Disadvantages Of Fixed Index Annuities - YouTube

Hi! Stan, the Annuity Man.. And today's topic is the disadvantages of fixed indexed

annuities. We're going to cover everything. We're also going to talk

about the benefits. Because all the Duty types have benefits and limitations. But

at the end of the video, you're going to understand how they work.Aand you're

going to understand if it fits with what you're trying to achieve. In addition, I

encourage you to go to this video. "What is the lifetime income benefit rider?" And

check that out as well. Because it correlates in line before

we're talking about today with fixed indexed annuities.

Okay, we have a lot to cover on fixed indexed annuities. So, I'm going to go

over, you know, what is a fixed indexed annuity? How does it work? What does it

solve for? The limitations and benefits. At the very end, I'm also going to talk

about how it fits in your portfolio. And even if you... You might not even need one

after you get all the information, which is fine. You need to make sure you

understand the limitations and benefits and how these things work before you

pull the trigger and put one in your portfolio. Also too. At the end of this

video, hang in there with me because I'm going to tell you how to get a free book

that I've written on fixed indexed annuities and also a free book on income

writers they'll give to you for free. So, what is a fixed indexed annuity? It was

designed in 1995 to compete with CD returns. Need to understand that. CD

returns. Not the market. Not how it spits. Not how you see it on TV. The bad chicken

dinner seminars that Saturday morning radio show. It sounds too good to be true.

Remember this: If it sounds too good to be true, it is. Every single time without

exception with annuities. Annuities are contracts. Understand what's in the

contract. The contractor that indexed annuity is, it's fixed. It's going to

protect your principle. The upside gains if any, are based on a call option. And

we'll talk about that a little bit more in depth. But it's limited. And

historically, it's going to create CD type returns. Are their nominal years

where it does better? Of course. But the blended returns, you should expect CD

type return. So, that's a fixed indexed annuity? Before we get to the

disadvantages and the limitations of an indexed annuity, let's kind of talk a

little bit more about how they work. How the sausage is made, for lack of a better

phrase. In essence, it's a fixed annuity. Now, the gains are attached to an index

call option. Typically on the S&P 500. Not including dividends. But let's just say

for instance you bought on April 7th. And the next year April 7th, you get to lock

in any gains. If any. I mean, there might not be. But if there are any gains up to

that cap or limitation that the annuity company puts in place. Which by the way,

they can change at their discretion and typically change every year. Also, you can

add income benefit writer to the policy at the

time of application if one of your goals is future income. So, if you draw a line

down the middle of the page, this side would be the index option side and this

side over here would be the income benefit side. Two second calculations but

you can have the principal protection side of the CV return. And a future

income benefit on the other side as well. So, what do indexed annuities solve for?

It's a pretty basic. Fixed indexed annuities. The fixed part is principal

protection. That's the first thing. It also can solve for CD type returns. Maybe

some years a little bit better than that. But that's historically what they've

done. And they can also solve for what I call income later. Future income

guarantees. If you attached an income rider to the policy. So, that's pretty

much what index annuities fixed indexed annuities solve for. Now, let's talk about

the disadvantages of indexed annuities. Now, ironically and people say, "Stan, do

you hate index annuities?" No. Their fixed annuity. They do exactly what they say

they're going to do which is provide CD type returns. They're a very efficient

way to deliver future income guarantees using a lifetime income benefit rider.

But I think a lot of the disadvantages right now are revolving around the sales

message. You know, what's happening... Mark it up side with no downside. They

use the word hybrid. By the way, hybrids of car, hybrids of plant hybrids of

mattress. If someone uses the word hybrid, they're trying to sell you indexed

annuity. Okay, it's an fixed index annuity. They're just trying to polish it

up. And make it a shiny thing. It's a contract. So, most of the negativity

around this product is with the overhyped sales pitch. And again, if it

sounds too good to be true, it is every single time. So, disadvantages

contractually is there's limitations on the upside. There is no market upside and

all of it with no downside of the roof. That sounds fantastic. That's like saying,

"If you take this pill, you're going to have a six-pack abs."

Doesn't exist. The other, doesn't exist. You have to be smarter than that. You

have to filter out the sales pitch that you're getting with indexed annuities.

Now, if you want a CD type product and have the possibility get

better than CD type returns, then it works. Unfortunately, I'm not going to say

unregulated sales message because you know, it's not the carrier's fault that

someone is saying something crazy about the product. But the agents and advisors

need to kind of self-regulate a little bit. And just say, you can't say that. You

can't pitch just the good things or just the potential hypothetical theoretical

back tested hopeful agent return scenarios. You have to tell them the

historical returns. You have to tell them that in 1995. It was designed and

introduced for CD type of returns. And it's also an efficient way to deliver future

income with an income benefit rider. But the negatives are really driven by the

perception and the stories that are out there in the sales environment. Let me

give you some specific examples of some of the negative messaging around index

annuities. Number 1, a lot of times they're sold with what's called the

front bonuses. Understand there's no philanthropists and annuity companies

that wake up in the morning and say, "You know what? I think I'm going to give money

away to the public because I love them." Doesn't exist, okay? There's no

philanthropist out there. Upfront bonuses, it's not free money. It's just part of

the overall contractual guarantee. So, don't turn to your wife and say, "That's

great. They're giving us free money." No, it's not free money.

There's catches to it's part of the overall contraction guarantee. The other

thing that's happened out there is people will call me up as, "Hey, Stan. I

just bought an 8% annuity." I love that voice. "An 8% annuity." No, you didn't. You

bought a lifetime income benefit rider that's growing at 8%.Tthat's not yield,

it's monopoly money. And it can only be used that calculation to calculate your

first income payment. Draw a line down a blank sheet of paper visually. This

subset index option side, the CD return type. This side here is at 8% side. No

Jimmy Carter's not in office. There's no 8% CDs, there's no 8% yield,

okay? But your income amount grows by 8% every year. You can't peel off the

interest, you can't cash it in. You can't transfer it. You can only use this to

populate your first income paying when you decide to turn on the income

stream. But too many times, people think that that's yield. It's not yield. Nothing

wrong with it when you understand how it works. But Jimmy Carter's not back in

office. There's no 8% out there. A couple of

other negatives perceive negatives out there. Number one, the annuity companies

can change the rules on how the index option games are calculated. I mean,

that could be good and bad for you, right? But you have to understand that. Also, on

these options like for instance, if there's a call option on the S&P 500,

that is not including dividends. And that's a big deal, why? Because

historically, over 50% of the returns of the sp500 are dividend-based.

So, the S&P growth during that year contract anniversary date the contract

anniversary date with most policies but not including dividends. Key point to

understand and the negative limitation. And finally, I think one of them bigger

limitations but you just kind of need to know about it when you buy and fix index

annuity and the attachment income rider to it.

First of all, those income riders vast majority of them have an annual fee for

the life of the policy taken out of the accumulation value site. So, none of them

draw a line in the middle page, accumulation value index side, income

rider side. The fee from this comes out of here whic limits the upside,

right? In addition with most of these income riders that are growing by 7, 8%

or 6%. Whatever it is. They're all different, okay? That fee is increasing by

that percentage every year it defers. And then when you lock it in, it locks in

that annual fee for the life of the policy taken out of the accumulation

value side. I'm not saying it's bad. I'm just saying it's important to know and

you need to know that. Because if you're buying it for the income Rider, it

doesn't matter really because the income rider is the guarantee that you're

buying. Also too, if you attach an income rider to an indexed annuity, 99.9999

percent of the time, the income Rider value is going to be higher than the

accumulation value. Why is that important? Because you can't transfer the Sun. You

can't transfer the income benefit total sight, right? You can only use it to

calculate your first income payment. It's a very, very savvy way for those big

annuity companies with the big buildings to hold on to your money because you've

got to turn on the lifetime income stream to access that total amount. So,

let's talk about the advantages, the positive the benefits of fixed indexed

annuities. Number 1, their principal protect you're never going to lose money.

And that's a good thing. Number 2, any type of games from that indexed option

strategy even though they're limited, they're locked in permanently. So, they're

never going to go below that amount. I like that. You have some liquidity provisions

with most of you can typically take out 10% of your money out for liquidity if

needed. If you do that, it does interrupt some of the guarantees like if you have

an income benefit writer attached. So, you have to understand that. But at the end

of the day, they're not bad products. They're enhanced CD products and you

have to understand how they work. But in combination with your other safe money

type strategies, a fixed indexed annuity might work for you. And it certainly

might work if you need future income and you shop all the income riders and find

out that best contractual guarantee for you as well. Hey, thanks for hanging in

there with me. At the first part of this video, I told you if you hung in there

this long and got all this information I'll give you my books. And I'm going to

hold myself to that. So, one of the books I'm going to send you is the index fixed

indexed annuity owner's manual. Easy reads. Very good book. You'll like it. And

also the income rider owner's manual as well. The good news is going to come in the

shiny gold package to you. And we're not going to bug you, call you, show up on your

doorstep or make you go to a bad chicken dinner seminar. We're just going to send you

the books we'll leave you alone. If you want to contact us, please do. Also, one

last thing. Please subscribe to my Stan, the annuity man YouTube channel. Why?

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