eric: and we're the annuity guys dick: and eric the number one question weget invariably is eric: what's the best annuity? dick: what is it eric? eric: well, i'm not telling dick: you're supposed to know the answer. eric: then i need a little bit more information, yes. dick: yes, isn't that the truth though eric: yes, and obviously you're at the site people here, a lotwatching this video, are interested in annuities. dick: right, right, eric: they want to know how can they grow their money safelyprobably.
dick: yes. eric, maybe they want income for life. dick and maybe they just think that the annuities make a lot of money and why not put your money in there, you know. i mean there's a lot ofmisconceptions. eric: right and there's a lot of reasons of people here wanting to knowwhat's the best annuity. dick: well, and the first thing that youhave to determine is just eric: is an annuity right? dick: is an annuity right because factually eric, we talk to a lot of folks andthere's a lot of you out there should not buy an annuity. there's allreasons for that
eric: well and it's usually unrealisticexpectations, you know.if you're buying something thatyou wanna compares with securities product, an annuity is not a securities product. dick: that's right, that's right eric: and the expectation is that it's goingperform like a mutual fund or like a stock. dick: it's got this unlimited upside and wedo have to, we have a caveat here, there is a variableannuity eric: yes dick: that does have an unlimited upsideand unlimited downside
and we have to talk about that... eric: okay we should point out the differences between what you're looking for the best annuity dick: yes.. eric: if someone's considering a variable annuity, they have to realize that theirprincipal is at least at risk. you can fluctuate both up anddown. dick: your earnings, your principal, your account value: and that'sthe fundamental difference eric, and we have to... this is, this is the coreunderstanding of annuities. folks, if you get this, if you don't get anything else, get thisbecause this is what you build on
for the rest your research ininformation. there's really two main categories in annuities - the fixed annuity, the company absolutelyguarantees the principal and all accumulation that's locked in atsome point becomes the principal. so that's guaranteed, and that's a fixed annuity. there are so manyvariations of the fixed annuity. we're going to talk about those in a littlebit here, but the other category that you have tounderstand is the variable annuity - that's just the opposite.
that's where you are willing to take therisk of the principal and the earnings, thatyou could actually lose your money or you can lose a portion of your money;but you also have what we call unlimited upside. and even though we say unlimited because it has a potential, there arerealistic expectations too. eric: sure, and usually when you're buying a variable annuity, your looking at sometimes the writers, or the investmentchoices, or the options to get tax deferral. that's why you'relooking at that, at those choices.
we're very upfront typically, for us variable annuities fit a certainclassification of individual, usually a little bit younger. once that upside potential has time to take some that risk. now, as you get closer to retirement, don'tlike the downside risk so much... now, you can utilize the income rider aspects of a variable annuity, perhaps to get guaranteed income... dick: and one of the negatives that variable annuities get hit with a lot, andthere's fact in it, fees... eric: fees ...
dick: right, and they tend to run, i mean on the low side a variableannuities, a couple percent. eric: well, i was going to say on a very lowest side, you can pick themup at you know just under one percent. dick: likea no load. eric: but there a stripped-down vanguard, fidelity type of, dick: yes, yes... eric: most of them... dick: yes, the vast majority. eric: i was going to say, most people when you buy a variable annuity,
usually are sold a sizzle part which isthe guarantee roll-up of five percent or 6 percent a year andthat's gonna be going. dick: and we've seen fees on that up in the 4 to 5 percent range. so, if you're overcoming 4 to 5 percent in feesevery year on your account value, you have to have pretty good return to come out positive. eric: and that's whatwe always say - look at the sizzle, you realize when someone says that thisis guaranteed... dick: you're paying for it. eric: there's a cost to it, exactly. dick: yes, yes... and on the flip side, when we go to thefixed annuity, they have some sizzle
eric: yes, they usually have... dick: there's some guarantees... eric: they usually have the - and that's where we start talking about - thehybrid, and the fixed index aspects you get some guaranteed growthcomponents there. along that same kind of five, six, seven percent in today's economy...in today's... dick: annuity world.... eric: that have the same types options, butusually there's a fee associated with most of those.
dick: right, but fees tend to run up quite a bitlower than the variable annuity version. eric: you're also giving up some of theupside... dick: upside potential of the cash account. so, if we again just for emphasis here, justre-summarize that the variable annuity is where the client or the policyholder takes the risk and the fixed annuity is where theannuity company takes the risk. get those two categoriesdown. now eric, let's just talk about the
other annuities in general. eric: ok.immediate annuities are probably the one most commonly thought of when peoplethink of annuities because it's the one where you walkin and you have your savings, you give it the insurance company - dick: a lump sum eric: and they set youoff basically on a salary or a a distribution for either of your life or fora defined period. and it just breaks it down and you have that coming in... dick: and you know you can rely on, it's like clockwork... if we stereo type just a little bit,the immediate annuity tends to give the
highest payout when you're starting the income immediately. if you're going to defer little bit, they can run neck-and-neck even loseground to sum of the deferred annuities with the guarantees that get theincome up higher as later years. eric: right. and with animmediate annuity, typically you're starting income within the next twelve months. so that's where that category comes in.now, we like to think of that as like a
pension style. dick: it is. eric: and you can use multiple types of annuities but that'sone where you're starting right away, usually taking that lump sum... dick: it's as closeto a true pension as you can get because you really are you're giving up yourlump sum - it could be an ira, it could be just a savings account, but you're putting it all, allocating it all to an annuity for an income. eric: and whenyou're gone or when
your spouse are gone, it's done. dick: yes. eric: it's typically overunless there's another guarantee... dick: unless you buy one of the additional riders or you incorporate thatinto immediate annuity. now, one thing has become verypopular that ties into similarities to theimmediate annuity, is the hybrid annuity which is afixed indexed annuity. so, we kill two birds with one stone. eric: right, so it's a fixed index annuity with an income rider. you still get theincome for life aspect of
the immediate annuity but you also have some other sizzleusually there for deferred growth, some other pieces that go with it. dick: andthe real hybrid aspect of it is that you do not have to give up yourlump sum - your principle and this is what people love about it because it canget very close to the payout of an immediate annuity, it can guarantee it for life but leaves you themajority control up the money that you have accumulatedover many years so that if something comes up... eric: you don't have to annuitize -
that's where you give basically your lump sum to the insurance company. dick: and we heard that manytimes as annuicide... don't commit annuicide. eric: so, we're notsaying that that naturally a bad thing. you might be a little bit lowerthan an immediate annuity but very comparable. butagain, you retain that majority control. dick: yes and let me explain what we mean by majority control. majority control folks is... annuities have surrender charges,typically they'll run in seven to twelve years, fourteen to fifteenyear sometimes...
and every year that penalty or that surrender charge decreases, and so you'll have a majority control in thebeginning of somewhere around ninety percenttypically at what you put into an annuity... but that 90 percent will becomeninety-five percent and ninety-eight percent untill you have 100 percent control but you still have all the contractualguarantees of the annuity for the rest of your life throughoutretirement. eric: yeah... so,
the hybrid annuity has becomeprobably one of the most popular versions that we see people especially when they're calling andasking us, and so that's become one when we get this question - what's the bestannuity? usually it's got hype anymore... dick: hybrid annuity... best type of annuitybefore what their trying to accomplish and many times it is that that category eric: and many times it's not just one category but it's a combination of the categories - you may start out with an immediate annuity and then addon a
hybrid style or something with anincome rider that basically gives you a guaranteedjob at another stage in life... dick: this is where we have the advanced concepts of laddering annuities, we have what we refer to as separatewrongs of the latter or separate bucket that are for certain parts of yourretirement life cycle... your immediate portion of your retirement... your first few years you may need little
extra income, you want to prepare forinflation that we believe may become in 10 years, 15 years... five years down the line. you may have some reduced incomeneeds at some point in retirement and all these have to be factored in and those annuities, staged in a proper way. one thing i'mleaving out many folks want a return of theirprincipal, they want back to where they started. eric: so, can annuities do that? can we use abucket or a wrong that basically re-grows the principal sothat
there's something that's passed on to heirs basically equivalent to what you started with. dick: not only can it be done, it can be done tax-free which is apretty excited thing... when you get into the real tax planning. eric: you're giving away all the topics now... they won't have it all... so, i guess it when someone calls up andsays dick, what's the best annuity? what's youranswer for them? dick: it's always the same eric and we wear it out but depends... itdepends... are you just
looking... are they just looking for beating acd rate? well that's a completely different type of annuity, that just afixed annuity... might have a multi-year guarantee, dothey need the highest possible income starting today or next week? that's animmediate annuity. do they want to keep control of theirmoney and yet have the ability to know that their moneywill last throughout their lifetime? - that's maybe a hybrid annuity.
are they interested in growth andbeing able to move money around in sub- accounts and different investmentswithout having to pay capital gains, that's a variable annuity: maybe no-load. so, this is where it takes the rightplanner. eric: it takes a right planner and you have to knowwhat you want, you have to know your income numbers, youhave to know your expectations, your own objectives, your own goals.it will never hit a target we can't see and if can't see the target out there, i guarantee you can't hit it. so, when you're looking at annuities asan option, you have to know
where we need to get to. dick: and folks, wehave so much more on in-depth knowledge on each one ofthese annuities, we have a a video series that you canlook at, we have many different topics on theseindividual annuities and these advanced strategies... eric: so, it will definitely help you figureout which is the best annuity