Learn All You Need to Know About Annuities with Annuity 360 Transcript: Audio automatically transcribed by Sonix

Learn All You Need to Know About Annuities with Annuity 360 Transcript: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

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:
Welcome to The Wealth 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.

Producer Sam Davis:
Welcome to the active wealth show. I'm Sam Davis. And this week on Active Wealth Radio, we want to bring you some important information because we believe that in anything, knowledge is power. We want our listeners to educate themselves before making any decision, which is why Ford is offering his book Annuity 360 free of charge for listeners of the Active Wealth Show to get your copy. Just get in touch with Ford and the Active Wealth team by calling (770) 685-1777. That's (770) 685-1777. Or you can find us online at ActiveWealth.com. That's ActiveWealth.com On this week's show, we are presenting select audio chapters from Annuity 360. So you don't have to wait a moment to start learning more. Up first is Chapter one, which will provide you with an initial overview of fixed indexed annuities and the role they can play in your portfolios.

Ford Stokes:
Chapter one Why You Should Consider Investing Some of your hard earned wealth into a fixed indexed annuity. Big idea. Protect your hard earned wealth with annual point to point protection periods that lock in your gains each year. A fixed indexed annuity can help you do the following with your wealth. Number one, protect your money from market loss. Fixed indexed annuities offered by highly rated annuity carriers did not lose a dime in account value in 2000, eight or 2009. During the worldwide recession caused by the mortgage loan crisis that resulted in the S&P 500 losing 50.1% of its value from March one, 2008, to March 31, 2009. Number two Grow your money with market like gains. Typical annual growth of 5 to 7%. Number three, generate a lifetime income. Your retirement will likely last 30 plus years. It might be a good idea to place some of your assets into a fixed indexed annuity, to set a safety net around a portion of the retirement income that you wish to generate. Number four, eliminate market risk associated with bonds by replacing the fixed income bonds in your portfolio with a fixed indexed annuity. Number five, eliminate the advisory fees you're currently paying to generate fixed income with bonds in your portfolio by replacing them with fixed indexed annuities. The annuity companies pay the advisor you don't. This is called a bond replacement. If the above fixed indexed annuity benefits sound appealing to you, then I invite you to listen to the rest of this book and ultimately invest a portion of your hard earned wealth into a fixed indexed annuity to build a successful retirement.

Ford Stokes:
For more important information on annuities beyond this book. I also invite you to visit our website. Annuity 360 net. Let's consider a $100,000 investment in the S&P 500 versus a 100,000 investment in a fixed index annuity with a 50% participation rate in the S&P 500 from 2000 to 2013. Here's a hint, folks. The annuity wins from January one, 2000 to December 31st, 2012. The S&P 500 experienced -2.943% growth over those 13 total years. People who retired prior to 2000 experienced zero growth, over 43% of their estimated 30 year retirement. Question. Do you want to live your life during retirement without any growth over 43% of your retirement years? I didn't think so. Conversely, if you had invested into a fixed indexed annuity with a 50% participation rate in the S&P 500 in January 2000, you would have seen a growth of 65.53%. That's a significant total account growth difference of 68.473%. Do I have your attention now? The account value growth chart below shows the $100,000 invested into an S&P 500 spider in January of 2000 versus 100,000 invested into a fixed index annuity with a 50% participation rate in the S&P 500 also in January of 2000. The fixed indexed annuity achieved a total growth of 90.038%, versus just 25.786% growth in the S&P Spider by December 31st, 2013. This chart shows the power of one year protection periods called annual point to point features. The gains from each year were locked in on each anniversary of the annuity policy effective date when the S&P had negative years.

Ford Stokes:
The S&P Spider 500 spy experienced losses in those same years. The fixed index annuity experienced zero losses. This proves that you don't need double or triple digit gains if you don't experience losses. In this author's opinion, every sound portfolio with a smart financial plan includes fixed indexed annuity investments with tactically managed portfolios in hopes to minimize market risk, reduce advisory fees and deliver a reasonable rate of return. The annuity can also deliver consistent income with or without the added feature of an income rider that also charges fees within the policy. I recommend avoiding income riders. I strongly recommend investing a portion of your hard earned wealth into a fee efficient, accumulation based, fixed indexed annuity with no more than 5% annual penalty free withdrawals to allow your money to grow and to generate important income during retirement, refer to your audiobook companion PDF that comes free with the purchase of this audio book. See Chart 1.1 for annuity account growth examples. Green Line, a $100,000 investment into a fixed index annuity showing the net growth of the annuity with a 50% participation rate with zero withdrawals from January one, 2000 to December 31st, 2013. The resulting account value is $190,038 by the end of December 31st, 2013. Redline $100,000 investment into the S&P 500 spider. Ticker symbol SPI. This investment carried 100% market risk with a 100% opportunity for market gains. On the performance of the Spy from January one, 2000 to December 31, 2013. The resulting balance of the account is $125,786. Your human capital versus your wealth capital.

Ford Stokes:
Human capital is an intangible asset or quality not listed on a company's balance sheet. You can think of this as an economic value of your work. Your human capital will decrease over the course of your career. Your peak amount of human capital is at the start of your earning years. Whether that be right out of college at 22 years old or at age 30 after completing your advanced degrees. This is the time where your productivity levels are high and you are contributing to your company's wealth. You have all of your earning years ahead of you. During this time, you have to protect your hard earned wealth capital. This is not something you can recoup. You can't go back and relive your prime earning years or the years where your human capital was the highest. There are many barriers to going back to work at retirement age. Unfortunately, age bias is a real issue, especially in certain industries. Those who might have been an engineer during their younger years might be forced to take a retail job to make some extra cash because companies in their field won't invest in older employees. Many employers focus on what you can't do when you're older. Instead of thinking about the experience and the expertize you could bring to a project. You will most likely have to rely on your wealth capital during retirement. The idea of losing capital as you go farther in your career sounds a little scary, but you can rest easy knowing that this new form of capital will kick in as your human capital dwindles.

Ford Stokes:
As you earn and invest throughout your career, your wealth, capital will grow exponentially. You'll need this wealth capital for your retirement. So it is important to choose investments that will protect and grow your wealth. Annuities, specifically fixed index annuities can offer you market like gains without the market risk. Your money never goes below zero. By investing in a fixed index annuity, you are taking money out of the Wall Street casino and we think that that's a good thing. Annuity guarantees like guaranteed lifetime income and the guaranteed growth of your principal are based on the claims paying ability of the issuing annuity company. It's a good idea to buy annuities from highly rated annuity carriers that are rated by Standard Poor's and am best. We consider a highly rated annuity carrier to be rated at least a triple B rating by S&P or with a B plus rating by and best. The impact of loss on your portfolio specifically, it can be devastating to your retirement. When we look at market volatility risks, the risk of loss and the potential impact on your retirement income is an important thing to understand. This chart shows the impact of losses on your retirement accounts. If we take a look at an example, let's say you have an account that is at risk. If you start with 100,000 and lose 20%, you lose 20,000 and you are left with 80,000. If you gain back the same 20%, are you back to even? As you can see in the graphic below. The answer is no.

Ford Stokes:
In order to get back to your original 100,000 investment, you would have to gain back 25%. If we add an additional 5% for RMDs, we would now have to gain back 33.3% to get back to even. Understanding this concept is one of the keys to a successful retirement income distribution plan because you no longer have time on your side. The last thing we want to do is run out of money when we are 90 or 100 years old. How much do you have to gain to make up for a market loss? See Chart 1.2. After reviewing the above chart, I'm reminded of Warren Buffett's two rules of investing. Number one, never lose money. Number two, never forget. Rule number one, we invest in a fixed indexed annuity with a highly rated annuity carrier that has a high financial solvency ratio. Then it is likely that you will be able to follow Warren Buffett's two rules of investing. Exactly. You will likely not lose any money with the amount you invest in a fixed indexed annuity offered by a highly rated annuity carrier with a high solvency ratio. A good financial solvency ratio is any solvency ratio over 104%. The solvency ratio expresses financial soundness and a company's ability to meet policy obligations as they come due. Assets divided by each $100 in liabilities result in a financial solvency ratio expressed in a dollar figure. Assets are bonds, stocks, cash and short term investments. Liabilities exclude separate accounts. The higher the amount, the stronger the company's position to cover unforeseen emergency cash requirements.

Producer Sam Davis:
I'd buy you a house. I would buy you a house. And welcome back to the Active Wealth Show. Sam Davis here filling in for Ford Stokes this week. On today's show, we're playing some audio book chapters from Annuity 360. Ford's book aims to educate readers and listeners on all you need to know about annuities, which ones to avoid, and which one to buy for a successful retirement. And just for being a listener of the Active Wealth show, we will send you a free copy of this book so you can read it for yourself. And if you'd like to get in touch with active wealth management to request your copy or to schedule a free no obligation consultation, there are a few ways to reach us. You can always call our office at (770) 685-1777. That's (770) 685-1777. Or you can go online to ActiveWealth.com and contact us there. If email is your preferred way to reach us, you can email Ford directly. The address is Ford at Active Wealth. Once again, his email is forward at Active Wealth. Up next, we're going to play chapters six, seven and eight from Annuity 360. Each one of these chapters covers a different rule in the book. One is the rule of 100, the other the rule of 72. And the last one is the 4% rule. All of these three rules are fundamentals that Ford considers to be essential when it comes to building a smart retirement plan.

Ford Stokes:
Chapter six The Rule of 100. Big idea you want to risk less as you get older because you have less time to make up any big losses. As you get closer to your golden years, many financial professionals advise gradually reducing your risk. Retirees and pre-retirees don't have the luxury of waiting for the market to bounce back after a dip. The dilemma is figuring out how safe you should be in certain stages of your life. For years, a commonly cited rule of thumb has helped simplify asset allocation. This rule states that individuals should hold a percentage of their stocks that is equal to 100 minus your age. For example, a six year old would have 40% of their holdings in stocks and 60% in fixed income products like bonds or fixed indexed annuities. Why you should follow the rule of 100. Take our current example of a 60 year old at age 40. Your risk capacity is higher. You have more time to rebuild your wealth should you experience a dip in the market. However, at age 60, you can't afford to risk as much of your portfolio in the market because the time horizon to rebuild your wealth is much shorter. Rule of 120. Many financial advisors now advocate the rule of 120 so they can get a significant rate of return for their clients and maintain management of the portfolio. I disagree with today's market volatility. A retiree does not want to go back to work in a job making less than what they made before. They must consider following the rule of 100 or at least a 5050 smart financial plan that is built equally with smart risk and smart, safe investments.

Ford Stokes:
Chapter seven The 4% rule. Big Idea Withdrawing 4% or less annually from your portfolio will ensure that you will not draw down your account too quickly and that your income lasts for your entire retirement. What is it? The 4% rule is a rule of thumb used by investors to determine how much retirees should withdraw from their retirement account each year. This rule should ideally help provide a steady income stream for the retiree, while also maintaining an account balance that keeps their income flowing throughout retirement by withdrawing only 4% from your account. Many financial professionals believe this will help your wealth last through your retirement and that you will be able to live comfortably with this withdrawal rate. This rule helps financial planners and retirees set the withdrawal rate for their portfolios. Life expectancy also plays an important role in this process by determining if the selected rate will be sustainable. Retirees that live longer will need portfolios to last longer, and medical costs and other expenses could increase as retirees age. Where did this rule come from? The 4% rule was created using historical data on stock and bond returns over a 50 year period from 1926 to 1976. Before the early 1990s, experts generally considered 5% to be the safe amount for retirees to withdraw from their portfolio each year. In 1994, William Bengtsson, a financial advisor, conducted a study of historical returns. He focused heavily on the severe market downturns in the 1930s and the 1970s.

Ford Stokes:
Bingen concluded that even during those markets there was no historical basis that a withdrawal rate based on the 4% rule would exhaust a retirement portfolio in less than 33 years. What about inflation? Some retirees will choose to stick to the 4% rule all the time and never adjust for inflation. However, the rule allows retirees to increase the withdrawal rate to keep up with inflation. There are two options to do this. The first option provides steady and predictable increase, while the second option will more effectively match your income to cost of living changes. Option one Setting a flat annual increase of 2%, which is the Federal Reserve's target inflation rate. Option two Adjusting withdrawals based on actual inflation rates. The first option provides steady and predictable increase, while the second option will more effectively match your income to cost of living changes. Two scenarios where you should avoid using the 4% rule. Scenario one A severe or protracted market downturn can erode the value of a high risk investment vehicle much faster than it can in a typical retirement portfolio. Be cognizant of the health of the market and talk with a professional if you have any questions or want to make changes to your portfolio scenario too. The 4% rule does not work unless you commit to it year in and year out. Violating the rule for one year to splurge on major purchases can have severe consequences down the road. It will reduce the principal, which directly impacts the compound interest that the retiree depends on for sustainability.

Ford Stokes:
Chapter eight Rule of 72 Big idea. Knowing how long it will take your investments to double is a good planning tool. This will help you track your investments and calculate future earnings. What is it? The rule is a simple way for you to calculate how long your investments will take to double with a fixed annual rate of interest. If you divide 72 by the annual rate of return, you can get an estimate of how many years it will take for the initial investment to duplicate. The rule of 72. Is relatively accurate when it comes to low rates of return, but becomes less accurate as rates of return increase. Example an investment of $1. Annual fixed interest rate equals 10%. 72 divided by ten equals 7.2. An investment of $10 with an annual fixed interest rate of 10% would approximately take 7.2 years to grow to $20. Rule of 72 Adjustment. The most realistic simulation for the rule of 72 is an 8% interest rate. However, you can make a small adjustment to the rule in order to make the calculation even more accurate for every three points than an interest rate strays from 8%. You either add or subtract one from 72. The adjustment is not necessary, but some people prefer to make this adjustment because the time frame of this version of the rule is more accurate. Example one If your rate is 5%, you would just adjust the rule to be the rule of 71.

Ford Stokes:
This is because 5% is three points lower than 8%, which means you subtract one from 72. Example two If your rate is 11%, you would adjust the rule to be the rule of 73. This is because 11% is three points higher than 8%, which means you would add 1 to 72. Other ways to use the rule of 72 things with compounded rates. You don't have to use the rule of 72 just for invested or loan money. It can be used for anything that grows at a compounded rate, such as population, macroeconomic numbers, charges or loans. Example the gross domestic product GDP grows at 4% annually. You could expect the economy to double in 18 years because 72 divided by four equals 18. Estimating the effects of investment fees, the rule of 72 can also be used to estimate the long term effects of fees that eat into your investment. Example one A mutual fund charges 6% in annual expense fees. It will reduce your investment principal by half in about 12 years because 72 divided by six equals 12. Example two A borrower pays 8% interest on a credit card. They will double the amount they owe in nine years because 72 divided by eight equals nine. Estimating the effects of inflation, the rule can also be used to find out how long it will take for your money's value to have due to inflation. Example Inflation is at 4%. The purchasing power of your money will have in 18 years because 72 divided by four equals 18.

Producer Sam Davis:
So you just heard chapters six, seven and eight from Annuity 360. And once again, if you would like to request your free copy of Annuity 360. You can reach out a number of ways. You can go to Active Wealth. You can email four directly by emailing Ford f0r rd at Active Wealth. That's Ford at Active Wealth. Or you can give us a call. (770) 685-1777. That's (770) 685-1777. To request your free copy of Annuity 360 and schedule a free no obligation consultation with Ford while you're at it. So once again, to review the three rules that we just heard about in the audio book chapters, the rule of 100, the rule of 100 is a good fundamental to assess how much of your portfolio should be at risk in the market. So let's say you're 60 years old, you take 100, minus your age, 60, and the resulting number, 40, is the percentage of your assets that you should have at risk in the market. If you're younger, let's say you're 25, the resulting number would be 75. You can have more assets at risk in the market because you have more time to make up any big losses. The rule of 72 is essentially a planning tool. It can help you calculate how long it will take for your assets to double. So the rule of 72 is an important rule to consider as well. In the last rule, the 4% rule refers to the guidance that you shouldn't withdraw more than 4% of your assets each year so that your money can last throughout your entire lifetime. So thanks for sticking with us so far on the Active Wealth Show. When we come back, more chapters from Annuity 360. And don't forget to request your free copy now by visiting Active Wealth.

Producer:
We have Ford Stokes, author of two important personal finance books, Annuity 360 and taxes are on sale here on AM 920. The answer as the host of the Active Wealth show Saturdays at 12 noon and Sundays at 11 a.m.

Producer Sam Davis:
And welcome back to the Active Wealth Show. I'm Sam Davis, filling in for Ford Stokes. Today. We're listening to some audio book chapters from Annuity 360, and you can request your free copy of Annuity 360 by emailing Ford at Ford F or DH at Active Wealth visiting Active Wealth. Or give us a call at (770) 685-1777. That's (770) 685-1777. Up next, two chapters, chapter three and Chapter nine. Chapter three is an interesting chapter. It highlights some historical figures who invested in annuities. And Chapter nine is about how you can use annuities to build your own personal pension. Pensions aren't as common in the workplace these days, but you can actually use annuities to create a pension for you and your family.

Ford Stokes:
Chapter three Famous people who invested a significant amount of their hard earned wealth in annuities. Big idea. Annuities are for everyone. Even if you're not worried about outliving your wealth. Annuities are safer for your money than investing in stocks or bonds or simply not investing at all. Babe Ruth, known as the Sultan of SWAT. Babe Ruth came into his glory days during the Roaring Twenties, and his manager was worried that he was blowing through all of his money without putting any of it away. He introduced Babe to an insurance agent from the Equitable Insurance company, now AXA Equitable, from 1923 to 1929. The slugger contributed more than half of his salary annually, purchasing between 35,050 thousand worth of annuities each year. The Great Depression hit the country hard. In October of 1929. Babe Ruth was forced to retire from baseball in 1935 due to health reasons. He was unemployed during the worst time in history, but Babe Ruth had his income annuity. It's been reported that he received an income of $17,500 a year, which would translate into an annual salary of more than 290,000 in today's dollars. His famous quote still resonates today. He said, I may take risks in life, but I will never risk my money. I use annuities and I never have to worry about my money. Steve Young. Steve Young was signed out of Brigham Young University into a $40 million contract with the USFL. That was the headline, at least in reality.

Ford Stokes:
Young was given an annuity that would pay out something like $40 million over the 50 years that followed. Given the fact that some players were not paid for playing in the final season or other seasons of the USFL, accepting the annuity appears to have been a genius move on the part of either young or his agent. The annuity payments have lasted longer than the league, and it's safe to say that he's made more money than probably anyone else involved with the league. To be fair, it couldn't have happened to a nicer guy. Even with a large signing bonus and salary, he continued to wear old jeans and drive a 19 year old Oldsmobile dynamic in addition to outlasting the league. That annuity even outlasted the Oldsmobile car company. With a staggering number of pro athletes going broke after they retire. It's refreshing to read stories about players who made smart financial choices. Shaquille O'Neal. One player who's used annuities to his advantage is retired star Shaquille O'Neal. Over his 19 year career, he generated $292 million in total compensation in retirement. He is projected to make as much as $1,000,000,000 from endorsements, even after his career is long over, thanks to a wise agent who made him put $1 million annually into annuities from his rookie year onward. Shaq lives off the income the annuity generates with his endorsement legacy for his children. Shaq scenario demonstrates how pro athletes and other prodigious earners can protect themselves against their own personal spending errors.

Ford Stokes:
Allen Iverson. Nba player Allen Iverson earned $200 Million during his career, $155 Million in salary and 40 to $50 Million in endorsement deals. Iverson ended up going bankrupt because of his overly lavish lifestyle. In a December 2012 court filing, Iverson told the court that his monthly income was $62,500, but his expenses were 360,000. Luckily for Iverson, Reebok saved him from becoming destitute by paying him an annuity worth $2.3 million in 2001. Iverson made a very smart decision that would ultimately save him. He signed a unique endorsement deal with Reebok. Not only will Reebok pay Iverson 800,000 a year for life, they set aside a $32 Million trust fund that he can begin accessing when he turns 55 years old in 2030. Since he divorced his wife in 2013, he will receive half of the trust. Another way that Iverson will be able to protect himself against future bankruptcy is his access to the NBA pension. He is eligible for another 8000 a month. The lump sum of this pension is between 1.5 and $1.8 Million. Most pensions are set up with single premium immediate annuities. Benjamin Franklin. When Benjamin Franklin died, he requested that the 2000 sterling he earned as the governor of Pennsylvania from 1785 to 1788 be divided equally between Boston and Pennsylvania. He wanted the money to be dispersed as a legacy 200 years later in the spring of 1990. The balance in the Philadelphia account was valued at approximately $2 million, and the balance in the Boston Trust was about $4.5 million.

Ford Stokes:
This was sometimes called Franklin's IRA. The money in the Boston Trust was invested using a new take on an old idea. The annuity using a tax deferred index variety. The money was able to benefit from exposure to stock market growth without stock market loss. This allowed the trustees of the Franklin Institute in Boston to turn an estimated $4,400 into 4.5 million, even while it was paying out an income for 200 years. Beethoven, the social luminaries of Vienna, wanted to keep Ludwig van Beethoven from leaving their country. And so in 1809, two princes and an Archduke Guarantee the musician a generous annuity. All he had to do was stay in Vienna and compose and perform his music. His benefactors have supposedly been quoted as saying something along the lines of only a man free of worries can create with such genius. Interestingly enough, Vienna also saw its time of economic downturn, and one of the annuities guarantors tried to stop paying Beethoven claiming financial hardship. Beethoven sued one and continued to receive his annuity payments. Perhaps this is what inspired the literary genius of Jane Austen, whose character Fanny observes in sense and sensibility. People always live forever when there is an annuity to be paid, and annuity is serious business. It comes over and over every year and there is no getting rid of it. Chapter nine. You can create your own personal pension.

Ford Stokes:
Big idea. Using an annuity to create a personal pension helps you create a lifetime income stream, but it also helps you leave a legacy for your beneficiaries. Those who are approaching retirement are afraid that they will run out of money. But an annuity can help make sure you have an income you can never outlive. An annuity can be a great investment for your portfolio, but I encourage you to be careful that you don't overpay for your annuity. When you put your money into an annuity, the annuity company will pay you your money back at a date. You specify you don't want an annuity company to charge you too much to simply pay your money back to you. I'm confident that leaving a remarkable family legacy is important to you. You likely want to have money left over when you pass away to leave your beneficiaries. The goal of a personal pension is to generate lifetime income with no risk that grows your money and allows penalty free withdrawals. An annuity can create a lifetime income with market like gains and no market risk, while also allowing you to build enough wealth to leave your beneficiaries when you pass away. Don't give the annuity company fees for doing nothing. We prefer fixed indexed annuities for our clients that do not have an income rider fee. But you can still create a personal pension without an income rider on your annuity. If you get an annuity with an income rider but don't utilize the features of that income rider, then you are not getting what you paid for.

Ford Stokes:
You are literally just paying the annuity company 1 to 2% each year. You defer annuities in your annuity without receiving a single benefit for that annual fee. This income rider fee will also draw down your account value or principle, depending on how that index is performing. The growth on your entire account value could be significantly and negatively impacted. Some accumulation focused annuities are built to deliver increasing payments without an income rider. You should consider the features your income rider is providing you before deciding to purchase it as an add on. The longer you wait to turn on the annuity, the more you'll receive an annual payments. This is because your annuity will spend a longer time in the accumulation phase, meaning it will spend more time building up your account value. Your annual payments will grow as your account value grows. Believe it or not, you can generate your own personal pension by distributing no more than 5% a year with penalty free withdrawals. From your accumulation based annuity policy, many accumulation annuities are set up to be RMD friendly, so you won't suffer a penalty when you have to take your RMD. It would be silly for you to be penalized for something you are required to do. Annuity companies take this into account by creating products that make taking your RMDs easier. Inspect what you expect with any annuity.

Ford Stokes:
Don't just go with what the annuity agent or advisor tells you. Read it for yourself. Specifically, you should read the annuity illustration guaranteed and non guaranteed tables included within the annuity illustration. Also, please remember that annuity policy is a contract between you and the annuity company, so caveat emptor or buyer beware applies here. Be aware of the annuity you are buying and choose an annuity that works best for you. They will help you build a successful retirement and they'll offer you peace of mind. Whether you choose to generate income through penalty free withdrawals or invest annually in an income rider, know the consequences of both. This is a decision you will make at the beginning of the investment process. One poor decision here can cost you 1 to 1 and one half percent of annual growth over a 30 year retirement. This could come out to be a significant loss. Educate yourself on your options and the specifics of each option you are considering. Making the right decision up front will save you a lot of frustration in the long run. Also, please remember that if you withdraw too much annually, say 10%, you will run out of money in 10 to 12 years. Make sure that you're working with an advisor who can help you choose the appropriate withdrawal amount so that your money lasts for your entire lifetime. As discussed above, we recommend no more than 5% be withdrawn each year from your account.

Producer Sam Davis:
And we're back. You're listening to the Active Wealth show on AM 920. The answer. This is the final segment of the show. And we have just two more chapters from Annuity 360 to play for you. And once again, if you'd like to get a copy of Annuity 360, just give us a call at (770) 685-1777. Again, that number is (770) 685-1777. Or visit Active Wealth and you can reach us there. The last two chapters we're going to play today are chapters 15 and 17. From the book 15 pertains to how you can replace the bonds you currently hold in your portfolio with fixed indexed annuities, and some reasons why you may want to consider that as an option for you. And Chapter 17, which describes how you can purchase an annuity with your Roth IRA account. So we're going to play these two final chapters for today, and we'll be back after the chapters with the final Countdown.

Ford Stokes:
Chapter 15 Bond Replacement With Fixed Indexed Annuities. Big Idea. Historically, bonds have seen volatility when the market is volatile, fixed indexed annuities are not subject to the same volatility, which makes them a much safer investment. You might have heard a financial advisor talk about replacing your bonds with annuities to protect your wealth and grow your retirement funds. And my firm Active Wealth Management, we believe this is a smart way to protect your future. Many people have learned that bonds are a safe way to invest your money, but there are some downsides to bonds that should make you think twice. We'll talk about some reasons why you should consider replacing your bonds with annuities. First, here's some information on the history of bonds in the United States. Historical bond volatility. The 1900s saw two secular bear and bull markets in US. Fixed income inflation peaked at the end of World War One and World War Two due to increased government spending. The first bull market started after World War One and lasted through World War Two. The US government kept bond yields artificially low until 1951. The long term bond yields were at 1.9%. In 1951, they climbed to nearly 15% in 1981. In the 1970s, globalization had a huge impact on bond markets. New asset classes such as inflation protected securities, asset backed securities, mortgage backed securities, high yield securities and catastrophe bonds were created early. Investors in these new asset classes were compensated for taking on the challenge. The bond market was coming off its greatest bull market coming into the 21st century. Long term bond yields declined from a high of 15% to 7% by the end of the century.

Ford Stokes:
The bull market in bond showed continued strength in the early 21st century. But there is no guarantee with our current market volatility that this will hold. See Chart 15.1 to see the incredible difference of investing in a fixed index annuity versus investing in bonds. Why you should consider replacing your bonds with annuities. The first question you should ask yourself is this Why would you take market risk with your bonds when your bonds can lose their value? If you just look at the history of loan, you can see how uncertain the future of bonds is. Inflation and fluctuating interest rates play a big role in bond yields. Interest rate risk of bonds. Bonds and interest rates have an inverse relationship. When interest rates fall, bond prices rise. Due to the COVID 19 pandemic, investors have moved their money to bonds because they believe it is a safer investment option. However, this has caused bond yields to fall to all time lows as of May 24, 2020, the ten year Treasury note was yielding 0.64%, and the 30 year Treasury bond was at 1.27%. Reinvestment risk of bonds. This is the likelihood that an investment's cash flows will earn less in a new security. For example, an investor buys a ten year 100,000 Treasury note with an interest rate of 6%. They expect it to earn 6000 a year. At the end of the term, interest rates are 4%. If the investor buys another ten year note, they will earn 4000 instead of 6000 annually. Consider the possibility that interest rates change over time when deciding to invest in bonds.

Ford Stokes:
Systematic Market Risk. This refers to the risk that is inherent to the market as a whole. It will affect the overall market, not just a particular stock or industry. This can be unpredictable and it is impossible to avoid. Diversification cannot fix this issue, but the correct asset allocation strategy can make a big difference. Unsystematic Market Risk. This type of risk is unique to a specific company or industry, similar to systematic market risk. It is impossible to know when unsystematic risk will occur. For example, if someone is investing in health care stocks, they may be aware of some may. Major changes coming to the industry. However, there is no way they can know how those changes will affect the market. There are two factors that contribute to company specific risk. Business risk. There are two types of risk internal and external. Internal refers to operational efficiency, and external would be similar to the FDA banning a specific drug that the company sells. Financial risk. This relates to the capital structure of a company. A weak capital structure can lead to inconsistent earnings and cash flow that can prevent a company from trading reduced advisory fees. Investors who trade individual stocks may know how much commission they are paying their broker, but individuals who buy bonds often have no idea what type of commission they are paying. Bond dealers collect commission on bonds. They sell called markups, but they bundle them into the price that is quoted to the investors. This means you are unaware of how much commission you are actually paying.

Ford Stokes:
Standard and Poor's estimates of bond markups is 0.85% of the value for corporate bonds and 1.21% for municipal bonds. However, markups can be as high as 5%, up to $50 per bond. Bonds have finite durations. Bonds only provide income for a finite amount of time, unlike an annuity which provides income for life. You must reinvest your money if you want to continue generating interest with bonds. However, reinvesting with a bond can sometimes come at a loss. As we discussed above, annuities will provide you with an income you can never outlive. Chapter 17. You can buy an annuity with your Roth IRA account. Big idea. Many people don't know this, but there are at least five annuity carriers who allow you to invest your Roth IRA account into a fixed indexed annuity, and many others are beginning to follow suit. A Roth IRA is an individual retirement account. Ira, under United States law that is generally not taxed upon distribution provided certain conditions are met. The principal difference between Roth IRAs and most other tax advantaged retirement plans, like IRAs for one case, for three B's, for 57 sprays, etc. is that contributions into the Roth IRA are invested with after tax dollars and qualified withdrawals from the Roth IRA plan are tax free, and growth within the account is also tax free. The Roth IRA was introduced as part of the Taxpayer Relief Act of 1997 and is named for Senator William Roth, who introduced and sponsored the legislation. This may surprise you, but you can actually invest your Roth IRA account into a fixed indexed annuity.

Ford Stokes:
As of the printing of this book, there are five annuity carriers that will easily accept a full Roth IRA conversion from your IRA. There are only three annuity carriers that can handle partial conversions, but more carriers are adjusting their business operations and illustration software to accommodate Roth IRA investments into their annuity products. The largest annuity carrier in the United States allows for Roth IRA investment into their annuities. They allow Roth IRAs in all of their current fixed indexed annuities, full and partial with some parameters, including number one. Roth conversions will create new policy numbers, so they will show in separate accounts. But this does not change any product feature or the surrender schedule with the annuity product. Number two, conversions must be at least the product minimum premium between 10,020 thousand each. Therefore, you cannot implement a Roth conversion that is less than 10 to 20000, depending on the annuity product. The title of my next book is Taxes Are on Sale. I will cover all the aspects of Roth IRAs, Roth IRA conversions and why now may be the best time to kick the IRS out of your retirement account with a Roth IRA conversion? I believe that taxes will likely increase in the future, so a strategic Roth Ladder Conversion will help reduce your future tax risk and save you six figures in taxes paid during your 30 plus year retirement. Please do not let your current Roth IRA account or your desire to convert your IRA to a Roth IRA impede you from investing into a fixed indexed annuity. It's the final.

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

Producer Sam Davis:
So on today's show, we heard a number of chapters from Annuity 360. We learned about three important rules of investing. We learned about some historical figures who invested some of their hard earned wealth into annuities. And we also learned about some different ways annuities can be used, whether it's creating your own personal pension or replacing the bonds you currently hold with fixed indexed annuities. Thanks for listening to the show again and one last time, if you'd like to get your free copy of Annuity 360 to learn for yourself all about annuities, which ones to avoid and which one to buy for a successful retirement. Give us a call at (770) 685-1777 or visit us online at Active Wealth. Thanks for listening and we'll be back again next week.

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:
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:
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..

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