How and Why Annuities Work Transcript 4-16-22: Audio automatically transcribed by Sonix

How and Why Annuities Work Transcript 4-16-22: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Producer Sam Davis:
Any examples used are for illustrative purposes only, and do not take into account your particular investment objectives, financial situation or needs, and may not be suitable for all investors. It is not intended to project the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.

Producer:
Welcome to the of Show with your host. Ford Stokes Forde is a fiduciary and licensed financial advisor who places your needs first. He’ll help you protect and grow your wealth. The Active Wealth Show has grown because activators like you want to activate their retirement planning with sound tax efficient investing. And now your host Ford Stokes.

Ford Stokes:
And welcome the Active Wealth Show activators. I’m Ford Stokes, your chief financial advisor. I’m joined by Sam Davis, our executive producer. Sam, welcome everybody to the show.

Producer Sam Davis:
Welcome to the Weekend Activators. So happy that you’re listening to the Active Wealth show on this wonderful Easter weekend. I hope you’re enjoying some spring weather, spending some time with some family and some friends and and having a good meal.

Ford Stokes:
Absolutely. So happy Easter to everybody and to everybody’s family out there. We hope you get to spend some time with your family. As Sam always says, it’s tough for me to say the word time without spelling out the word time. So we spell love in our family time, and we really appreciate the time that you spend with us. And we hopefully we’re doing a good job at explaining what goes on in the investment world and how you can protect and grow your wealth for the long run and for help you kind of build a successful retirement. Again, what we’re trying to do is help you build a tax efficient, fee efficient and market efficient portfolio, and we’re trying to do that one segment at a time. And today on today’s show, we’re going to first we’re going to talk about Easter weekend and what kind of people are doing with their families this weekend. And look forward to hearing from you, Sam. But also, we’re going to talk about what it’s like to work with a private wealth management firm like us and how it could be different and it could potentially benefit you as an investor and as a retiree or pre retiree. And then the second thing we’re going to do, we got some requests over the week from last week’s show to dove into more information on bond replacement.

Ford Stokes:
And we’re going to do that today in detail. And we’re going to play a couple of additional chapters that weren’t played for my book, Annuity 360. You can get my book Annuity 360 and Annuity360.net. That’s Annuity360.net. Also, you can send me an email at forward at Active Wealth that’s free at ActiveWealth.com and I’m happy to help you with any of your needs, but we’ll also send you a physical copy if you give us your name, email and mailing address and we’re happy to send a free copy of my book Annuity 360. So you can understand all the 360 degrees of annuities and literally which ones to avoid and which one to buy for successful retirement will help you out there. And we’ll also talk about the difference in reserve requirements between the FDIC and what the legal requirement is for fixed indexed annuities with state agencies like the Georgia Insurance Commission. So, Mr. Sam, talk to me about what’s going on in the Davis family for Easter this year.

Producer Sam Davis:
Well, this year I’m actually going to be attending a wedding in Kansas, so I’ll actually be back home. And I think my dad’s going to come up and so we can all be in the same city my sister lives in Lawrence, where we’ll be going back to to do the wedding, so I’ll be with her. And it’s also my wife, Bailey’s birthday, so it’s kind of a big Easter and birthday celebration. I’m glad that the family will be together in some respect for that. But as far as Easter memories, I think my favorite Easter memories growing up, one would be eating a lot of candy, particularly the Reese’s Eggs. That’s probably my favorite Easter time candy. And the favorite memory that comes to mind is being at my grandparents house in Kansas and the Easter egg hunt that all the grandkids would do there was like maybe 12 to 20 grandkids. Who knows how many there were, and all the eggs would be out in the yard and some would have candy, some would have nothing, and then one egg would have a $5 bill in it. And that’s the one that everyone was going for.

Ford Stokes:
Got to have the cash. Yeah, that’s my earliest recollection, actually. I was like three or four and I bent down to pick up the golden egg over at Cherokee Town and Country Club at the big Easter Egg Hunt they have with hundreds of kids. And my parents and my grandma, both sets of my grandparents, just started screaming and I put it back down. So so it was pretty funny. But yeah, I we have the Butterworth Easter for my wife’s family. Her mom’s maiden name is Butterworth. And they have like Butterworth Road and Canton, Georgia. And Mr. Butterworth was just a guy owned 60 acres that did a lot of handiwork for people around Canton. And it was really neat. My wife’s grandmother, I never met her, but I do get to enjoy some of her recipes. She’s amazing. She was an amazing cook and she started raising kids. She was the oldest of four and she started raising the rest of the kids. So she was like in sixth grade and started cooking for everybody in sixth grade because they’d lost their mother. And she was such a great lady that she would bake a cake for everyone in their part of Cherokee County. A chocolate cake. And then they got to be so it’s so popular that she would have to start doing half cakes for people. And and she did it out of the goodness of her heart and didn’t charge them for it.

Ford Stokes:
So it’s kind of a neat deal. People would just show up on their birthday. They tell her when their birthday was and they’d show up in the driveway and then she’d just come out and bring them half of a cake. So pretty neat deal. And Easter reminds me of of her because they do the Butterworth Easter and the Christmas and that. That. Butterworth Easter and Christmas has now grown to over 100 people. And it is one of those remarkable things. So shout out to the Priest family and the Butterworth family who were kind enough to allow me to marry their daughter and to join their family. And also, thanks to Jesus Christ for dying on the cross for our sins. And happy birthday to Bailey. To Bailey. Davis, Sam’s wife. It’s great stuff. So let’s kind of get into. What’s going on with what it’s like for to work with a private wealth management firm. And also, before we get started there, I just want to say. Happy Easter, everyone. We again, we hope you spend a lot of quality time with your family. We hope we’re helping you. Build enough wealth and generate enough tax efficient income to help you spend more time with your family. And just Happy Easter to all of our activators, all of our radio listeners out there. We just really appreciate you and hope you have a great time with your family on this Easter weekend.

Ford Stokes:
Now let’s talk about what it’s like to work with a private wealth management firm. So, first of all, what we’ll do when you give us a call and you want to get a free consultation, that’s about $100 value, but we’ll give it to you. Absolutely. For free, at no cost to you, because we want to help you make an informed financial decision on your wealth because we’re fiduciaries. I’m held to a fiduciary standard as a Series 65 licensed advisor, and we want to do everything we can to help you make the right choices to protect and grow your wealth for a successful retirement over time. And. There’s three big things we all look for. You hear, hear me talk about it just on every show is when we want to build a tax efficient portfolio. That could be. There’s two types of. Of tax free investments out there. There’s life insurance and Roth IRAs, and we’ll dove into those a little bit more later in the show today. And then we want to help you get fee efficient are our fees are lower than what we typically see when people come in to speak with us with their current advisor or even lower in fees or at least lower in expense ratio from where they’re four and K is currently. So we’re happy to help you there. And then market efficient, we try to. Readjust and do things a little bit differently that are separate of the traditional 6040 portfolio in 1952.

Ford Stokes:
Harry Markowitz was. He was the guy that was given credit for being the founder of Modern Portfolio Theory. We’ve got 60% stocks and 40% bonds. And and those are basically non correlated assets that sit on the same exchanges. So that’s nice. Although you’ve got stock exchanges and bond exchanges, but they’re sitting on the same markets or they’re traded on the New York Stock Exchange or Amex or Nasdaq or whatever. And but they but they do have a negative or a negative correlation. So that was good. And the thought there was, hey, money would if money is is rushing out of stocks, they’ll rush into bonds. And that doesn’t happen as much anymore. Also, there’s an axis, Axios investment company, that says that Q1 is one of the been one of the toughest quarters for bonds in over a decade. And. The question is, what do you do when the safe leg of the portfolio, which was bonds, gives you income? What do you do when the safe leg of the portfolio? Has issues and isn’t the safest leg anymore. Example Did you know that stocks right now are trading at 22 to 23 times on a go forward p e ratio, a price to earnings ratio of about 23 times earnings, 22 to 23 times earnings. Well, would it surprise you to know that the go forward.

Ford Stokes:
You know, price to earnings ratio of corporate bonds is 135. And I just ask you, what’s what’s a bigger risk? And it’s obvious that the bonds are actually a bigger risk because you need 135 times earnings to get you paid your money back. And so that’s a little bit of a concern. Obviously, they can refinance bonds and they can roll it over to another bond and things like that. But. What happens when they can’t do that, if that ever happens. So something to be concerned with now. What we’re going to talk about through the rest of the show is we’re going to talk about how there are bond alternatives out there and also how. Insurance carriers and annuity carriers are competing for baby boomer dollars. We’re also going to talk about the Federal Reserve requirement for FDIC and the Federal Reserve and the state reserve requirement for fixed indexed annuities and how one is ten X and the other, which is going to be pretty remarkable. I think you’ll be surprised by the results of that. And we’re going to talk more about how to invest in a smart financial plan so you can build a successful retirement and protect and grow your wealth. We’re so glad you’re with us here on this Easter weekend and happy Easter to everybody using the Active Wealth Show right here on AM 920. The answer will be right back.

Producer Sam Davis:
Fixed annuities, including multiyear guaranteed rate annuities, are not designed for short term investments and may be subject to restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.

Ford Stokes:
And welcome back, activators the Active Wealth Show. I’m Ford Stokes, your chief financial advisor, and I’m joined by Sam Davis, our executive producer on the board. And we’re here on this Easter weekend. We’re wishing everybody a happy Easter to you and yours and to your entire family. And we hope you get to spend a lot of great time with and quality time with your family. And it’s the weather’s getting nicer. Also, we want to congratulate Scottie Scheffler for winning the Masters this past week, and he won it on Palm Sunday and he was so calm, cool and collected. It was pretty remarkable. It was a remarkable performance. And the guy literally doubled his net worth inside of 6 to 8 weeks of winning all those tournaments. So congratulations again to Scottie Scheffler and how he is earned his way and achieved his way to changing his life. We’re going to set up this chapter, which is chapter two of my book and 8360. And you can get my book an 8360 at annuity 360 point net. Chapter two is why annuity and life insurance companies are competing for baby boomers dollars. Annuities do one really important thing. They counter one of retiree’s biggest fears, which is outliving their wealth. The greatest fear of a retiree is not death because they know what’s going to come at some point, because we’re not immortal. And if you are immortal, feel free to reach out to us at the at the Active Wealth Show.

Ford Stokes:
Can you send me an email at forward at ActiveWealth.com because we’ll get you on the radio. Would love to talk to you about it. But annuities can create lifetime income streams. Last week we played How You Can That chapter or chapter nine for my book Annuity 360, how you can generate your own personal pension. But they also help you get market like gains without market risk, they help you generate income. And the question is, why would you invest in bonds if you can generate income, get a higher rate of return over time, more than likely, and do all that without market risk? The answer is yeah, you would definitely try to do something different than bonds. And what we like to do is invest 60% of of our clients portfolios in into 100% securities. And then we invest between 20 and 40% into fixed indexed annuities or in structured notes, some combination thereof. Last month, our structured note for the month of April that just that that one just issued on Friday this past Friday. That one’s going to pay over 12.75%. It was offered by UBS. And obviously structured notes are securities and they are at risk in the marketplace. But as long as the investors in that and that UBS structured note, as long as the S&P 500, the NASDAQ 100 and the Russell 2000, don’t lose 30% of their value from the time that they purchased that note last Friday.

Ford Stokes:
Then the investors in that structured note, their principal is protected and they’re getting over 1% a month for the next 12 months. Also, that note cannot be called in the first six months. Most of those notes are called in month seven at the beginning of month seven. But that’s okay because, you know, it’s nice to get 6%, over 6% over a six month period. You’re getting over 1% a month. The interest rate is guaranteed by the bank and the paying ability of that of the issuing bank. This one happened to be UBS. We also like fixed indexed annuities. And these these fixed indexed annuities today are not your grandfather’s fixed indexed annuities. They’re not just straight variable that we’re at risk in the market that have high fees with M&A fees and sub account fees and admin fees. These are much more fee efficient. We like investing our clients money and recommending that they invest in to accumulation based annuities that don’t carry a income rider fee. So Sam, go ahead and play chapter two from my book Why Annuity and Life Insurance Companies are competing for Baby Boomers Dollars and how it benefits you as a consumer. Chapter two Why Annuity and Life Insurance Companies Are Competing For Baby Boomers dollars Big idea annuities counter one of a retiree’s biggest fears outliving their wealth. Annuities create lifetime income streams. There are 73.4 million baby boomers in the United States that are close to or are already in their retirement years.

Ford Stokes:
Baby boomers put between nine and 10% of their pay towards their retirement. Only 55% of boomers have any money saved for their retirement. More than four in ten boomers inaccurately believe that Medicare will cover long term health care costs. Baby boomers hold $2.6 trillion in buying power. They’ve had more time to build their wealth in comparison to other generations because some might still be in the workforce and making more money. Baby boomers control 50% of the nation’s wealth, outspend younger generations and are more likely to spend their retirement savings on themselves rather than passing them down. Total US retirement assets are about $28 trillion. More than half of those assets were either defined contribution plans or individual retirement accounts. Some other facts about baby boomers and their spending habits. 69% of baby boomers either expect to or are already working past age 65 or don’t plan to retire. Only 26% of baby boomers have a back up plan for retirement if they are forced into retirement sooner than expected. Baby boomers make up 46.8% of pet spending. Baby boomers are expected to spend 3.4% more on health related purchases than their parents did. Why are annuity companies targeting baby boomers? Boomers face many issues when planning for retirement. The three primary reasons are, number one, growing the money they have already saved. Number two, dealing with and preparing for unforeseen expenses, the largest of which are tied to health care and long term care.

Ford Stokes:
Number three, optimizing their financial plans when their exact lifespan is unknown. Annuities exist to help boomers with the last issue with an annuity. A retiree gives an insurance company a lump sum of money in exchange for an annual income that will last throughout their lifespan. Annuities have the potential to become useful tools in baby boomers portfolios when planning their retirement. They offer protection from market volatility while also eliminating the risk of outliving one’s retirement savings, which are not guaranteed by portfolios that lean heavily on stocks and bonds. The demand for retirement income among baby boomers already exists, and annuities are the only products that can provide a hedge for a long life like longevity insurance reasons. Baby boomers should be interested in annuities. They are falling short of their retirement goals. Roughly 10,000 baby boomers retire every day, but a very small percentage of them believe they can retire and live comfortably throughout their golden years. Only 25% of baby boomers think they have enough money to retire comfortably. Many couples may be on the right track, but unforeseen circumstances such as health problems or staffing cuts might force them into retirement earlier than planned, leaving a much larger income gap. Baby boomers are looking for a reliable source of retirement income and annuity. Companies are beginning to tap into this market because they recognize the need. Not all annuities are created equal. There are two main types of annuities immediate and deferred.

Ford Stokes:
The right kind of annuity depends on your financial goals, your situations, and your needs. One thing that makes annuities so attractive is that there are so many options available. While it may seem overwhelming, a financial advisor can help you sort through all of your available options and make a smart choice for your money security for their income. Annuities can help build a secure retirement through different income strategies, while also alleviating any stress or fear they may have left over from the financial crisis of 2008 and the bear market. Annuities can play an important role in a plan, along with your Social Security, health care and other factors. Annuities can address issues such as maximizing your Social Security benefits, which help create an income that you can never outlive. How annuity and life insurance companies have responded to Baby Boomer needs interest in hybrid products. Baby boomers don’t want to pay a fortune for something that offers them only a part of what they need. With less income to be counted in their retirement years, already paying for individual products to meet each of their needs can be too expensive. Life insurance companies heard these concerns and responded with new hybrid products. Many life insurance companies now offer some kind of long term care rider on their whole life or universal life products. Generally speaking, these riders provide coverage for long term care should you need it or you receive a death benefit if you don’t.

Ford Stokes:
These combination products have grown from 6 million in 2008 to 2.6 billion with a B in 2013, and they are still growing need for guaranteed income. Baby boomers are also concerned with outliving their money. They want to enjoy their retirement, but they also don’t want to run out of funds. The industry responded to these fears by offering a variety of products with guaranteed lifetime income. These products include variable and indexed annuities with guaranteed living benefit riders and immediate or deferred annuities. The annuity industry has been transformed by these new products, according to PricewaterhouseCoopers Employee Financial Wellness Survey. Since the economic downturn of 2008, 76% of retirees say that creating a guaranteed income is their top retirement planning priority. Annuity companies rose to the occasion to create products to meet the needs of baby boomers and provide them with a sense of security. The need for advisors. Annuity companies have created many products to meet the needs of their consumers. This is a good thing, but it can make for a tough decision on the part of the investor with so many options to sort through. Some pre-retirees and retirees can’t sort through all the information. Many are afraid to make the wrong decision, which leads them to make no decision at all. A large part of the planning process involves an advisor educating their clients on all of their options so they can make the right decision.

Producer Sam Davis:
Fixed annuities, including multiyear guaranteed rate annuities, are not designed for short term investments and may be subject to restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.

Producer:
Are you concerned about US tax rates being raised by the Biden administration and how that will affect your retirement? Tune in to the Act of Wealth show with Ford Stokes, your chief financial advisor, to learn how you can reduce the taxes you pay before and during retirement. The Act of Wealth show Saturdays at noon and Sundays at 11 a.m.

Ford Stokes:
And welcome back, activators the Active Wealth Show. I’m Ford Stokes, your chief financial advisor. I’m joined by Sam Davis as our executive producer here. And we just played chapter two from a new book, Annuity 360. You can get that book at Annuity360.net. We’re also here to help you. You can send me an email at forward at Active Wealth and just give me your name, email, phone and your mailing address and we will go ahead and send out a free hard copy of Annuity 360. So that way you can understand the annuities to avoid which would be variable annuities. Let’s avoid those and to we’ll go ahead and share. You know, the one type of annuity that we like to invest our clients money in, that we recommend our clients consider, which is an accumulation based annuity. We like to avoid income rider fees. One of the things I’d like to say is, listen, if you’ve got an annuity, we’d love the opportunity to analyze that annuity for you specifically, if you’ve got an income rider fee and you haven’t turned on income yet. Let me ask you a question. Why are you investing in something and paying fees on something where the service is not being given? They actually have an income rider fee that basically is a fee that they charge to pay you a higher percentage of the money you’ve already given them back. And if you do not turn on income, you just let the you’re letting the annuity accumulate, but you’re still paying a 0.95 to 1 and a half percent income rider fee.

Ford Stokes:
Let me ask you, why are you doing that? Why are you paying them money? When they’re not providing the service for the money you’re paying them. And if you’ve got questions about your fixed index annuity or questions about your variable annuity or your fixed annuity, we’d love the opportunity to talk to you. All you got to do is pick up the phone and give us a call at (770) 685-1777 again. Our number here in the office and the king and queen building right here in Sandy Springs on the 29th floor overlooking perimeter mall. And my commute home on Georgia, 400 is just pick up the phone and give us a call at (770) 685-1777. You can also schedule a free consult with me. Absolutely no cost to you. Just visit ActiveWealth.com and the upper right corner. There’s a set, an appointment button, and you just click that and you get booked directly into my calendar. So we’re happy to help you do that, no problem. So feel free to reach out to us again at Active Wealth or give us a call at (770) 685-1777. And if you’ve listened to the show for a really long time and you just want to understand where you stand with retirement and whether you can, you’ve got questions, whether you can retire now or not.

Ford Stokes:
We’re happy to do that. And we have 150,000 jobs within basically 5 to 10 miles of our office here that make over 100,000 a year. We’re definitely in a service economy here in Atlanta, Georgia, and some really great folks work around here and there. They’re looking to consider retiring. They’re tired. They were tired of. Dealing with the corporate rat race. They’ve they’ve been frustrated by what’s happened with COVID or what have you. A lot of people have taken early retirement, if you’re considering it, and you’re like, you know, maybe I can try to take retirement slightly early. We’re happy to help you do that and do the analysis and see if you if you’re prepared for it. If you’ve got enough funds and you have a plan to generate tax efficient income for retirement that can meet or exceed your monthly expense goals, we’re happy to help you do that. Chapter four of my book, Annuity 360 that you can get at Annuity 360 net, or you can just send us an email at forward at Active Wealth and send us your name, email and mailing address and your phone number and we’ll go ahead and send you a hard copy of my new book, Annuity 360. But the financial reserve requirements did you know that the FDIC that the financial reserve requirements for a bank that’s got over $100 million in deposits is 10%.

Ford Stokes:
So they’ve got to keep on hand, $10 million of cash on hand. But did you know that insurance companies and annuity companies, there is a state requirement and a federal requirement that they reserve 100% of the money you give them into safe financial products like the ten year US Treasury bond. So here’s how that works. You give them 100,000 as an example. They take 100,000 and invest all 100,000 into a ten year US Treasury bond for you at the end of year one. They take the interest, let’s call it 2000 or 2% on that, and they take that 2000 and invest 100% of the money into options and into indices like the S&P 500 or the NASDAQ 100 or, you know, the Credit Suisse Raven Pack or the Credit Suisse Momentum or the Jp morgan Cycle Index. There’s a lot of different indices out there. So those those indexes will grow if you can buy options on that. And if they go to zero, guess what? Your money is still invested into the ten year US Treasury bond. They’re not invested in the market, only the interest is. But let’s say the market does well and the market goes up 10% well, you’re going to get 9.5%, which is 95% of the growth. And the insurance company, this one annuity company that I’m referencing, they’ll give you, they’ll going to take 5% of the growth. But your money is growing with market like gains without any risk of it being in the market because your money is invested in the ten year US Treasury, which has historically been one of the safest investments on the planet.

Ford Stokes:
You’ve got a real opportunity to protect and grow your wealth with a fixed indexed annuity as a bond replacement without market like risk. And if you do that fee efficiently, we don’t have an income rider fee. And you can because you can take 5% penalty free withdrawals each year after the end of year one on most products. And sometimes it’s up to 10%. That’s a great deal. You can also turn on income and annuitize it. That’s what annuitize means, is basically means when you turn on income of your annuity. And an annuity is basically a policy or a contract with you between you and the annuity company. And what else is great about an annuity is there’s no advisory fee because the insurance company pays us. So you don’t have to pay that advisory fee and portfolio fee. That’s a great way to save. In fees. And also, why are you paying fees on your bonds? There’s no reason because you’re getting income anyway and you’re not investing it for growth. And you’re just getting passive income from it. Why not get passive income from a fixed indexed annuity instead? And also, we’ve got an illustration in my book, Annuity 360, that walks you through the difference.

Ford Stokes:
And you can I mean, it’s pretty remarkable. Over a 35 year period, the difference between a bond index fund with the Moody’s bank that did 3.22% in 2020 versus, you know, an illustrated rate on a fixed indexed annuity that we market and sell. Right now, it’s over 9.61%. That’s remarkable. It’s a $2.89 Million difference over a 35 year retirement. I’ve never seen an illustration where the bond portfolio does better. Then the annuity portfolio. So. Also for me, I want you to hear this chapter because for me, I feel safer investing in a 100% financial reserve product than I would investing in a 10% financial reserve product. Also, bank CDs are not what they used to be. They’re not paying very well right now at all. They’re paying about 0.6 to 0.05. And during the Great Depression. 60% of all banks close their doors and only 40% of those banks reopen their doors. And we think that is a remarkable thing considering that 100% of the financial reserve. Insurance companies and annuity companies did not close their doors during the Great Depression. So I would encourage you to consider a fixed indexed annuity and go ahead and check out this Chapter four on the Financial Reserve Requirements of annuities and FDIC bank CDs. Chapter four Financial Reserve Requirements. Annuity has a 100% reserve requirement and is greater than the FDIC insured bank reserve requirement of 3 to 10%. Big idea annuities are required to reserve 100% of your investment.

Ford Stokes:
Banks are only required to reserve 3 to 10%. Having a 100% reserve on your money will help you sleep more soundly at night knowing that your money is protected. Did you know that the Federal and state financial reserve requirement for annuity products is 100%? Did you also know that the FDIC banking regulation requirements are just 3 to 10% of deposits? I prefer investing in financial products that have a 100% financial reserve myself. Quite literally, the requirement for annuity companies to reserve money on the policy premiums paid or at least ten x the banking deposit reserve required by the FDIC. In the six years after the stock market crash in 1929. 60% of all US banks close their doors and only 40% of those banks ever reopened. 100% of reserve life insurance and annuity companies didn’t fail or close. That is a remarkable historical fact. That’s a wow. Also in every US state there is some form of annuity guarantee association where the licensed annuity companies operating within the state will cover the payout of annuity policies as a collective for any failed annuity company within the state. State annuity guarantee associations prohibit advertising them. Here’s how annuity guarantee associations work. Guarantee associations are funded by assessments levied against member insurance companies that help pay claims when a member company fails. The funds are combined with the failed company’s assets to pay claims up to statutory limits.

Ford Stokes:
However, the coverage may not be necessary because often when an insurance company becomes insolvent, the company’s contracts are purchased by other insurance companies. So customers still have the same insurance and annuity contracts worth the same amount of money only from different companies to ensure you receive all of your annuity benefits, it’s a good idea to investigate the ratings of the issuing insurance company before making an annuity purchase. If you plan on purchasing annuities worth more than your state guarantee association limits, you may want to purchase multiple annuities from different companies without exceeding the guarantee limits on a single annuity. Most annuity state guarantee association limits per annuity policy are equal to the 250,000 per bank account or bank CD or money market account that the FDIC insurance coverage delivers to the account holder. I see the Annuity Guaranty Associations as a great extra stopgap insurance for my clients annuity policies. Welcome back activators to Segment four of the Active Wealth Show on Ford Stokes, your Chief Financial Advisor. And I’m joined by Sam Davis, our Executive producer. So Sam at the break said, Hey, Ford, why don’t you go a little bit more detail on bond replacement? I think people really want to hear the math on it. So I’m going to go ahead and do that right now. So we’ve got this illustration that was provided by V financial marketing, and it’s based on the 2020 returns of the Moody’s Back Index and the Moody’s Back Index.

Ford Stokes:
It actually did 3.32% in 2020, and you’ve got a total client portfolio of $1,000,000. This is an example. We’re only doing this for illustration purposes only. But you’ve got let’s just say you start with $1,000,000. You got $1,000,000 sitting in your IRA. If you’re listening to Harry Markowitz and the modern portfolio theory with stocks and bonds, you’ve got 60% in stocks and 40% in bonds. By the way, that’s a 70 year old strategy. It was started in 1952, so it could be time to consider a different way of going about things. But you got 60%. So 6600 grand of your million dollars in your IRA is sitting in securities. And 40% or 400,000 are sitting in bonds. If you’ve got a 1.5% year yearly advisory and portfolio fee, you’re paying $6,000 a year on just the bond portion of the portfolio. And over 35 years, you’re going to pay 210 grand. In actual advisory fees to your advisor and portfolio fees on a product that gives you income. And it’s not necessarily there for growth. It’s there to to be the safe leg of the stool and give you income and also be a safe harbor where money will rush into bonds when stocks are down. Now, let’s look at a fixed index annuity, and this is based on a fixed indexed annuity that we market. You’ve got securities at 600,000, and instead we would replace it with fixed indexed annuities at 400,000.

Ford Stokes:
There are zero advisory fees. Each year of over your next 35 years of retirement. So you’re going to save 210 grand off the rip. Like, definitely. All right, off the jump. Then you’ve got an average rate of return to illustrated rate of 7.36 times 0.95% participation rate. The participation rate is the amount of the percentage of growth that the company is willing to give you. In exchange for you giving them their money. By the way, annuity has been around a long time. They started in Roman times. They were called a newa because when people were on the on the Roman road, they didn’t want to have all their net worth stolen from them. And so they they would pay somebody on the front end of it. And they would. And then they would take certificates and all that stuff. But they would get paid out certain income amounts each year. In exchange for a lump sum of money, and there would be growth on that money. And then there the same companies would go out and lend money out for farming and things like that. So they’ve been around a long time, all the way since Roman times. In this example that I’m giving you, the bond portfolio of valley value over a 35 year period was $1.33 million. That’s what the 400 grand grew to over 35 years, with an average rate of return of 3.32%.

Ford Stokes:
But the fixed indexed annuity value after 35 years with a 6.99% rate of return without market risk and without any advisory fees, that is the fixed indexed annuity value. If you didn’t take any income from it would be worth 4.187 million. And the growth performance difference between the annuity and the bond portfolio, the annuity comes out on top. By 2.854 million that you can give to your family if you pass away at the end of 35 years. Or it gives you additional flexibility over time during your retirement to enjoy your retirement more, spend more time with your family, get that lake house, pay the pay the bills, meet your monthly obligations, etc.. That’s a big deal. $2.854 Million difference is a really big deal. If you’ve got bonds in your portfolio and you’re like, Oh, it’s okay, I’ve got 40% bonds in my portfolio. Just the my portfolio is done. Okay. It did great last year. It came back a little bit this year, but now it’s doing okay. So I’m fine. I promise you, you could be doing better. I promise you, you could absolutely be doing better. So please consider replacing your bonds with a fixed index annuity and or structured notes. I mean, structure notes are paying higher now. They carry more risk and they do involve market risk. We’ve talked about I don’t want to get into in depth because we don’t want to have to play the structure note disclosure today.

Ford Stokes:
But we’re I mean, you’re talking higher rates of return than what the bonds are paying and you can get a higher rate of return without any market risk and without taking the risk of that go forward. Pe ratio of 135 times earnings, the US corporate bonds right now and I may be the first person to ever tell you that that’s what the go forward price to earnings ratio is on US corporate bonds. And if I am. Then I think I earned the right to be able to work with you. I think I earned the right to help educate you and help protect and grow your wealth. Also, we have a lot of people that just call us because they want to invest in structured notes and they end up investing the rest of their money with us. And that’s great, too. We love the opportunity to help you. We want to help protect and grow your wealth. And it’s in that order. We want to protect your money, number one. You know, Warren Buffett’s two rules of investing is the first rule is just don’t lose the money. And his number two rule of investing is, don’t forget, rule number one. So we want to do everything we can to protect and grow your wealth. And part of doing that is implementing a bond replacement. It really is. It’s a smart, safe way to go. We like we talk about smart investing and building a smart financial plan all the time here on the Active Wealth Show.

Ford Stokes:
And the the top three parts of that of a smart financial plan. It was a smart risk with tactical asset allocation. But the second one is smart, safe by investing in fixed indexed annuities to replace your bonds and get you an income that you can never outlive. We invest our clients money into annuities more efficiently than we see other advisors invest. We just do because we do everything we can to limit the fees the annuity companies charge. Also, we don’t believe in giving annuity companies fees for something they’re not doing for a service they’re not providing because the client decided, Hey, I’m just going to let the money accumulate. Well, if the money is accumulating in your hard earned and your hard saved wealth is accumulating inside a fixed indexed annuity, and you’re not paying out income to yourself from your annuity. Well, guess what? You’re not taking advantage of the income rider. Use of those income rider fees averaged between 0.95 and 2%. So call it 1.5%. That’s a hole in the bucket. It’s leaking money out. Your money out. I mean, listen, it was hard to earn the money, but it was even harder to save the money. So we’ve we’ve got a couple of minutes left here in the in segment four. Sam, let’s go ahead and hit him with the final countdown. It’s the.

Producer:
So let’s recap what you may have missed. It’s the final countdown.

Ford Stokes:
So on today’s show, we talked about, you know, it’s Easter weekend. We want to make sure that all of you have a happy and safe Easter weekend and be be safe if you’re traveling to see family this weekend. We also talked about what it’s like. To work with a private wealth management firm. And we give you a free portfolio analysis of free financial plans. Your 95th birthday. We give you a free Social Security maximization report. And we also give you a free income gap analysis and a free financial planner. 95th birthday with a Roth ladder conversion with our recommended portfolios, we do all of that at no cost to you on the front end so you can make an informed financial decision. Also, we talked about bond replacement quite a bit. We talked about how baby boomer, how annuity companies are competing for baby boomer dollars. We talked a lot about in depth on the financial reserve requirement between annuities, which is 100%, versus the FDIC on banks, which is 3 to 10%. In any bank that’s got over $100 million of deposits, they’ve got to keep 10% or over $10 million of cash on hand and. We’re happy to help you.

Ford Stokes:
I just feel more comfortable investing in a 100% financial reserve product, like a fixed index annuity versus a bank CD. It’s only paying me 0.6% a year. So. Again, I would I would beg you to reconsider the typical 6040 portfolio and invest into fixed indexed annuities or structured notes or both or combination of the two and replace the bonds, allow your equities to grow more, and then also generate important income that’s going to help hopefully outstrip your monthly expenses and you’re ready to go. Hope you enjoyed this week’s show. I hope it was educational. I hope you learned a lot about the power of bond replacement and how you can build a tax efficient, fee efficient and market efficient portfolio. And also. We learned what you can get for free from us at Active Wealth. All you got to do is visit ActiveWealth.com and click that. Set an appointment button the upper right corner to book your free financial consultation directly with me. We won’t pass you off to another advisor. You’ll talk directly with me and we’re happy to help you any way we can hope everybody enjoys the rest of our Easter weekend and go braves.

Producer:
Thanks for listening to the Active Wealth Show. You deserve to work with a private wealth management firm that will strategically work to protect your hard earned assets. To schedule your free consultation, call your Chief Financial Advisor Ford Stokes at (770) 685-1777 or visit Active Wealth Investment Advisory Services offered through Brookstone Capital Management LLC. Become a registered investment advisor. Bcm and Active Wealth Management are independent of each other. Insurance products and services are not offered through BC but are offered and sold through individually licensed and appointed agents. Investments involve risk and unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results.

Producer Sam Davis:
Registered Investment Advisors and Investment Advisor representatives act as fiduciaries for all of our investment management clients. We have an obligation to act in the best interest of our clients and to make full disclosure of any conflicts of interest. If any exist, please refer to our firm brochure, the ADV to a page four for additional information.

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