Annuities - Are They For Me?

Annuities are something that often gets paired with Life Insurance if you are ever discussing it. What is it? What kinds are there? Is this the right or best thing for me? Let's go into details about these things so you can make an informed decision whether early in your career life or wrapping up.

Also we show our ignorance in different languages. If that's your thing.

Transcript

Chris Holling: 0:00

This is the truth about investing back to basics podcast where we want to help you take control of your personal finance and long term investments. If you're looking for a way to learn the why and how of investing, then you found the right place. Thank you for taking the time to learn how to better yourselves. I guess I should I should introduce us maybe. Welcome back, everybody, ladies and gentlemen, to another episode of The Truth about investing back to basics. My name is Chris Holling.

Sean Cooper: 0:41

And I'm Sean Cooper.

Chris Holling: 0:42

And I want to apologize for a little bit of a hiatus we had we are still in the same season. But I mean, holiday season kind of happened. We had some other stuff kind of happened at home in our life. Everything is okay, calm down. Nothing, nothing a little, long term therapy won't fix. And and we're still finishing out through the rest of this process where we're talking about life insurance, but into annuities today, and we are touching on annuities today. Right, Sean?

Sean Cooper: 1:15

Right. Yeah. I might actually get some transcripts up for, you know, the handful of people that care about those two.

Chris Holling: 1:22

Yes, both of them.

Sean Cooper: 1:24

Yes.

Chris Holling: 1:25

And

Sean Cooper: 1:26

Does two qualify as a handful,

Chris Holling: 1:29

you know,

Sean Cooper: 1:29

I guess it depends on the two right?

Chris Holling: 1:31

We talked about that, where they're like a bushel meant, like 56 pounds. And then there's like, I use murder for every opportunity. I get like a Murder of Crows like a flock of geese.

Sean Cooper: 1:42

Which doesn't actually apply to anything else. But that's fine.

Chris Holling: 1:45

Oh, it's great. That's why I think it's hilarious. Like, Oh, can you can you grab a? Can you grab that? That murder of leaves over there? Yeah, it's a big, it's a big pile that murder over. I was talking to Andrew, you know, Andrew, Andrew, the other day, and we were having a conversation about that. And there was shoot, I think I'm gonna look it up for sure. Just so that I'm not completely making it up. I thought there was a group of something called a rude

Sean Cooper: 2:17

I believe there is. That's the one I always lose sight of our can't remember a bale.

Chris Holling: 2:24

a bale of hay.

Sean Cooper: 2:26

Yeah, except it's a group of turtles. So every time somebody says, we're off, like a herd of turtles. It's actually a bale. Yeah.

Chris Holling: 2:37

Dang it, I can't find it. Well, anyways, there's some group of animals that is known as a rude and we'll just for the same purpose. We'll just we'll just say it's turtles. And then we were talking about how that group of animals so in this case, turtles would go by be like, Oh, it's a rude of turtles. And instead of like saying that entirely the animals would go by and you go, Oh, that was rude. So the rest of the time that we were hanging out, we'd, we'd see like a group of people, or a group of animals, or something would go by, and instead of like, Oh, look at that murder of turtles be like, Oh, that was rude. So now so that's, that's what I do now. When groups of whatever go buy me a. That was rude. Okay, well, this

Sean Cooper: 3:28

now we really digress. Anyway,

Chris Holling: 3:30

we're not. This is not that podcast. So I think the best way to introduce our process into annuities is actually worded pretty well in the same conversation we had briefly right before we started recording this where Sean Sean said, Hey, Chris, do you? Do you have any? That's my Sean impression. Do you have any experience with annuities? I said, Well, if I can remember if you if you tell me what they are, how much how much experience I got with them. So I'm not I'm not feeling too confident on this one. But it's a distinct possibility. I at least know what they are. Maybe. So, I would assume based on the word annuity that by definition would dang it investor came up immediately. I was hoping

Sean Cooper: 4:37

Investopedia no use Investopedia

Chris Holling: 4:40

no but I want okay, Investopedia

Sean Cooper: 4:47

Are you are you looking for a

Chris Holling: 4:49

I was gonna find the root word of annuity from annual meaning yearly and it t meaning so that's That was the route I was trying to get

Sean Cooper: 5:01

Gotcha.

Chris Holling: 5:03

According to Investopedia, the term refers to an insurance contract issued and distributed by financial institutions. With the intention of paying out invested funds and a fixed income stream in the future. investors invest in or purchase annuities with the monthly premiums or lump sum payments. The holding institution issues a stream of payments in the future for a specified period of time or for the remainder of the annuitants life. Annuities are mainly used for retirement purposes and help individuals address the risk of outliving their savings.

Sean Cooper: 5:45

Yep.

Chris Holling: 5:47

Thank you, this has been the truth about investing back to. Okay.

Sean Cooper: 5:52

So now that you know the definition,

Chris Holling: 5:54

now that I know the definition, I have done absolutely nothing with annuities.

Sean Cooper: 6:00

That's fair

Chris Holling: 6:01

personally. But you know, also, for whatever it's worth, I don't feel like not that I went looking for it, but I don't feel like I ever had the opportunity. Like I never had anybody that was like, Hey, are you interested in also partaking in annuities? Even Even though I've had life insurance forever? If that makes sense,

Sean Cooper: 6:20

no, it does

Chris Holling: 6:21

Iike has never come up.

Sean Cooper: 6:21

i It's a little surprising, but at the same time, I can explain why it wouldn't have come up based on your life insurance experience.

Chris Holling: 6:30

Because it's Term Life, and I'm just part of the the cogs in the wheel part of well on the hamster wheel

Sean Cooper: 6:38

more specifically, because depending on what type of annuity we're referring to, so life insurance only requires to be sold only requires a life insurance license in your state. Whereas annuities depending on the type of annuity typically require some kind of FINRA examination Series Exam. Six, I think six is the one that gets you that fixed annuities possibly indexed annuities, and then you have to have the seven to do variable annuities. So if they have an insurance license, but they do not have one of the series examinations, then they they're not bringing up annuities because they can't.

Chris Holling: 7:21

Right. Sure. I guess that makes sense.

Sean Cooper: 7:26

They don't have tools in the tool belt.

Chris Holling: 7:28

Right. Okay. Well, fair enough. So that's why I've never come across it before. So apart from just the the open textbook definition, why don't you give me a Sean definition? How's that? Or is this the Sean definition?

Sean Cooper: 7:44

No, that was just an explanation. Yeah, so there's a couple different factors. Basically, an annuity is a combination of an in investment, and insurance annuities are offered, in fact offered by insurance companies, because there is typically some form of guarantee depending on what stage of the annuity, what type of annuity, what riders are tacked in there, but there's typically some side type of insurance built into it or added to it. So it is the combination of the two, and but outside of those that insurance link, the other aspect of it that people often relate to annuities is the tax deferral. So it is as you pointed out, designed to be a retirement vehicle to provide an income stream in retirement and because of that the government does offer some tax benefit, not the same level of tax benefits that you would derive from your typical retirement accounts like your 401k IRA or SEP simple 457 403. B etc. You know, where you either get a tax deduction when you make the contribution or it comes out tax deferred when you withdraw it as you would as it would be with a Roth. But inside of that it does grow. Your retirement accounts grow tax deferred, and that is where an annuity is somewhat similar in that the investment earnings do grow tax deferred, you don't get a tax benefit. When you make the deposit. You don't it doesn't come out tax free when you withdraw it, but it does grow tax deferred. And depending on how you pull the money out, you can get it make it somewhat more tax favorable, if you will, when you pull out the money, but that's not a guarantee and it's it's definitely not tax free when you pull it out. So just the tax deferral is the other advantage as far as what people associate with annuities.

Chris Holling: 9:55

Is this something that's only available to you in whole life?

Sean Cooper: 9:59

No, it has Nothing to do with your with life insurance.

Chris Holling: 10:02

Okay, I was just I mean rereading the definition when it was saying it refers to an insurance contract issued and distributed. I was trying to figure out if it pairs with it. And that's, that's why we're trying to mix it into the season. So where it's an additional insurance contract? Is that what you're saying?

Sean Cooper: 10:19

It would be a completely separate contract?

Chris Holling: 10:21

Separate contract?

Sean Cooper: 10:22

Yeah. So

Chris Holling: 10:24

I'm talking to the guy, I'm sorry,

Sean Cooper: 10:25

you, I was just gonna say that annuities and their, their primary, one of their primary goals is to provide an income stream for life. So throughout the life of your throughout your retirement. So in that regard, it is designed to insure against longevity risk, so insure against outliving your assets. So from that standpoint, it is actually the exact opposite of life insurance, where you're with life insurance, you're insuring against premature death, essentially, with an annuity you're insuring against living longer than your assets.

Chris Holling: 11:11

Okay.

Sean Cooper: 11:12

And that also depends, because not everybody uses an annuity in that way. But that is, what part of what the insurance side of it is designed to do.

Chris Holling: 11:24

Okay. And, and so that's a, I'm talking to the guy that is selling me life insurance, or that I'd like to buy life insurance from, and they also offer annuities. And so then we discussed the possibilities of payout in death, as well as the possibility of exceeding a, a level of assets and it helps cushion some of that. Beyond beyond living out assets. Is that what you're? I'm, I'm kind of trying to piece it all together. What is, is a reverse mortgage, an annuity? Or is that like a different approach that people are trying to use in place of an annuity?

Sean Cooper: 12:09

It would be a different approach in place of an annuity. It's the reverse mortgages designed to use for income, potentially in retirement and hopefully, can should be used. Hopefully, you can't be out live, depending on how you pull the money out. Again, it depends, but it would be an al an alternative, if you will.

Chris Holling: 12:37

Sure. And that's and that's what we talked about before I was just I was seeing if it was like a different wording for that, or if it's something that's completely unrelated. Okay,

Sean Cooper: 12:45

yeah, completely, completely different, but they are alternative means of generating cash flow in retirement, potentially, again, the annuity also has an accumulation piece to it. That's the investment side of it. So

Chris Holling: 13:04

and so to meet the criteria of an annuity, I'm assuming you're, you're paying like I could buy annuities currently, right? And pay until until a certain age or do I just pay it?

Sean Cooper: 13:20

Ah, see, so you're getting at an aspect of it, and that is that there are two basic types of annuities. There are immediate annuities and deferred annuities now and you and you can pay for each of them in well. Both of them can be paid in as a lump sum. However, the deferred annuity can also be paid in stages. So with an immediate annuity, it has to be paid as a lump sum, you have to pay into it as a lump sum or buy it as a lump sum, because there is no deferral portion to it. Whereas the deferred annuity, you can potentially invest in it over time. So however often you want to put money into it, whether that's monthly, quarterly annually, whatever. But yeah, so basically, there's immediate annuities and deferred, so the annuity annuitization actually refers to the the product from an income stream standpoint. So when you actually start taking withdrawals, so if it's an immediate annuity, you have to deposit all the funds upfront, because you're going to start taking withdrawals right away. And there's no point in taking withdrawals and also depositing funds at the same time. That

Chris Holling: 14:44

right

Sean Cooper: 14:44

doesn't really make sense. So and there's a number of different ways. So typically, if it's an immediate annuity, you're you're using it for a guaranteed stream of income either for a set period of time or for your life or for your and your spouse's life or for your life and a set period of time. There's a variety of different options. But basically, the annuity Company takes your money and says, Okay, this is the interest we can earn on this money. This is your life expectancy, if you want to take this money as a guaranteed stream of income for your life, this is the amount we'll pay you on a monthly quarterly or annual basis

Chris Holling: 15:32

based on the lump sum,

Sean Cooper: 15:34

correct.

Chris Holling: 15:35

Okay,

Sean Cooper: 15:36

exactly. But they're guaranteeing that so they are taking on your longevity risk and the potential market risk. So that's where the insurance side of that comes into play. As opposed to you taking that same lump sum investing it, however you you see fit, and then withdrawing money as needed, and you risking that you run out of money, the insurance company is taking on that risk for you. So that's where it's an insurance contract in that you are transferring risk. Okay, so obviously, you're paying for that in some way. Typically, when they're doing their analysis, and they say, Okay, well, we can earn this much, by investing your money. If it's an immediate annuity, it's probably in some sort of fixed income. investment vehicles. In fact, they have some fairly strict guidelines, they have to follow from the federal level to qualify. But at any rate, whatever they're getting, is not what's being applied to your account in your withdrawals, there's a cushion there, that they're making sure, again, that they have a profit and can stay in business. That's where the actuaries come in. So but they're taking on that risk of you, outliving your actual assets for you, because even if you do outlive your life expectancy, by, you know, such an extent that your assets would have dried up, the insurance company is on the hook to continue paying if you took that lifetime income option.

Chris Holling: 17:24

And I imagine the amount that you're paying the premium or whatever it is, is depend on how much of a risk you are that you're going to run out of assets. Is that also part of it?

Sean Cooper: 17:37

Yeah, they don't do, they typically don't do the same extent that a an insurance company would per se, it's like for for life insurance, I mean, but yes, there's, it's still going to be based on your age, it's going to be based on your sex, which impacts your life expectancy, that sort of thing. So that is going to be taken into account. So where, and that again, is kind of where it's a little bit different. So for example, for a woman, if she's buying life insurance, her insurance premiums are going to be lower than a man's because her life expectancy is going to be longer. So if we're talking about two people that are the same age, roughly the same health, the woman's life insurance premiums are going to be lower because her life expectancy is longer with an annuity. Because we're insuring against the exact opposite, her payout on an annuity is going to be lower than a man's because it's more likely that the man will die earlier and therefore have money leftover in the account.

Chris Holling: 18:40

Sure, yeah, that makes sense.

Sean Cooper: 18:41

So it's the exact opposite in that regard, which is also why so if you, we talked about these options that we talked about, for you can have a stream of income for a set period of time. So say 10 years versus your life, depending on when you start that the 10 years, you know, if you're 65, and your life expectancy is 80, then the 10 year is going to have a higher payout then based on your life, then your life expectancy would,

Chris Holling: 19:11

right.

Sean Cooper: 19:11

Similarly, if you ensure joint lives, so you ensure you and your spouse, that's going to have a lower payout than you alone.

Chris Holling: 19:19

Sure.

Sean Cooper: 19:20

And then again, if you you do your life plus a period certain so that 10 years in our example, or 20, or whatever you do, that's going to have a lower payout than your life alone is well.

Chris Holling: 19:34

Yeah, I mean, it all make sense.

Sean Cooper: 19:35

So, but that's just the annuitization phase. That is when you actually start pulling the money via annuitization. And that it and that applies whether it's an immediate annuity or a fixed or a, sorry, a deferred annuity that just doesn't address the accumulation phase of a deferred annuity. So a deferred annuity It actually has a phase in which the account can grow. So with the the immediate, you dumped in a lump sum, they took it and they said, Okay, this is the income stream, we can provide you based on your selections of how long it's supposed to last, right. With the deferred annuity, you're investing either a lump sum or an amount plus monthly contributions, annual contributions, what have you, and it grows over time. And then later on down the road. So deferred, is when you decide, Okay, do I want to take this money out as a lump sum? Or do I want to annuitize it, so get you back to that same phase. But those are the two basic types, so immediate and deferred. And then within the deferred realm, there are three additional basic types of annuities. So that can be broken down into three additional types. And that would be a fixed annuity, a fixed indexed annuity, or a variable annuity.

Chris Holling: 21:05

Alright, and that's all based off contributions or, sorry, I'm getting ahead of it. What does what do they mean, Sean?

Sean Cooper: 21:13

So those have nothing to do with the the contributions that you make. They have everything to do with how the annuity grows, the they have do with how it accumulates, aside from your contribution. So you can still you still have flexibility on your contributions, whether you do a fixed annuity, a fixed indexed annuity or a variable annuity, the contributions are still up to you. Whether you do a lump sum or contributions along the way, and you don't you don't even have to have set contributions like it doesn't have to be I'm going to contribute this amount on a monthly basis. You can go okay, well, I have this much this year, I'm going to throw that much in next year, next month, I have a little bit less, I'll throw that in. So you have that flexibility on the contribution side, regardless, but not with the immediate annuity, of course, but with any of these deferred annuities, where the fixed, the index and the variable annuities differ is how they grow. So with a fixed annuity, it is very much what it sounds like your account value will grow at a fixed rate, a stated interest rate guaranteed by the insurance company, now that I use, stated and rate and guaranteed somewhat interchangeably, because the initial stated rate on a fixed annuity contract is not always the guaranteed rate on the annuity contract, meaning meaning they might say, Okay, we're offering a fixed annuity at 5%. So it will grow at 5%, the guarantee is one and a half percent. So the insurance company will make every effort to continue to pay the 5% on your account. But if things go poorly, they can reduce that by a set amount annually and by down to whatever that guaranteed rate is now that guarantee, again, is backed by the faith and paying ability of the insurance company. So if they go bankrupt, that guarantee is still potentially out the window. Now there there there are reinsurance companies that will then step in most insurance companies are required to pay for reinsurance. And then there's other factors that come into play, but the guarantee is backed by the full faith and claims of claims and paying ability of the insurance company. So, you want to make sure they are a strong company that will actually be able to pay their Guaranteed Rate preferably a strong enough company to pay their stated interest rate whatever they convinced you to buy it at that fixed rate also can be somewhat variable in that many insurance companies will offer a types of fixed annuities where they pay a higher rate up front or they throw a bonus in initially to essentially entice you to to jump on and then the stated rate after that is lower. So

Chris Holling: 24:43

okay.

Sean Cooper: 24:46

But that that's the fixed annuity. So a somewhat fixed but also somewhat flexible fixed rate guaranteed by the insurance company, fixed index annuity would have an aspect of the fixed annuity as it sounds, in that they have a stated rate that the contract will pay on your investment. And that that stated rate is going to be typically quite a bit lower than a fixed annuity. And the reason is that the company is taking on some additional risk in that the second aspect, the indexed portion of the annuity allows you to participate to a certain degree in market gains. So typically, your investment can also be tied to an index like the s&p 500. Okay. And so the way that works is basically they take and track the index, the s&p 500. In this scenario, there are other indexes that that you can be tied to. And depending on how much it goes up, they will credit that to your account. Now, if it goes down or does doesn't go up by as much as the guaranteed amount, they will credit that instead. So that's the the other aspect of the insurance potentially is your guaranteed growth.

Chris Holling: 26:26

So the idea is that, you know, they say, we're, we're going to make sure that you match up with the s&p. And if you were we're always going to give you 2% No matter what, but if the s&p does 5%, this year, then you get 5%. Is that what you're saying?

Sean Cooper: 26:43

To an extent? Yes, that is the idea. Yeah, so you get a little bit more, you get that market participation for a little bit more upside than you would on a fixed annuity. But your your guarantee is also lower. So you're accepting more risk for the potential of more upside in

Chris Holling: 27:02

where your fixed might be a guaranteed 3% instead of a 2%.

Sean Cooper: 27:06

Right.

Chris Holling: 27:07

Okay.

Sean Cooper: 27:08

Right. So, yeah, yep, you're giving up some, some guaranteed growth for potentially more non guaranteed growth.

Chris Holling: 27:19

So I imagine the variable is something that's exactly

Sean Cooper: 27:24

Before you get to that, actually, you're getting a little bit ahead of me, because

Chris Holling: 27:29

I'm feeling so smart right now, Sean, I'm just, I'm feeling it, the groove is,

Sean Cooper: 27:33

if you can hold on to it for me, hold on to it for me. So because there's a very important aspect of the fixed indexed annuity that people need to understand, and that is, in almost no scenario, are you going to get to participate in all of the upside of whatever index you're tied to?

Chris Holling: 27:54

Okay,

Sean Cooper: 27:55

okay, they almost, I have yet to see an annuity contract that doesn't tether your upside, in some way, shape, or form. Typically speaking, we're talking about a cap, a market participation rate, or a spread, or potentially even a combination of those of two or more of those. And, you know, insurance companies may have come up with new fangled words for these or new methods of tethering your performance as well. But it's important to understand this when you're buying a fixed index annuity, because your your upside is not the full upside of whatever index you're tied to. So to explain this further, with a cap, typically speaking, they're putting a set amount to the maximum that they will credit your account in a given year. So say for example, an 8% cap, if the index is up 15% You're credited 8%

Chris Holling: 28:59

Gotcha. Okay,

Sean Cooper: 29:00

if the index is up 5% You get the full 5% Okay, the second would be market participation rate. So, you get a participate in a set percentage of the market. So for example, say 80%. So, if the index is up that 15% we talked about before you get 12%. If the index is up 5% You get 4%.

Chris Holling: 29:27

And then and then just to reiterate on the on the strict fixed side, it's just a percentage like if you do 15% in the market, then you're still holding it whatever your agreed upon percentages.

Sean Cooper: 29:41

With fixed fixed annuity. You are not in the market at all.

Chris Holling: 29:45

Okay, that's what I thought, okay.

Sean Cooper: 29:46

Yeah, the insurance company pulls everybody's money and they invest it in basically fixed income investments. You are no longer tied to the market. Personally. The insurance company is taking your money, they're investing it in their general account and crediting you whatever their their fixed rate is. And, yeah, market's no longer relative to relevant to you at that point.

Chris Holling: 30:15

Whereas if it's a variable.

Sean Cooper: 30:17

No, one more one more

Chris Holling: 30:19

Dang it

Sean Cooper: 30:20

No, we covered the cap, we covered the market participation, rate? There's also the spread. So

Chris Holling: 30:26

okay,

Sean Cooper: 30:27

the insurance company could impose a spread on what you're credited. So for example, a spread of say, 2%. So if the markets up 15%, you get credited 13%, if the markets up 5%, you're only credited 3%. So they always take their 2%.

Chris Holling: 30:43

Okay.

Sean Cooper: 30:44

Lastly, if they were to mix some of these, so say, for example, they did a participation rate of 80% with an 8%. Cap, then again, in our example, 15%, we, you would get the 8%, because you're of the 8% cap, so you get credited whatever the lower of the two is, so in that case, 15%, you get eight, but if you it's 5%, you get four, so the 80% participation rate kicks in.

Chris Holling: 31:13

Okay,

Sean Cooper: 31:14

so all that makes sense?

Chris Holling: 31:16

Yes, I think so.

Sean Cooper: 31:17

So basically, what it is, is the insurance company, because they're offering still offering you a guarantee, but still allowing you to participate in the market to a certain degree, they still have to make their money. So they're, they're getting a portion of whatever your participant, your market gains are in order to offset. So

Chris Holling: 31:42

it makes sense

Sean Cooper: 31:42

now, now you can fire away,

Chris Holling: 31:44

whereas if it's a variable? Well, no, I actually just wanted to say that it's interesting, because I have not had personal experience with with annuities like we were talking about, like we assumed, but I do have family members, I do have people that I work with that, that are involved in annuities that have looked into these things, I just didn't know that there was a title attached to it. And specifically, I know that the fixed indexed annuity attracts a lot of them. So that's, I just never had a name to it before. So that's, that's good to know. And so a variable would be where you're literally just ridding the market, I imagine they probably have like a cut off of like, you know, 1% or something on the low end, but I guess I don't know that for sure. It's probably just a, whatever happens to the market happens to you kind of kind of Gambit, I would guess.

Sean Cooper: 32:39

Yeah, yeah, to a certain extent, a variable you are invested in the market. So you have basically two components, the primary component is the variable sub accounts. So you're actually choosing what you invest in, or potentially the insurance companies still choosing to a certain degree,

Chris Holling: 33:03

sure,

Sean Cooper: 33:04

but you can actually choose amongst their sub accounts, you can choose what you invest in. Oftentimes, with a number of restrictions, but you have that flexibility, you are actually participating fully in the markets less the many costs associated with an annuity. But that that gives you the most upside potential of the three.

Chris Holling: 33:31

Okay.

Sean Cooper: 33:33

Now, the second component is you can also, you know, some some of these variable annuities will still have some basic level of guarantee baked in, but more likely, you actually have to add those on as a rider to the contract. So you pay extra for some sort of guarantee on top or in conjunction with your variable market returns. And typically, the way that works is the company will evaluate your, your performance and if you You've done well, in the market, you often will have some sort of lock in of your market gains and those are known as step ups in basis.

Chris Holling: 34:19

Okay.

Sean Cooper: 34:20

And then your your guaranteed rate is really only relevant if the market does poorly.

Chris Holling: 34:28

Sure,

Sean Cooper: 34:28

now, the guarantee can potentially work off of it depends on the contract, but the the guaranteed rate will often work off of whatever your stepped up basis is. But if the market does poorly, initially, like in early years of the contract, the chances of getting market based step ups in the future is greatly diminished and you end up reliant on the whatever the guaranteed rate is. But yeah, you've got the basic idea is you're This has the most upside potential with potentially the least amount of guarantee or insurance in terms of growth unless you tack on a rider which can actually give you even more of a guarantee than some of the the other options out there, but you are paying for it. And the other. The other thing to keep in mind is, like I said, although you have flexibility in terms of the sub accounts that you are investing in, so the investments that you're actually choosing to put your money in, most annuity companies are still going to put restrictions on that because they don't want too much risk on their books. And so they might put a restriction of saying that your your overall account cannot be more aggressive than say 60% equities or stocks and 40% bonds or fixed income, or it might be like an 8020. So 80% equity, 20% fixed income, that's fairly typical. Now to most of the time those aren't, those restrictions are tight, tied in with a rider so you buy a rider for a guarantee, they're gonna say, Okay, well, we're going to restrict how you invest your your assets to try to limit their, their the risk that they are taking on, even though you're paying for it. As far as I know, there's only one insurance company that used to, and I'd have to check to even find out if they still do, but only one insurance company that offered unrestricted investment options, regardless of whether or not you put a rider on the contract for a guarantee or not. And personally, if you're putting a rider on a guarantee, or a rider on an annuity contract for a guarantee, your goal is to try to get as much step up in basis as possible, which would lend itself so towards being more aggressive, which is exactly why they put all the restrictions on there to prevent you from being more aggressive.

Chris Holling: 37:06

Sure. Yeah, that makes sense.

Sean Cooper: 37:08

So yeah, that is so immediate annuities, deferred annuities, fixed annuities, fixed indexed annuities and variable annuities in a nutshell.

Chris Holling: 37:23

Yeah, it's fun to say by the way, annuities in a nutshell. Annuities, annuities. Anyways,

Sean Cooper: 37:31

turtles in a half shell

Chris Holling: 37:33

two bits. No, that's perfect. Actually, I think it's a it's a nice cover for it. We did and we're gonna wrap up here, everybody, I think unless there's something else that you were,

Sean Cooper: 37:44

no, that's fine. I think we should save the rest of our annuity conversation, you know, when they make sense.

Chris Holling: 37:50

And that's that's what I was gonna say you Sean

Sean Cooper: 37:52

Sorry, I'm taking all your

Chris Holling: 37:54

So, yeah, we, I've got like one job here. And you're just gonna take it? No, we, we were talking about earlier. And we wanted to get over the basis of what we're looking at on what annuities are the different possibilities of them, and what different potentials of them meant. And then in the future, we want to go over the actual considerations that you might want, you know, what might be best for you? What, what different, you know, if there are any things to watch out for, and what types of things to watch out for. And that's why we wanted to break this up, which is why we're gonna stop it here. That's all I was gonna say. You were gonna say the same thing. That's all I was gonna say. It's fine.

Sean Cooper: 38:32

Yeah.

Chris Holling: 38:35

But if you feel like we've covered all the bases, then we're gonna wrap it up and have everybody come back. What do you think, Sean?

Sean Cooper: 38:43

Sounds good to me. Man. You don't have any other questions. It all makes sense.

Chris Holling: 38:47

I mean, I no actually, I think I think my questions came organically today. And

Sean Cooper: 38:53

Perfect

Chris Holling: 38:54

hit so well. I'm sure we'll have more on the future one. So let's get us wrapped up. Thank you, everybody for coming back out to your phone. I immagine. And, and listening to us to learn more about annuities today on the truth about investing. Back to Basics. My name is Chris Holling.

Sean Cooper: 39:17

And I'm Sean Cooper,

Chris Holling: 39:19

and we will catch you next time. Podcast disclaimer disclaimer. The disclaimer following this disclaimer is the disclaimer that is required for this podcast to be up and running and fully functioning and moving forward. This is going to be the same disclaimer that you will hear in each one of our episodes. We hope you enjoy it just as much as we enjoyed making it.

Sean Cooper: 39:46

All content on this podcast and accompanying transcript is for information purposes only opinions expressed herein by Sean Cooper are solely those of fit financial consulting LLC unless otherwise specifically cited. Chris Holling is not affiliated with fit financial consulting LLC nor do the views expressed by Chris Holling represent the views of Fit financial consulting LLC. This podcast is intended to be used in its entirety. Any other use beyond its author's intent distribution or copying of the contents of this podcast is strictly prohibited. Nothing in this podcast is intended as legal accounting or tax advice, and is for informational purposes only. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. This podcast may reference links to websites for the convenience of our users. Our firm has no control over the accuracy or content of these other websites. advisory services are offered through fit financial consulting LLC, an investment advisor firm registered in the states of Washington and Colorado. The presence of this podcast on the internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute, follow up or individualized responses to consumers in a particular state by our firm in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or pursuant an applicable state exemption for information concerning the status or disciplinary history of a broker dealer, investment advisor or their representatives, the consumer should contact their state securities administrator

Chris Holling: 41:26

What's that?

Sean Cooper: 41:27

Amarello isn't that yellow?

Chris Holling: 41:30

I think I think you're right. I definitely thought of an armadillo when you said it though

Sean Cooper: 41:37

Naranje Is that orange? Or, or is that the actual fruit? Or is it the same thing? We're showing our ignorance of the spanish language

Chris Holling: 41:46

Well, I'm gonna show you exactly what I do whenever I'm in this situation. Donde esta la biblioteca

Sean Cooper: 41:54

Does that get aou out of a lot of asituations

Chris Holling: 41:56

anytime I'm backed into a corner in Spanish, I just I stare them straight in the face with that accent. And I say that and normally people get it and they laugh. Move on. But one time I had this mechanic give me directions to the library. He knew it too. But he was and then he gave it to me in Spanish.

Sean Cooper: 42:22

So the question is then did you understand the directions?

Chris Holling: 42:25

Um no

Sean Cooper: 42:28

cerca de la.

Chris Holling: 42:31

But then after he said that I said something else. equally ridiculous. But with a decent accent. And then he apologized and said no, sorry. I think I think I'm spent. Like he he was also showing his colors which was fun.