What the FIA?! The Retirement Hack You've Been Missing
Hello and welcome to You're An Asset. I'm your host, Casey The Dollar, and on this podcast we find out who's an asset in the financial industry and who's just an ass. On today's show, we're not gonna be talking about an individual who's an ass or an asset, today we are gonna be talking about an actual asset – an asset that, that I believe is valuable, that I've brought to my clients as a valuable option for their money, for their retirement, and that I think more people should know and understand. By the end of the show, you might see that this is an asset that you should contemplate taking advantage of for yourself.
So on today's show, we're gonna be talking about fixed indexed annuities, or FIAs as some might call them. And we will go over pros and cons of an FIA and we'll compare them to other products that maybe we've talked about before. I just wanna say that the punchline of this show is very much me calling people out for doing things that I don't think are appropriate when it comes to handling people's money and well, which is all fun and games, right? But there's a lot of important financial accounts or products out there that you can take advantage of.
And a lot of times they're given a bad reputation. Annuities are one of them. Annuities get a bad rep. And they've come a long way. But sometimes once a product has a bad reputation – it's over. A product is kind of written off. And it's unfortunate because life insurance is the same way and annuities are the same way and both these assets, if you ask me, are extremely beneficial and valuable to the consumer when it comes to protecting their money. And I wanna talk a little bit about why annuities might have gotten a bad rep in the beginning and how they've changed, to hopefully give more information about why your grandma or grandpa might say "annuities are a scam. Don't use an annuity."
So that being said, annuities have been around for a long time. A long time, and their main purpose when they were created was to be a safe place to put money, a product that would guarantee your principle. You put in a hundred thousand dollars, you have a hundred thousand dollars guaranteed.
You might not see much growth, but your money is protected. Most annuities we're offering maybe a three to 4% annual return on investment, right? Which is very minimal. Doesn't beat inflation. We know that. But they also provide extra healthcare benefits. A lot of annuities come with critical chronic and terminal illness rider.
They come with long-term care riders. They can come with extra benefits to help you if you end up in a nursing home. Or you need extra care when you get older. So annuities offer a variety of different things to the policy holder, and depending on Your opinion of how you mitigate risk, you might think, ah, it's a small return and I'm not gonna get sick. Right? Nothing's gonna happen to me. And you would rather put your money somewhere where it could earn 15, 20% interest, but you're also willing to risk it. There's this common. Problem in the financial industry. I think that people are so focused on accumulation and they forget that there are products out there that can help them in the event of a serious illness. I mean 65% of people in retirement age have a chronic illness. I mean, in a chronic illness, it can be diabetes. Alzheimer's, dementia, rheumatoid arthritis. There's a lot of different chronic illnesses and not all of them are covered when it comes to annuities or life insurance, but the amount of people that get an illness and have no way to offset the cost of said illness and the hospital bills, medical bills is really unfortunate. And so these annuities kind of got overlooked. They were called a scam because why am I putting my money here when it's barely growing, it's not beating the market. And then coming later on in life and getting an illness and going, holy shit, I don't have anything to help me.
And I have to go and liquidate that brokerage account, liquidate my ira, sell my. Or all three A, a combination of, different things that you're having to let go of just because you have medical bills. And I wish people knew more about these products that can offer them these different benefits because these benefits could be lifesaving. So, without further ado let's get into fixed index annuities and for the rest of the show, I'm gonna call them FIAs. Okay. So one of the biggest advantages of FIA is their potential these days. For high returns. When annuities first came out, I mentioned they were earning maybe three to 4% and offering the extra healthcare benefits.
These days, annuities are offering market-like returns. I have clients that are putting their money in an. In an annuity, in an annuity, in an anemone, I feel like that person from finding Nemo. That person, that fish, but um, in an annuity I have clients putting their money in annuities expecting to see anywhere from an eight to 10% return each year, not because they're hoping for the best, but because that's what the annuity carriers are seeing for their policies, is that they're having returns of upwards of 8% per year, which is huge. Now, if the annuity is getting market-like gains, is there a potential for.
There is not, there is no potential for loss inside an annuity based on the market. So your annuity has a 0% floor. Annuities having a 0% floor means that your principle is protected from a market crash, and then the ability to earn high market light gains is something that is. Offered in cash value life insurance.
It's the only other place that you can get this 0% floor. You're capped on your losses. And then you have a market like gain potential where we only benefit off the growth of our economy. The IUL and the FIA are gonna be very similar in this way. Making it a huge advantage. When you're getting close to retirement age or you're just sick of losing money, or maybe you're not a risk taker, maybe you like the idea that you don't have to worry about your money disappearing because of a crash.
Having a 0% floor and the ability to gain interest off the S&P 500 is huge. It's extremely valuable now.
Another advantage of an FIA is that there is potential for a lifetime guaranteed income. So there are a variety of different products out there when it comes to an FIA there are dozens of different options when it comes to this product and working with the right person.
is a really big deal. Some products are going to offer better indexes and higher accumulation, better caps on their index. If you're not familiar with what a cap is, it just means that they'll cap your growth. Just like you capped the floor, the losses at 0%, you might see that indexes inside your FIA are capped at 10%, meaning that's the highest amount of interest you can earn based on that index in any given year, which is not a bad thing if you understand the.
protection with the 0% floor, then you could see that it would only make sense that you can't gain 30% and take all of the earnings. When you have a contract with an insurance carrier for an FIA, you're basically in a business deal with them. They want you to make money, they wanna protect your principal, but they have to earn money.
Right. So they might cap you at 10% so that they can collect the extra one to 2% off the growth of that index. You're still the one making the bigger gain. But so there are accumulation FIAs out there that work on growing your money, protecting it, accumulating as much as possible, and giving you opportunities to track historical and well-performing indexes.
if you're a young person and you have a 401k, an ira, a Roth a brokerage account, or even just money in your savings account that you are looking for something to do with, but you're not really looking for a risky investment, then something like an annuity can be extremely beneficial to have that peace of mind that your money is not disappearing and you're still going to earn interest and grow your funds. So if you're young, I would recommend that you start only with an accumulation product, right? Not one of these products that offers lifetime income benefits, the healthcare benefits for nursing homes and inpatient care. All of this is something that can wait until later.
With your annuities, you're allowed to have one product for a set period of time and then transfer the funds to a new product where you want different features, which is where that lifetime income benefit rider comes in. So, for example, I have a lot of younger clients who have 50 to a hundred grand in a 401k and they just don't wanna spend the next 20 to 30.
Wondering if it's going to pan out well. And so instead they come to me and they say, Casey, what are my options? And I show them an annuity that is focused on growth with the idea that when they get to 50 years old, 55, 60, and they're ready to guarantee themselves an income, now we use a different product.
So there's a lot of strategy that goes into picking which product is right for. Which has its benefits, right? The fact that there's not a one size fits all and that not all of the products are just focused on retirement and extra healthcare and making sure that you have funds in case you get sick or injured, right?
So, It's not just for old people. These annuities I have as young as a 27 year old that has two annuities right now. And you know, and she's on track to grow those annuities to be over a million dollars because she has so much time and even if we don't get to the million, she never has to worry that money is going to.
Ever. And that's, that's honestly the biggest point here is that they guarantee that principle. I don't know that there's any other product out there that guarantees your entire principle that it'll just sit and be kept safe from the market. That's why they're called Safe Money products.
it really comes down to how much you're willing to lose and which option is the best for you, right? Because the same 27 year old that has an annuity probably doesn't have money in the stock market, but then there's a 27 year old who puts all their money in the stock market and is not even thinking about it.
Safe Money products, they're focused on growth and accumulation. And one day they're gonna need a safe money product to redirect their funds to, I mean, I guess it's possible that they wouldn't need it, right? But I don't know that anybody walking on earth at this very moment in time could honestly say, I don't need safe money products.
Why would I do that? The economy's great. The economy's great. Yes. The S&P 500 always returns. Of course it does. Of course. It always returns something, but I mean, there's been years where you just see 0, 0, 1 and a half, three zero. Negative 38. Yeah, I mean, gosh, I'm so used to talking about IULs that I'm sitting over here going 0 0 3, when in reality it's negative 20, negative ten three percent, negative 15.
Again that's realistic of where people are putting their money. Your annuity and your i u o 0 0 3 6 0. Zero is your hero, is what they say in this industry. And it's not just about IULs, it's the FIAs too. The idea that you have 0% years instead of negative 10, negative 15 means that you stay the same as you were. Everyone saw a loss. You saw a 0% year, but if you had a hundred grand and it's a 0% year, you still have a hundred grand and the next year, if we only earn 3% fine, you still earn 3% on your a hundred grand and now you have more to compound on the year after.
Whereas someone else who actually had to sit through the down market is having to earn all of that money back that they lost. And more. Because if there's a 10% drop in the market, you need an 11.2% return to get all of your money back. It is not just a 10. For a 10. It's – you lose 10, you need 11.2. What if you lose 35? You need something like 56%. Something insane might be more like 53%. I have a sheet over there. I could go look at it but either way, you have to earn a lot more than what you lost. Just to break even. Just to break even. Not having to sit through the negative years of the market, which are gonna happen no matter what, is extremely beneficial, more beneficial than people wanna believe, because what it's boring is that the problem, that it's boring to protect your money. Breath, I'll protect my money all day. instead of going through a market crash. I'm a young millennial, if US millennials didn't learn, The stock market is risky and that you could lose everything.
After watching all of the trauma happen to people over their money over the last 20 years, what did we learn? I, that's what I learned. If you asked me, what did I learn from the generation before us? It's that we have to be better with our money. We have to put it in places that make us feel empowered and that protect our money because it will go away and you can't.
You will never know when the market's gonna crash. You just won't. the trade off of capped at 10% for the protection that's, it's worth it to me. I would. I would think that if more people understood that capping losses and gains is beneficial to them, that they would take more advantage of it. But they hear capped and they say, oh they're taking money from me.
They're taking what I should have earned, so I'm gonna put my money elsewhere so that I can get that extra few percent on my investment when a few percentage points is not going to change your life, it's not gonna change your life. I think about it all the time, like when I go and spend a good chunk of money on something, say like your car breaks down or you know, you're moving to a new place and all the moving fees and your security deposit that money.
I think sometimes like, “what if I didn't do that and I still had that?” I would've spent it on something else. I would've spent it on something else. We all would have. If the money is there, unless you're a money hoarder or one of these savers that just collects every penny and every dollar, you are not going to notice that you spent 500 bucks or a thousand bucks on something.
you didn't get it. Who says that? Nelson Nash says Parkinson's law. If we have money, we're gonna go and spend it. And so a few percentage points here and. Is not making a difference. But I'll tell you what, a negative 35% crash is making a huge difference. It's making a huge difference. Now, we haven't talked about the fees of the annuities, right? Because I keep saying that the principle is guaranteed, and this is, this is a great thing.
Not all annuities are gonna guarantee the principle. Not all annuities are going to say, you know, the average rate of return is around 8%. Everything that I talk about on this podcast is specific to the products that I work with and that my team Power 3 Financial works with.
If you want access to these types of products, you need to come talk to us, cuz I cannot guarantee that you will find the same features if you go some. And I'm not saying that because I want your business I'm, I'm being completely transparent that I've seen some, shitty FIAs and that I've seen some incredible ones.
So it really depends on what products the agent you're working with has in their hands. So just be mindful of that. If you are searching or shopping around that, what I'm saying is not. Collective thing about all annuities. And do your part by asking the right questions, listening to this podcast and figuring out what you want.
Right? So let's continue. The fees. The fees on annuities are sometimes non-existent, at least in my experience. Right. I have several illustrations that we could go through where a client has put. Into an annuity with the idea that they wanna accumulate funds, they wanna protect their principle.
Majority of my clients right now are not setting up a lifetime guaranteed income because I have a lot of younger clients and even my older clients who are in their fifties, they're still not ready to take that lifetime income benefit and they want to grow their money. So the majority of my clients are in accumulation FIAs so that we.
Try to double, triple the amount of money they originally contributed and then create a lifetime guaranteed income for them. I have a company here that I have a client who was rolling over the money in his 401K and wanted to put it somewhere safe. He actually happens to be 61, so he is a bit older.
Than other clients that I have. But he is ready to put this money to work and actually keep it growing. His entire 401k had about 1.5 million in it, and instead of taking the entire thing and putting it into an FIA, we are gonna take a portion of it, 800,000. Right? Because he has other things he wants to do with his money and his life.
He has the opportunity now to liquidate his 401k because he's passed 59 and a and he doesn't have to put it all into one place. He can decide to liquidate a portion of. Pay the taxes. Right? Which is a whole other thing. But if you have a 401K and you liquidate any portion of it, there are taxes due.
And the other portion that he wants to roll over, he wants to roll it over into a fixed indexed annuity because doesn't wanna worry about it anymore. However, he's not ready for a lifetime income because he's only 61. He's 61. He is young. And he's still working. He's still working. He's still making money.
We were looking at a FIA that was only seven years long. It's only seven years long, meaning that for seven years, the money is in a way locked up. Is it accessible? Yes, absolutely. 10% of the money of the entire value of the account is accessible. Each year. He can touch 10%. If you want to touch more, there's gonna be a slight charge for touching more.
It just depends on why he's touching it and at what point in the product's life that he's touching it. But then at year seven or after year seven, the policy is up for renewal or for transfer, and that's when we will put him into a different product that offers guaranteed income. Right? Or maybe he wants to go for a product that offers more healthcare benefits and an income, he'll have options, right?
And I'll be able to present him with these different options of what he could do. But for the time being, Let's say John, right? John has 800 grand and I am gonna illustrate some different numbers for him to help him make a decision about what he should do with the money and try to figure out this strategy with him.
So I present him, Hey John. If we take your 800,000 and we roll it over into an annuity, there will not be any taxes and there will not be any penalties. You roll it over for free, free of charge, The guaranteed illustration cuz all illustrations for insurance policies or products as annuities are an insurance product.
They are gonna offer your guaranteed illustration or projection and then your non guaranteed projection. Right? a guaranteed projection is basically a 0% return every single year. And it's guaranteed because it's just the money. And the product and what it costs to keep that product open and to keep that money safe, whereas your non-guaranteed projection is not guaranteed because we can't figure out what the market's gonna do for the next seven years in a row.
There's no way to figure out exactly what's gonna happen, so we can't guarantee anything. Right. We could see. Higher projections than what I show John. And we could also see lower. It all is gonna depend on what happens in real time, but so that's that big difference between your guarantee and your non guarantee.
Anything that's indexed to the market, your IUL and your FIA, the growth is not guaranteed because S&P 500 could go to the moon or. Go to negative 35%, it could go, yeah, I go all the way, all the way to the bad place. And so no guarantee is there, right on interest. So when you look at an illustration for an annuity for an FIA and you see the guaranteed numbers, what I see over here is the charges coming out.
If there are charges, and I'll explain what those are, but what I also see is that in seven. The client is guaranteed $857,991. His minimum guarantee is $857,991. Yeah. And still gained 7% over a seven year period, which is not much. 800,000 only. Only earning 57 grand is not huge. However, they're guaranteeing that if you roll this money over, you are not going to see a loss. The worst thing that's gonna happen is that you're gonna gain 57,000.
Damn terrible. Safe money products. Boring. I mean, to me that sounds exciting. I don't know. It's about you guys. It sounds exciting to me. The idea that there is a place to put money where you can be sure it's not going anywhere.
Half of the time. I asked myself, how is it that we are all so focused on 401k, When they're not working for people, when they're not working? The average balance in a 401K for a 65 year old was something like 120 grand. 120 grand when you hit the retirement age of 65.
Forgive me, but this isn't, that's not going to do shit for you. It's not gonna do shit for anybody. You start taking money from this account, it's gonna be gone. $4,800 a year at the 4% rule. That's it. That's the average balance of a 401k for somebody in their forties, fifties. It was somewhere around 60 grand, 60 grand.
This is not beneficial. This is not helping people, but we're so stuck on, but the market will return and just hold on. Just hold out for the market to come back. Why? Why? That's what, yeah. That's what the assets under management people want. That's what your financial advisors who are collecting a one to 2% fee every year are.
They don't care if you lose money, gain money, they don't care. They still get paid off of the value of your policy. Insurance agents are not like this. Insurance agents who are able to sell FIAs and life insurance, they get paid a one-time commission, whereas your financial advisor is getting a yearly percentage of the overall value of your.
And that is eating away at the accumulation of your account as well. Which, yeah I don't have to go farther into this. We're definitely gonna talk about these situations in the future as far as financial advisors versus insurance agents and what's really happening there. But if I go back to the guaranteed numbers on this illustration you know, the account is showing that it's gonna hit a million dollars over a million dollars in 13 years.
So if John kept this annuity open for a while, he could take his 800 grand guarantee that it is going to grow and then roll the money over. Part of the reason that there are fees inside this guaranteed illustration is because we have the. To actually add fees to our FIA, and that's through the index allocations that you choose.
So for listeners, if you're shopping around, you're looking for an annuity, hear this. The indexes that you have the option to allocate your funds to, some of them have a fee added to it. Not all agents are going to present you with the option of, Hey, do you want a fee index or do you want a non fee index?
Because a feed index potentially could grow your account, right? It's not making the agent any money, but it's making the insurance carrier. Money, of course, right? Somebody's getting paid if you're adding a charge to your policy. So I do see a charge here because my client said, Hey, I will take that one and a half percent fee to have a possible higher return on my money.
That was his choice. I have clients who want zero fees, and when we look at that column, On the illustration that says charges, we see 0, 0, 0, 0, 0. Which is how it's possible to have an annuity with zero fees. This is something that we market ourselves on my website and through different documents that we share with clients, is that annuities are really great because they can be set up and have zero to no fees which is huge.
And I don't think people understand that there are FIAs out there that are very low cost to no cost at all. It's when we start talking about the lifetime income benefit and the extra healthcare benefits and all of these extra things that you can add on.
And whether that's worth it or not, right? But if we're talking straight accumulation, we're gonna see zero fees inside that projection and that's how it's gonna stay. The fees just by higher participation rates, and participation rates is a new word For people listening. But it has to do with IULs too. So let's go over it. Participation rates, these things that you could pay a little extra for to see a higher return inside your f i or your IUL.
a participation rate says how much of the growth of an index you will participate in If the S&P 500 has a participation rate of 120% and it returns 10%, you would be credited So you get extra growth even though the index didn't perform that way, you are paying to participate a little bit more in the growth of that index.
So you can pay for things like that. Usually it's not the S&P 500, usually it's indexes like the Fidelity or the Nasdaq or the Credit Suisse or the global s and g. There's a lot of variation of indexes and that's really besides the point. Because when you work with an agent who is knowledgeable and is able to help you choose the correct indexes, they should be pointing you in the direction of, Hey, here's the participation rate.
Here's the participation rate that you can have for a one and a half percent fee, and do you want to do that? Right. But the index itself doesn't quite matter. annuities. Give you lots of options. You might have 10 different options to choose from, and the person you're working with should be able to tell you, Hey, these are my recommendations for your policy.
And another thing on that note is just my personal recommendation and the way that I allocate indexes. All of my clients, whether it's an IUL or an FIA, want your money allocated to at least three different places. Do not allow somebody to put you into one index, a hundred percent of your money in one index, like the S&P 500.
If you do that, if all of your money is allocated to one place, the odds that you'll earn interest in any given year is only 75. It's not bad, but diversifying the funds into at least three different places is gonna give us a 95% chance of earning in any given year. It's the old saying of don't put all your eggs in one basket.
Same goes for most things when it comes to money. If you put all of your eggs in one basket and that basket collapses, you got nothing. If you got three baskets, One of them should do something for you, right?
And so diversification inside the policy as far as the indexes go, is what you want. And again, the person you're working with should be able to recommend three of them. And if they can't, I would say red flag. Okay. we're back to John. John has his 800 grand and I'm now showing John the non guaranteed numbers. So based on the three different indexes I allocated to, I am seeing here and able to show John, Hey, if we put this money away for seven years, I am seeing a projection of 1.4 million inside share of policy.
800,000 to 1.4. We've almost doubled our contribution in a matter of seven years. 75% return already seven years down the road. Now what I also see on this illustration are the projections of interest. Right, which I think are very interesting because it's very realistic to how our economy works.
It's very volatile. The first year I see a $98,000 gain on investment, second year is $128,000 interest earned. The next year is only 17,000. All right. And we have several years of only four grand earned, and then we see 198,000 earned. Yes, we're talking about a large amount of money to begin with, and not everybody has 800,000 in their retirement accounts, but it's very possible considering a million dollars in a 401K is a lot of people's goal.
Right? So having 800,000, you're almost there. And now I'm sitting here telling you, Hey, if you took that. And you put it into an FIA, we could turn around and grow it by 75% in a matter of seven years, less than a decade. This is huge. If John wanted to keep this annuity and he wanted to turn it into an income, this specific product that I showed him for accumulation doesn't offer a lifetime guaranteed income, but other products from the same carrier do.
But Even so if he wanted to use this exact product for an income, I was able to show him that by year seven he could take a $90,000 income for the rest of his life for the 800,000, overall, What I want you to take from this is that there are safe money products out there that protect your principle and still can accumulate great wealth inside of the policy by tracking indexes.
And you don't have to be this brilliant investor or somebody who times the market. You can let a product like an annuity keep your money safe and grow based on. Only the gains in the market and it's a great benefit for anybody. Now, I've mentioned that young people can do this. Of course they can.
Young people can take advantage of annuities. There are some caveats though, and I want to go over those. So if you are younger than 59 and a half and you have a 401k, a Roth brokerage account, money and savings, and you are potentially wanting to take advantage of an annuity, well, When you roll over funds, you can only roll them over if you are not working for the job or the employer that gave you the 401K or the ira.
So for any of these well-defined contribution plans, you have to have left that job that gave it to you, and you have to be in this period where you have the opportunity to roll it into something new. No matter your age, there will never be taxes or penalties for rolling over money Into an annuity.
Once you're 59 and a half, you don't have to have left your job. You're able to roll that money over whenever you would like. Now, I mentioned that you could roll over a brokerage account and your brokerage account is actually no, not subject to you having to leave your employer, right, because it's a brokerage account.
It's something you're doing in your spare time with your disposable income, and same thing with your savings. At any point, you could take that money and roll it over into an annuity. No taxes, no penalties. You are able to actually touch that money inside the annuity because it wasn't a well-defined contribution plan.
There's gonna be no penalty for touching the funds. Now some products are gonna have different stipulations for accessing the money inside your account. So again, work with someone who understands what your goals are so they don't set you up in a product that is not. For you. All right. But that was the point I wanted to make, is that if you have a well-defined contribution plan, you're under 59 and a half, you have left your job, you roll over your money into an annuity.
You still can't touch it. Unfortunately, you still have to be 59 and a half to be able to touch the money, but hey, guess what? You wouldn't have been able to touch it if you left it in your 401k either. Now I know there's some new rules out where for certain things, certain life events, you can touch some of your 401k, but there's a lot of stipulations that go with that as far as repayment planS&Penalties for doing it.
Be sure to check with the company that has your well-defined contribution plan and see what their stipulations are for accessing your money before you go and access it. Everywhere's a little bit different is what I've learned in my experience. But either way it does make sense, right? If we take a qualified account and we move it over into something else, it's still considered a qualified account. The government's still gonna be up our ass if we try to touch it.
And that's just how it is. That is just how it is. That's all for today. Be sure to tune in next time for the You’re An Asset Podcast where we find out who's an asset in the financial industry and who's just an ass. I'm your host, Casey The Dollar, and see you next time.