How To Accelerate Your Retirement Income With Annuities

We're going to be diving into some annuity updates in 2025. There's been a lot happening this year with our current administration, and there's a lot of things happening in the political world that is affecting our clients, both in good ways, maybe in some negative ways. And it's important you as the viewer, the customer, when you're looking at different kinds of financial products, how shifts in administration with new tax bills, new projects that are happening globally or even just domestically, even within your state, how it affects your finances. So just having the awareness, right, and being able to, you know, get, say, financial news, not just general political news, but like financial news that affects us ultimately helps you make better financial decisions or just having more awareness. So today, what I'd like to do with you, Daniel, since you've been in the industry for over a decade, so you've seen different administrations and how that affects the products that you provide with solutions that are attached to those products. Today we'll be focusing on just annuities. So you can do a little recap for us on what an annuity is, how they work, what they essentially, what's the purpose of them? And then dive into fast forwarding 20, 25. What's different, what's been changed.

Sure. Well, thanks for having me on, Denzel. I always love being here. And just to kick things off, you know, I've been helping people with annuities in retirement, like you said, for over 13 years at the time of recording this, over a decade. And, you know, an annuity is interesting, Denzel, because it can be as complex and as simple as you want it to be. The. The actual literal definition is it's a contract between you and an insurance company which effectively provides a guarantee. So really what that does is it allows you as the consumer, the individual, to transfer risk to an entity that's built to handle risk. And one of the risks that annuities handle, probably better than almost any income vehicle, is what we call longevity risk. So the risk of outliving your money. So I call this retirement insurance. Basically, if you're going to retire, you're going to need to create income from what you've saved. And an annuity is going to give you a guaranteed paycheck for as long as you live. And if you're married, you can set it up to take it as long as you and your spouse live, and it won't run out. It's going to provide that steady cash flow that you were used to getting while you're working for the rest of your life in retirement.

Gotcha. So we got annuity is a contract with guarantees. Right. A contract with a life insurance company.

Yep.

Right. Specifically, only life insurance companies provide annuities. Correct.

Only life insurance companies and what we call fraternal orders, which are essentially like life insurance companies. They're more like member run for their, for their, for their members. Kind of like a, almost like a credit union.

Okay, got it, got it. And you said something about longevity.

Yeah. So again, people are living longer than ever before. We know more about science, nutrition, medication, you know, overall fitness. And so the population of centurions, people living over 100, is the fastest growing population on planet earth right now. And so as people are living longer and longer, they want to make sure they have a guarantee that as they get less and less hands on with their personal finances and they age, that they're going to have a paycheck that takes care of them and have that income so they can maintain their standard of living without having to worry about. And that's really what an annuity does better than anything.

Gotcha. And then you mentioned retirement insurance.

Yeah.

What does that look like for the everyday person watching video?

That's what I call an annuity. Right. It's like if you, if you're approaching retirement and we see this all the time, it's a very daunting approach because you're looking at this journey where you might be 30 or 40 years without ever earning another paycheck. And so you want to make sure that you're going to have enough income for 30 or 40 years. That's a long time. And so I call it retirement insurance because basically you can just buy an annuity and it's going to ensure that you won't run out of money in retirement. And that's why people are flocking to them. You know, it's interesting, we haven't seen this many people buy annuities since right after the Great Depression. So right after the Great Depression, a lot of Americans lost confidence in the banking system as a, as a place to store money. And so they went to insurance companies because they saw during The Great Depression, wow, 50% of these banks failed. And there was less than 2% of any insurance companies that had even an issue. So they recognized, hey, these institutions are built for crisis, they're built for times like these. We want our savings to be guaranteed and insured, and we want to be able to know that it's going to be there when we, when we need it. And so we're seeing that again. Today, annuity sales are growing in the tens of billions, according to Limra, because Americans want control, they want certainty, and they want predictability in their retirement. For you and I, we can stomach some variables and some volatility, right? I mean, we could try some stuff. Doesn't work. It's okay. We're going to have time to keep working and make it up and we get to learn and grow and make mistakes. You know, when you're 65 years old and you've saved all the money you're ever going to save for the rest of your life, you really don't want that kind of variability or those kind of mistakes or that possibility of losing any of that money. And so that's really where annuities serve people the best. And the reason why I say they're the best for income is they're really the only vehicle outside of a pension or Social Security that can provide that guaranteed check. And what I mean by that specifically is what? Once you run out of money in that annuity, the checks keep coming. That's how you transfer the risk away. An insurance company can pool risk over millions of people and billions of dollars, and they can make sure that, hey, if your pot of money runs out, your income doesn't stop, your check doesn't run out, it goes on forever. So that's why people are using them, because they go, I don't know if I could manage my pot of money and make sure it doesn't run out. But if I can use the leverage and the benefits of a company that's built for this, I can get checks for the rest of my life with this pile of money. And so that's why I say it's one of the best sources of income. The other reason why I think it's one of the best sources of income is if you look at, and this ties directly to interest rates today. If you look at a 55 year old, and it doesn't matter what insurance company, there's 2,000 insurance companies in America. Most of them offer annuities, okay? So it doesn't matter which one you pick. But with the interest rates as high as they are today, Denzel, that 55 year old can go to an insurance company, they can transfer a portion of their, you know, 401k retirement savings, IRA, whatever, into an annuity. They can let that annuity defer for 10 years and on average, they're going to see about a 10% payout from their original deposit. So, so, so let me give you some numbers, okay? I Know you like examples and numbers. Say you have $100,000 and you roll it into an annuity at 55 and you're going to retire at 65. Well, at 65 you can contractually guarantee yourself a payment of $10,000, 10% of your original principal for the rest of your life. So where else can you go and put your money where you're going to get a guarantee that you could pull 10% of it out for the rest of your life? It's very difficult to do with other, with investments or other accounts. And so that's why the annuity is going to be the optimal choice for creating cash flow in retirement that's stable and predictable.

So 100,000, you're saying 10% at age 65. So 10 years later, yeah, someone originally puts in a hundred thousand one time contribution and let's say that was a rollover from a qualified retirement account, such as a 401k, a tsp, a 403b, a 457, any really kind of retirement account that's provided by their employer or even if they're an entrepreneur and they're, they've been contributing dollars into this account that's going to unlock after 59 and a half. And instead of taking distributions directly from that account, you're saying it's more efficient to roll some of those dollars into an annuity 5, 10 years ish or less before you're actually going to retire.

If you have a shortfall in what you need to live your basic standard lifestyle and expenses. So for example, let's say with your Social Security and let's say you don't have a pension, but you have Social Security. And your Social Security payments going to be, let's just say $3,000 a month. But let's say you need $4,000 a month to live your ordinary lifestyle in retirement. Well, what we would do is we would come in and fill that thousand dollars a month with a guaranteed lifetime income annuity payment. So that way your Social Security and your annuity are going to meet your minimum threshold, your criteria for your basic standard of living. Now again, we would be intentional and go beyond that, right? We would look at Tom Hegna calls us having a paycheck and a playcheck. The paycheck covers the bills, the playcheck covers the travel you've always wanted to do, the mission trip you've always wanted to do, the giving, you know, to your grandkids or whatever it is. You know, we would cover that with guaranteed lifetime income as well, but if you do that properly, Denzel, and that's always step one in our process at nations first, if you do that properly, then you've removed the risk of ever running out of money because you're going to have that filled with a lifetime guarantee.

Okay, got it. So we're looking at, in your example here, someone being 55 years old and this is relevant to today's rates, is what you're saying.

Very relevant.

Very relevant.

More important than that, because like we talked about, I've been in this space for over a decade. So I worked in 2013, 2014, 2015. Rates were very, very low and they remain low for a long time now because of this inflation we've had and we've had the largest and fastest rate increases we've ever had, meaning we've had higher interest rates previously. In other periods of US History, they've been way higher, but they've never gone up this much this fast, ever.

Okay.

And so that creates an opportunity because now you have an administration in place that is very vocal about wanting to lower the rates. They want to get rid of Jerome Powell. Trump wants to get these rates cut. He knows that's good for the real estate market, he knows it's good for the stock market. He knows it's good for the economy in the short term. So he wants to lower those rates. So I've been on a mission going around the country telling people, look, if you're approaching retirement within the next 10 years and you're looking at securing a portion of your portfolio with guarantees, this is literally the best time in the last 30 years to do it. Because if they cut those rates, that will lower that example I gave you earlier, it'll lower the payouts of annuity.

Okay. So the distribution rate comes down based off of whatever the rates are, and that's based off the federal funds rate, or is that based off prime? What?

So it's interesting, right, because not all interest rates are equal and they don't move equally. Right. The fed funds rate drives everything, but then they really goes off of the bond market. So annuities are basically looking at the 30 year bond, and that's what insurance companies are able to purchase to be able to back these annuities up. And so they're looking at the bond market. So as those interest rates fall, the payouts that the insurance company can offer through the annuity fall as well. And so they're directly correlated.

So when rates were increasing, the life insurance companies are purchasing those 30 year bonds at those higher rates essentially. And yeah, and they're passing through those.

Increases immediately in real time.

Say that again.

They're passing through those rate increases immediately at real time. So that's where the value of a good independent insurance agent comes in. Denzel like for us, you know, we have a software that tracks all the companies in real time and they're all competing. So again, for me, I'm not loyal to any one company. I'm not like a specific insurance company captive agent. I work with basically any company I want and so I can look at who's got the highest rates and they're competing. And so it makes it fun because that's where we can offer some value. We can go to people who either have annuities right now and they can look at exchanging them for higher rates or we can just look at people that are coming into the retirement preparation mode and we can try to help them pick the best rates with the highest rated companies we can find.

Got you.