I once spoke to an agent that had called me up to discuss a YouTube video where he saw me discussing Annuity GLWB (Guaranteed Lifetime Withdrawal Benefits) riders and how they have never been more lucrative from a standpoint of the levels of guaranteed lifetime income that they are currently offering. He was a novice with annuities and was wondering if I could answer a few questions to help him understand how these GLWB riders worked. I was happy to take his call.
However, we got off on the wrong foot as one of the first questions he asked and the way he asked it lacked integrity. He asked me this: “Hey, just between me, you, and the fencepost, are these things really very good for the clients?” Almost like he wanted me to “come clean,” change my stance, and tell him that these GLWBs were not that good after all.
What was my response? I sarcastically said, “No, they are not. I only say they are good in all of my agent training and client meetings that I have been doing since the GLWB invention around 20 years ago because I am only trying to make money by selling snake oil.” He immediately understood that I was being sarcastic.
I then went on to tell him that if I did not wholeheartedly believe in a product or a strategy then I would not discuss it as a feasible strategy. (Note: I would hope that he would view his responsibilities to his clients the same way, but I digress.)
I tell that story because there are some that genuinely believe in what they are selling and some, well, not so much. Similar to how politicians often spout out information to tow the party line when there is no way in hell that politician actually believes what they are saying. For politicians, it’s almost like getting the vote is the end that justifies the means of telling lies. I would like to say that in finance/insurance there are no “salespeople” that view the end sale as justifying their sales pitch, even if they are “selling” something in a disingenuous way. To believe that mentality does not exist in finance/insurance would be extremely naïve.
Effectively, what the agent was asking me was, “Do you really believe in these GLWBs that you are saying are great?” My answer is, I would die before I pitched products and strategies that I did not have 100 percent belief in.
But those previous paragraphs are just words right? How do you know if somebody genuinely believes in what they are offering? If they own it themselves!
Now, I am not of the belief that you need to own a product for you to be 100 percent genuine about selling that product. I have heard that before from some folks and I think that is flawed. For instance, when I was 30 years old discussing GLWB annuities, I did not own one. I was too young to own basically any GLWB that existed! Besides, imagine if car salespeople had to own all the cars that they sold to truly demonstrate a belief in those cars. That would require a lot of money and a big garage! Furthermore, we are not always in the demographic group that we are selling to.
Well, at a ripe age of 46, I am now entering the “demographic group” of those that buy the GLWB annuities that I have been preaching about for decades. And, they have never been better from an income standpoint than today. So, what did I do? I bought a GLWB annuity because I believe in having a chunk of my portfolio in “longevity insurance.”
What we did was put a small chunk of our portfolio into an annuity with a GLWB that will provide the highest “joint lifetime payout” for me and my wife. The payouts would start around 15 to 20 years from now.
Thoughts That Went Into My Analysis. Pros and cons of buying a GLWB today.
- Pro: GLWBs started in the Variable Annuity space in the early 2000s. Over that period of time, they have never paid higher levels of income than today. That is over two decades! Today’s high payouts are not the norm, but the exception.
- Pro: GLWB payouts are starting to get adjusted down because of interest rates. A couple decades from now, I don’t want to look back and say, “I should have locked in some money during that lucrative time.”
- Pro: The next couple of decades could be treacherous in the stock market, where I have a large chunk of my money. It would make sense to “lock in” a guaranteed income stream with a small chunk of our money.
- Pro: My wife has great genetics. She may live forever! So, locking in for a “Joint” lifetime payment may be a winning proposition for us. The longer she lives, the more money she gets from the carrier.
- Pro: Based on cash flow analysis, if we both live to life expectancy, we will have “internal rates of return” on the income of well over six percent. If we/she lives forever, the sky’s the limit! Six percent is not a bad “bond alternative” return.
- Pro: By “locking in” with some of our portfolio, we can be more aggressive with the rest of our portfolio without worrying about financial ruin should the markets plummet.
- Con: It is possible that interest rates go up over the next couple of decades and there will be better products at the time. It may have been better to wait.
- Con: It is possible that our “securities portfolio” continues to do well over the next couple of decades, which makes it an “opportunity cost” to put money in a GLWB today.
- Con: If we want to change our mind, there would likely be surrender charges.
- Con: We will likely never run out of retirement dollars if we just left the money in a stock/bond portfolio and drew from it, along with Social Security and Pensions.
The last bullet point is important because many people believe that if you have enough money, where running out of money in retirement is not an issue, then GLWBs are not necessary. That is flawed. Even though I will not “need” to take income from the annuity 15 years or 20 years from now, I will indeed force myself to activate my income. Why? Because that is the way I would get a potential six percent, seven percent, eight percent “internal rate of return” on that money I put into the annuity. I want to get into the insurance company’s pockets as much as possible. As a matter of fact, activating income in 15 years will yield me a larger rate of return than waiting until 20 years. Will I need income at age 61? No, but I want that cash flow, like a dividend.
The balance between the “Pros” and “Cons” above is why I opted for a small chunk of our portfolio to go into a GLWB, at least at this stage in life. By the way, the balance of those “pros” and “cons” is also why carriers limit the amount of a client’s Investable Assets to go into annuities.
