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What Are Annuities?


Casey: So Lee, one of the questions we get, because we do offer other services, we do help other people, we protect them in other ways. 

Lee: Yep. 

Casey: One of the biggest questions, especially with the volatile rates that have gone on in people’s retirements, you know, they’re looking at those funds is what is an annuity? They hear these terms. It’s a it’s a pretty innocuous name with not a lot of detail.

Lee: Sure. 

Casey: I mean, if I say term life insurance, most people can understand what that is. But annuity, what is that?

Lee: Good question. So annuities are actually most of the time, a life insurance policy or product that’s got some financial product aspects built into it. Again, they’re very personalized products, and policies that we take a look at for people. There’s really three main types of annuities. Specifically, there is something called a variable annuity. We personally don’t do that. You have to have additional, certification for that. That’s not why we don’t do it. The biggest reason we don’t do it is because they’re more volatile. 

Casey: They’re variable. 

Lee: Right? They’re variable. They can go up. They can go down. You can lose money. We don’t like our clients losing money if at all possible. So we don’t do the variable. Which if you ever heard something bad about an annuity, having an annuity. 20 years ago my dad had annuity. It was terrible. It was probably a variable annuity. That’s why it was terrible because it lost money. We don’t do those. Okay. The two that we do help people with on the annuities are fixed and fixed indexed annuities. So fixed is kind of like a CD from your bank or your credit union. You get a guaranteed percent rate of return for it’s a year or three year, whatever it is, depending on your your situation and your needs, they lock in a rate with about 5% or whatever it is for three years. At the end of that three years, you can take that out. You can roll it in with something else, whatever the case might be. But with that, you generally don’t access that money. You know, you’re putting that away for those three years in that example, but you’re going to get a five or so percent return on that, on that money.

The other one, however we do even more is called the fixed indexed annuity. So the fixed indexed annuity, the floor is fixed which means you can’t lose money. Right. And we love that zero is your hero. Right. So when your friends are losing 10, 15, 20%, when the market poops out, you’re losing zero, right? You’re keeping your money. And that’s a big deal for the people that come into our office and say, okay, I’ve, I’ve built up this nest egg for my retirement, whatever that is. My number one priority now is to not lose it. I don’t have time on my side to gain 30% back over the next decade or 15 years. I need to protect that money.

So a fixed indexed annuity allows people to, one, protect that money. The indexed part of that annuity means that the money is not put into indexes or specific stocks, but the growth is tied to different indexes. So for example, the S&P 500, we probably all heard of that. Right? So the S&P 500 goes up 10% in the year. You get to participate with that growth. So what I’m saying is you get upside without the downside there’s no risk of losing money, which is a really big deal. Right? So rather than just getting a small percentage in a CD or a fixed annuity, which sometimes might make sense depending on the situation, but a lot of people say, hey, if I can protect it, know, for a 100% surety, I’m not gonna lose a penny. But if the markets do, great, I want to participate in that growth. I want that nest egg to grow. So that’s what a fixed indexed annuity does. They are very customizable depending on exactly what you’re needing out of it. 

So we talked about long term care. There are some that have a benefit that helps pay for long term care, right? That’s pretty awesome. There are some that you can leave in for five years or ten years or whatever the case might be, one that we do a lot of is actually a lifetime income benefit annuity. What that means you let that sit for however, a year or five years, whatever the case may be. But when you want to turn on that lifetime income, it’s like turning on a pension.

Casey: Yeah. Exactly.

Lee: Right? You turn on that valve and all of a sudden you’re getting a monthly check for the rest of your life. Now that’s you can do it. You can set it up where you. Hey, we only need that income for the next ten years, okay? So be it. But a lot of people say I don’t want to outlive my income. I want to keep that money coming. What if I live to 100 or 105 or whatever the case may be. I want that money to keep coming and it pays you for life, which is fantastic. What’s fun about those, too, is as those the value of your annuity goes up, it can’t come back down. So imagine the floor is zero, but when it goes up well that’s your new floor. And when it goes up again now that’s your new floor. It’s not go back to where it started initially. So as things go up it’s just a fantastic way to, to to protect your income. And to see it grow over time as well. 

Casey: I love that example because when clients are asking about it. They’ll say, well, what if what if my $100,000 – let’s say they did $100,000 because it’s easy math. Let’s say that I grew to 110,000 in a year. What if the market crashes the next year? Do I lose that $10,000 that I’ve increased? You don’t.

Lee: Nope.

Casey: That’s your new floor. And so you can tell that the two of us get excited about this for for lots of reasons. If you think about it, we’re coming in contact with people who’ve worked their whole lives. They’ve done all the hard work. And now it’s time in the last four years, right, for them to retire. And what has happened to the market?

Lee: Right. 

Casey: We’ve had these boomer years, these great things that have happened, this market that’s just gone like a skyrocket. And then what happens? It drops. And if they’re getting ready to retire at that time, it’s terrifying.

Lee:  For sure.

Casey: And so for us to be able to have that solution for people and and give them that protection, that shield like we’ve talked about before. Talk about a good news appointment. 

Lee: Yes. 

Casey: When someone comes in and says, hey, I got this amount of money, I got 20 or 30or 40. 

Lee: Yes.

Casey:  We’ve had people that had millions of dollars right? And they said, I want to protect this money. 

Lee: Absolutely. 

Casey: I love that.

Lee: Another cool aspect of the annuities is going back to the question a minute ago, as far as, you know, how do we get paid and that kind of stuff when it costs you one big difference with annuities, we get paid a commission. Okay, full transparency there. But unlike your broker that’s handling your money in the stock market, your financial advisor, they’re usually taking one and a half to two and a half, 3% every year of your money. It’s coming out of your account.

Casey: Plus the transaction fee!

Lee:  Plus this fee, that fee, this fee, that fee all coming out of your account balance. That does not happen with annuities. So the commission that we receive is a one time commission. And it’s the insurance company saying, thank you, Lee or Casey for helping this individual understand these options, helping him fill out the paperwork and get in a role and get it all set up. But that does not come. Not one penny comes out of your account balance. So that $100,000 example. Yes, we get paid the commission, but your balance is still that $100,000. 

Casey: Well, and because of the way that the market has been there, some of these policies, these annuities that are giving you what they call bonus money. 

Lee: Yep. 

Casey: We could talk about this for hours. 

Lee: Yep. 

Casey: But that bonus money just had a guy in the other day that had closed another account.  And was moving some money over to an annuity that we are looking at and he got 8% bonus on his money from the insurance company. So he took his… I can’t remember how much… let’s just say again, using $100,000. I don’t think it was that amount, but let’s just say it was now he gets $8,000 added to his money. And so, I love that. One of the things that I really like, and I’ve helped some families members with this with fixed indexed annuities, is the long term care benefit, that long term care benefit, if you have somebody who can’t qualify for traditional long term care because of their health. 

Lee: Yeah.

Casey:  This is a great feature. If you take some what we call lazy money sitting in your CD and CDs have done well.  No no, no poo poo on those, but they’re coming down. Rates are coming down. They probably will continue to come down. If you have some lazy money in a money market account or just the ones that blow my mind – they’re just sitting in their savings account getting .15% 

Lee: Ouch. 

Casey: Great. They can move that money into a fixed indexed annuity, protect themselves, give them lifetime income and a long term care benefits. So there’s a lot of options. I love what you said. These are highly customizable. If there’s ever been a product that is specific to a person’s situation I would say annuities are that product.

Lee: Yep. 

Casey: Very, very, very very special. 

Lee: Absolutely. Yep. Easy.

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