single was so minuscule. But they still only had the option. There's actually variable annuities that have that. I don't know of any indexed annuities. I could be wrong, but I don't know of any indexed annuities that made you decide right there. I'm sure there probably have been, but none that I'd use because that would be an automatic. I'd throw you out there because you don't know. You can't tell them to choose right now, single or joint lifetime, when you don't know, know in 10 years who's going to be alive.
Right.
You know, that just didn't make sense.
Yeah, but yeah, okay, RMDs. Now we know RMDs always required on the qualified funds with the exception of Roths, which is a whole weird thing in and of itself that they're still classified as qualified anyways.
Yeah. You know, when I train agents, that's one of the common things I hear is like, why is it Ross still qualified? But it.
It's because it's still considered an ira, and the IRA gets the lump of qualified, even though it's a particular legislation.
Messing something up again.
Hence insurance industry, period. There's so many, like, weird caveats and things. It's so interesting to me, I would.
Say financial industry, not insurance industry, because I think everybody in every field has some weird things that you're like, what were you thinking there?
Yeah, true. They're going to come out even if income is not the issue. Right. They're coming out. The government's gonna force it. You're gonna take them. That's not. That's not the question. The question really is, is there ever a point when just simply drawing RMDs is. And I know from your perspective, you say it's not an income strategy.
It's not an income strategy. It's a. I have to take RMD strategy.
Yeah.
I mean, that's, it's just a fact. If you can convince me that it provides income for life, which you can't.
It doesn't. For life. Well, it doesn't guarantee, it doesn't guarantee any amount.
But no, the RMD has to take out. Yeah, you. So I think it's 3.65% at age 72 and it continues to go up 5 to 10 of 5.055. 10 of a percent up to a tenth of a percent is the general increases on that. And you just can't. I mean, especially if you have a few zero years in a row and you're pulling out your RMDs and you're trying. I mean, you just can't time how long you're going to live.
Right. You can't time how long you're going to live. What I was going to say is the challenge with RMDs for me is that there's no set amount. How do you budget when you don't even know what it's going to be? You could have a great year and your, your percentage goes up and you're getting a lot more income. Great. Or you have a zero year and your percentage goes up and it's.
But what if you're doing that and let's say you're 772 years old, you're taking out your RMDs and then when you're 85, the government comes out with some rule that changes everything again? I mean, we don't know now they had the 70 to 70 and a half to 72 and fortunately people at a certain age were grandfathered into that or certain death or whatever retirement. But we can't guarantee what's going to happen.
Right. Whereas the income rider is a contractual deal, the RMDs are government regulated. It's a whole different separate deal. Now.
If they don't need income.
Okay.
But they still say, you mean they don't need income. Both of them are fine. No matter who's alive. Their incomes far surpasses their expenses.
Right. But they still want a plan for living.
Would you still do a rider or just rmd?
Boy, that's a good one. I would probably still do a rider. If you flat out tell me I'm more concerned about the money I spend right now than getting any money onto Myers, then yeah, I'd probably still do an income. And today that's a rare circumstance.
It is a rare circumstance.
Yeah. I mean, because of the 20% of the volume, it's straight annuities with no rider. 80% of the volume is. Now, I didn't say clients because vast majority of my clients require income. Like I said, I don't know what your demographic is, but I just don't run into a bunch of people. Even if they have a lot of money, they have a lot of expenses. So they need the income. But you know, if you're into that scenario, I still, like I said, I think I would do the income writer.
Okay.
Yeah.
Interesting. And there are, there are income products out there. Some. I mean we've got a phenomenal income product that within that first 10 years.
God, I hope they don't change it because it's been, it's been dominant for at least a couple years.
Yeah, to me it's not even, it's hard to even word it as increasing potential because the way that the roll up works is it's, it's increased likelihood.
Very likely.
It's very likely that.
Well, the thing I look at is I, I just had a client that another agent threw out three other companies. So as I always do, I asked her to send me the illustrations. I went over them and first of all, I already knew two of them and I knew two of them really well. One I was as familiar with. And so because it's one that's another proprietary product in another area. And I'm looking, I'm going to, it doesn't even come close.
Yeah.
And if there's a product, I hope there's a product that comes out that beats what we're doing right now.
That'd be great.
That means it's even better for the client. Yeah, I mean, remember when I'm looking at product, I don't look at commission first, I don't look at the bonus first, I don't look at the roll up rate first, I don't look at the payout percentage first. I look at what is the end result to the client. So if they wanted to start drawing money in three years, which one provides the best amount of income? Then I go, which one has the best index strategies. Then of course, I'm always looking at financial stability of the company, best benefits, best customer service. I'm looking at all that. So this is all important to be the big picture. Not just one. I get a 5 billion percent bonus. Now if there was a 5 billion, I would take that, obviously. But you know, some of these companies lead with just the bonus, bonus, bonus. But their payout percentage stings or their Roll up rate stings or their access, the money stinks. So you just kind of, you've got to look at everything.
Yes, I'm glad you agree with that.
Because you had no other choice but to agree with it.
I've told so many agents that they see the shiny object of these big bonuses and it's like do the math. What does that bonus equal over the course of say a ten year period? Is it three and a half percent, four percent? There's nothing that's paying for.
See I remember back in the day there was someone that had a 12% bonus and 8% compounded roll up rate. 20 years in the benefit base.
Guaranteed.
Guaranteed after income turns on guarantee. No, no, it's like you'd have 12%. So let's say you have $100,000. Then you would start with 112,000 on the income and the index value and then the income value was guaranteed to grow 8% compounded for 20 years or activation. So if you activated at year 11 that would stop. But the point was if you're going out of ways that product and a really good payout percentage, it dominated. But you knew I'd tell the clients to say, you know what if you wait 20 years to draw this out, your death benefit's gone. 10 to 15 years, I mean it's gone. This is just a pure income play. But you have to know the little well and then we can look at the one and a half time or two time multipliers on the long term care benefits. You know, I used to hear agents say oh no, this is going to pay out for five years. No, if that account value's gone guaranteed, the doubler stops and then it goes reverts back to the original income amount. So you've, you can't take your marketer's word for that. You can't take the insurance company's word for it. You have to know that you are the one that's responsible.
Yeah, yeah, yeah. And a lot of agents say, well how do you like if you can't take the insurance company, you can't take your marketing organization or whatever it is.
Because they're studying on the other side.
Right.
You know, I'm not saying the insurance company or the market is trying to mess you over. I'm saying they're human too and sometimes they misunderstand it or they just had a bad day and something didn't go through. I mean, I'm not knocking that at all. I'm saying this simply for this reason. It is the agent's responsibility to know how the product works, period.
It is, read the fine print, read the disclosures, know everything. Okay, the third strategy that we talked about was penalty free withdrawals. Now I will say just openly and candidly that of all four strategies, the idea of trying to use penalty free withdrawals for income is the worst of all four.
To me, I heard someone say, oh, I can take out 10% per year and I've averaged 14% per year in my annuity. I'm like, no you haven't. No, no, I have. No you haven't. You have not averaged 14%. And even that drives me nuts too is when you have agents going, you're going to average 9 or 8% in this index to new. No you're not. You know, there may have been a historical period where that did happen, but that's very rare.
The reason for me, Chad, that the penalty free withdrawals is just not even a viable option is that the moment you have a zero year or a zero two years or God forbid, three, your percentage of withdrawal has to consistently increase just to have the same amount of income.
Yep. Now it's the same thing. If you have, if you have 100,000, you lose 50% in the market, but you're pulling out $4,000. When you have 100,000 and now it's down to 50,000, you're not pulling out 4% anymore. It's the same concept.
And the concept applies to, even to indexing strategies. To me, I talk with agents about this all the time. The idea that if you're going to take withdrawals, whether that be RMD or income withdrawal or penalty free or whatever it is, you're pulling something out you want to simultaneously try and credit as frequently as you're drawing.
Go back to the number one thing. It is not income guaranteed income for life. It's that simple.
It's not. And that brings us to the fourth one, which is my favorite income riders.
For the right circumstance.
For the right.
Because I have no problem going, hey, your income. I love it when that happens. When they say, you know what, we both have pensions, we both have 100% survivorship, we pull in 10,000amonth, but we only require 3,500 live off of. Great.
Awesome.
That is so good.
Yeah, don't need it.
My biggest sale ever was a $4 million deal and they needed no income whatsoever, not even remotely. They had very reasonable expenses for what they had the capability of. They could have easily increased that. They had tons of money in the bank still another 6 million leftover and it just, it was fine. They wanted to take 4 million. They wanted to make sure it never went backwards. They knew they weren't going to get high crazy returns potential. I mean you could still get a 12 to 15% return in an index one year. But there's also going to be years where it's going to make zero.
Right.
And likely in a ten year time frame. Multiple years where it's going to make zero. Yeah, that's just how it is.
The thing to me about the rider, Chad, is that how versatile and how well rounded it is. Sure, you're paying a nine, ten to one and a half percent, you know, annual fee for it. But what you maintain control of the benefits that you have, the indexing strategies that stay relevant and the guarantees that you create on the income side, it's a very marginal amount to pay for a lot of opportunity and a lot of benefit there.
There's a lot to be said about just a peace of mind.
That's true. And you wrote stress in rocking chairs. And one of the things you try and do is mitigate stress, get rid of the stress while guaranteeing that they're going to be okay and they're going to be taken care of and their income's coming through regardless of how long they live or what the market does. That's what it does. The other thing, real quick, three things. If you use a rider, you don't lose the ability to annuitize you if you chose to later, it just becomes irrelevant.
Yeah, I was gonna say why would.
Yeah, but you annuitize, you lose the ability to do a lot of other things.
I mean there's some you can't, but yeah, there's a lot out there you can. But why would you, why would you.
You don't, you know, RMDs. For example, the RMD, if it's qualified funds and the RMD percentage is more than what the income amount is. Okay, you're gonna have to take that extra anyway. Yeah, there's no way, there's no way around that. And then you still maintain the penalty free withdrawal. So you're actually maintaining all three of the other strat income strategies, so to speak. But you're doing it with a whole nother deal. Like you're not losing those opportunities is what I'm saying. But you try and use those three in place of an income rider. Well, you've lost the ability to do an income rider. You can add that in retrospect most of the time. Yeah.
Yep.
So that was it.
That was three.
That was all four.
No, I thought you said there's three things at the end and then you just said two.
Oh. The three things were that you don't lose the ability to annuitize. Most of the time you still. If your RMD surpass the income amount, you're still going to have that. And you don't lose the ability to take penalty free withdrawals, even though it can reduce the guaranteed amount. Like you maintain all three of those other things. But if you try and do any one of those three things and not use an income rider, most of the time you can't add an income rider.
I just had to make sure you understood it the way that I understood it, which I didn't understand.
So I think it was because you were drawing it. Drowning me out again.
No, I don't do that intentionally. Yeah, I do. Okay, guys.
Actually is less offensive that it's intentional.
Oh, that's true. Because that.
Yeah. If it was unintentional.
Well, if it's unintentional, you might need to put me in a home because that means I'm drifting somewhere. Don't put me in a home, put me on the ranch. Okay. Okay. You have a great day. And of course, happy selling.
