Bullshit on Stilts: Tackling the bullshitology of financial decisions.
Join two financial brains turned podcast hosts unleash their wit and wisdom drawing on vast financial backgrounds. Using highly-tuned bullshit sniffers they call out the clichés, crap spackle and flap doodle spewed by so-called experts across the landscape of financial advice.
These two dudes draw on over half a century of investment experience managing a combined $600+ million in investment assets along with comprehensive financial planning, financial risk management, and private placement hedge funds, venture capital, and natural resource from the late 1980s through 2019.
These guys tackle the world of financial decision-making to do one thing, to shed light on financial service sales tactics, strategies, and pressure to help develop listeners' financial bullshit sniffers as it relates to money related brainstorming and choices.
Identifying as doctors of bullshitology, you can count on your hosts to bring you a lively if not deadly mix of serious analysis, hijinx, and tomfoolery. All within a 99.1% bullshit free safe space.
Bullshit on Stilts: Tackling the bullshitology of financial decisions.
Annuity Riders: Customizing Your Retirement Safety Net
Ready to cut through the fog of annuity jargon? This comprehensive breakdown of annuity riders demystifies how these powerful contract features can transform your retirement strategy.
Financial anxiety often centers on three major concerns: outliving your money, facing catastrophic healthcare costs, and losing purchasing power to inflation. The right annuity riders address each of these fears by transferring specific risks from your shoulders to the insurance company's balance sheet. But this peace of mind comes at a price – rider fees typically range from 0.5% to 1.5% annually and are deducted directly from your contract value.
We dissect the five most popular riders dominating today's marketplace: Guaranteed Lifetime Withdrawal Benefits that ensure income regardless of how long you live, Long-Term Care riders that provide enhanced benefits during health crises, Death Benefit riders that protect legacy planning, Cost of Living Adjustment riders that help income keep pace with inflation, and Enhanced Income riders that substantially boost withdrawal percentages. Each serves a distinct purpose in customizing your retirement income strategy.
Perhaps most revealing is our examination of annuity "bonuses" – those attractive premium enhancements that might advertise a 20% immediate boost to your investment. We expose the vesting schedules that determine when (and if) that bonus money truly becomes yours, helping you understand the real value behind the marketing.
Whether you're considering an annuity or already own one, this episode equips you with the knowledge to evaluate whether specific riders deliver value worth their cost. Listen now to sharpen your financial BS detector and make more informed retirement planning decisions. Have questions about your specific annuity contract? Text us your concerns, and we'll tackle them in upcoming episodes!
We love to hear your thoughts, questions, and ideas. Send us a text!
Developing your financial bullshit sniffer one episode at a time.
Welcome to Bullshit on Stilts. We're back for season two and let's just say it's as popular as a fart in a high-rise elevator. We're still barking at financial fairy dust like a dog and a mailman, and in this season we're serving up a fresh batch of debunking financial sales tactics and ads you never asked for, all while helping you sharpen your own bullshit sniffers for those life-changing financial decisions. So grab your favorite drink, bring your sense of humor and don't forget your calculator. Join us on our quest to expose the financial shenanigans that even your grandma would call bullshit on. It's time to get sniffing. Let's get after it. Welcome back to Bullshit On Stilts. I'm your host, kelly Aulo. Glad to have you here today. It's going to be a good day. It's going to be a good day.
Speaker 1:It's season two, and we've been doing a series on annuities, so what's the plan for today's podcast? What we'll attempt to do in this episode is to cover the annuity writer marketplace as it relates to you as a consumer, right? So the idea is always to develop your bullshit sniffer, abusing our experience and expertise. Over the course of time, you start being able to develop and understand, hey, what this writer means and what does it mean to me down the road in retirement. And so today we're going to tackle that subject. It's kind of dry, but it is a major component to annuity. When it comes to customizing your annuity, on behalf of the role you envision that annuity playing with regards to your overall investment plan and, most specifically, your retirement plan, investment plan and, most specifically, your retirement plan, because, let's face it, annuities predominantly reside in the retirement planning arena. Once again, they're sold by insurance agents. They can be a very, very good instrument, and today we'll talk about the customizing of that instrument through the use of annuity riders.
Speaker 4:I really love to customize stuff, like I have this really cute customized phone case that I just love.
Speaker 2:Yeah, me too. I got some major mods done on my truck. It's kick-ass actually. Here's the annuity stuff covered in episodes one and two.
Speaker 1:So on previous episodes episode one and two of this season we tackled annuities in the first episode, sort of discussing what each of the three main categories of annuities are, how they operate right. Fixed annuities grow through exposure to essentially high quality bond portfolios that the insurance company manages. Variable annuities, much like your 401k, where you put your money in the annuity contract and then you invest that money. You make decisions around what investment funds you want to put your money into in order to grow that money within the annuity itself. And then, lastly, the indexed annuity.
Speaker 1:That's where we're not truly quote unquote investing our money in an index, a market index like the S&P 500, we're simply declaring that we're going to monitor that index, how it performs over the course of the next 12 months my annuity contract year. And if that index ends up turning in a positive return, my annuity gets to grow by some dollar amount. And if it loses, if it has a negative return there in that 12 month contract year, guess what? My annuity contract value receives a zero. It doesn't experience negative market return. So, three different categories we talked about in the first episode with Mark, our wonderful and beautiful co host, and the next one we talked about really got into the expenses of the different annuities right. How much does it cost for a fixed versus a variable versus an index and so forth? This time around, as we promised, we're going to focus on the riders or the feature of annuities that make them highly customizable, especially for retirement planning.
Speaker 4:How should?
Speaker 1:we approach the rider topic. I think how we come at this is we take it from at the starting point, 30,000-foot level. Look, if you type up and search annuity riders, you're going to come upon a whole bunch of different kinds of riders. Easily a list of 20 riders can be gathered together and those 20 riders are going to truly focus in on a couple different features of annuities. A main feature is delivering future income and the promises and guarantees that come with that income.
Speaker 1:Another feature is sort of the estate planning component to this, the identifying beneficiaries and making sure that maybe income that I'm receiving in retirement will continue beyond my death and continue to pay my spouse or continue to pay my beneficiary to the annuity. So an estate planning component of annuities. There are riders that come with the annuity that help you achieve that type of planning level. And then there's usually, oh, one out of the 20 riders that address access to the funds inside your annuity during that all important early years of ownership, surrender fees, schedules, penalty fees, whatever you want to call it. So lots of riders when it comes to income. Lots of riders when it comes to disability, chronic illness, long term care, disability, chronic illness, long-term care. A handful of riders when it comes to estate planning and passing the assets of the annuity on to your loved ones, heirs, and so forth, and then usually one, maybe two riders that offer access to your contract value without penalties during those early years, those surrender period, years of ownership.
Speaker 4:Next up is the list of 20 annuity riders. He's going to rattle them off for your enjoyment. But to skip the list of 20, fast forward to seven minutes 24 seconds and you're welcome.
Speaker 1:All right, so I'm going to go through the 20 riders that are out there. You might even have them in your own annuity right now, but real quick. Guaranteed lifetime withdrawal benefit rider GLWB. Two. Death benefit rider. Three long-term care rider or you might even see it as a chronic illness rider. Four cost of living adjustment rider or you might even see it as a chronic illness rider for cost of living adjustment rider. Or cola cola rider. Five. Enhanced income riders. Six. Return of premium rider. Seven. Income accelerator rider. Eight terminal illness rider. Nine nursing home waiver rider. 10. Market value adjustment rider. 11. Critical illness rider. 12. Disability income rider. 13. Joint life rider. 14. Index participation rate rider. 15. Spousal continuation rider. 16. Income for life rider. 17. Step up rider. 18. Inflation protection rider. 19. Survivorship rider. 20. Flexible withdrawal rider. That's that one rider that gives you access to your contract value. That's a lot.
Speaker 2:Things are so much clearer why I love cliff notes.
Speaker 1:So, yeah, that's a lot of riders to kind of get your hands around right 20 riders, and there, believe me, are other riders out there, no doubt, oh my God, we're kidding, we kid around.
Speaker 4:We are so good with 20.
Speaker 3:Is an annuity, a sort of silver bullet solution?
Speaker 1:It's not surprising that when you're talking to a financial advisor that works with annuities, that when you present your goals, your concerns, your aspirations and so forth, there is a rider out there that, from a retirement planning standpoint, they might be able to help solve that.
Speaker 4:You're saying solve meaning to transfer financial risk out of my hands and into the insurance company's hands. Just wanted to clear that up.
Speaker 1:Continue, please. So don't be surprised if an annuity can do multiple things within a person's world of finance because of these riders, as well as the options of how you want that engine to propel the annuity down the road, whether it's the fixed or variable or indexed annuity Pretty, pretty cool stuff. We've been at this big big macro level. Let's now step down just a smidge and let's just focus on five riders, some of the most sold riders or purchase riders out there today. All right, so five top riders that you'll probably encounter in the market today. So that first rider was guaranteed lifetime withdrawal benefit. Rider Fees on that can run you anywhere from 0.5% all the way up to 1.5%, and really, when I say fees, oh boy, oh good.
Speaker 3:I am glad we're talking about this now, ahead of all the riders.
Speaker 2:What's the over-under for time on this little tangent?
Speaker 1:And really, when I say fees regarding riders, anytime there's a fee associated with a rider, you're looking at that fee being charged against the value of the annuity contract itself. That's the value that if you surrender your annuity contract, that's the amount of money that you can walk away with less any. You know surrender fees and so forth. That's an important value. So if you're buying a rider and it costs you 1% a year and there's 100,000 in that annuity contract, you're looking at $1,000 a year being paid for the rider's promises and guarantees. That's real money. Think of it as why annuity contract will go backwards. One is variable annuity performance, negative performance. My account value can drop based on negative performance, but it also will drop in the fixed variable or indexed annuity account. It will drop due to expenses, fees associated with riders and other things. Now I realize I just went on a tangent, but important tangent nonetheless. Looking back at that guaranteed lifetime withdrawal benefit rider.
Speaker 4:So why is the GLWB rider the most sold rider today?
Speaker 1:And I think the answer is it's not only sold but it's wanted, it's desired out there because it's solving a key fear associated with retirement, and that fear is the fear of outliving one's money, outliving the amount of money being mailed to my mailbox every month so that I can go cash a check or have it deposited electronically in my bank account so when I go to the store I can still buy groceries. As a very basic example, these guaranteed minimum benefit withdrawals, guaranteed lifetime withdrawal benefits, guaranteed minimum income, those types of benefits truly are there to solve one fear the fear about living your money, your income. And, by the way, it's probably the number one message that's being marketed out there in social media. I see those all the time With regards to retirement and leading people to the annuity sales desk annuity sales desk.
Speaker 2:Gotcha, the GLWB and writers like it are all about retirement income payments.
Speaker 1:What's next? Next most purchased annuity writer out there is going to be the long-term care or the chronic illness writer. Every insurance carrier has names for their things that they do and they can mean very much the same thing like long-term care and chronic illness. Those writers are out there. They're highly sought after. A big reason why annuities work today is because of those types of writers. And once again these writers solve a leading fear for retirees, which is encountering some illness that is chronic that over time leaves them reliant upon others just for living the daily life of a regular old person. Third rider death benefit rider. This rider ensures that the beneficiary will receive what is?
Speaker 3:I put $100,000 into an annuity. I take some money out of the annuity. My beneficiaries get whatever is left over. No surprise there.
Speaker 1:This rider ensures that the beneficiary will receive a specific amount upon the annuitant's death. Oh, you are totally wrong. Often the greater of the account value or some guaranteed minimum, whichever is higher. Once again, example of a death benefit. Let's work with that real quick. So if I invest $100,000 into a annuity contract and I, let's say, have a right and I buy a death benefit rider, maybe my death benefit rider says look, I'll give you a guaranteed minimum death benefit of $100,000. But the catch is I know you put $100,000 in the catch is, if your contract happens to be less than $100,000, let's say it's $50,000, and you die, your beneficiaries will pay them that $100,000. That's what we're on the hook to do and we'll do that for you so that you can still use some of that annuity money in retirement. But at a certain point when you pass, if there's money left in that contract, the death benefit rider will actually increase the amount of money my beneficiaries would receive. Pretty cool. In fact, there are other riders that maybe give you a little bit of an expansion to that guaranteed death benefit. Maybe they give you a 20% bonus on the amount you purchased the contract with.
Speaker 1:So in this example, put $100,000 in. Now my guaranteed death benefit is $120,000. So that's how death benefits work generally speaking. Benefit is 120. So that's how death benefits work generally speaking, and for those that might be non insurable from due to health benefit or health issues, for those that might be non insurable because they have health issues and they can't get life insurance.
Speaker 1:Well, putting money into an annuity with a death benefit rider may be a small way in, let's say, providing for an inheritance to loved ones while still being able to use some of the money in that annuity for your own purposes while you're still around and still kicking. These riders are going to be riders associated with someone's thinking around estate planning. I want to leave my loved ones, I want to leave my spouse economic benefit within this annuity, and so in this case, I'm going to make sure the annuity has a death benefit rider that allows me to do that. We come back to what amount and what does a small print say with regards to that death benefit rider? But it is amongst the top riders out there.
Speaker 3:You've discussed the first, second and third most used annuity riders out there. What's next?
Speaker 1:Fourth, cost of living adjustment rider, or COLA C-O-L-A. These riders, and riders like it, are associated with increasing the amount of income that's paid to me from my annuity every year. Once I tell the annuity I'm ready to get paid my income. I'm retired now and I want my annuity to begin paying me an income stream for the rest of my life and if I have a cost of living adjustment on that, that means that my I don't know $10,000 this year of income from my annuity will go up by 2.5% next year. Whatever that changes 3%. It may be based on the consumer price index. It may be a fixed amount that it increases by consumer price index. It may be a fixed amount that it increases by, but nonetheless the point is it increases the amount of money that's being paid into my household for me to live on in retirement.
Speaker 1:For me, the Cola Rider is always going to be this stairwell on a piece of paper, just that it looks like a stairwell, and every year each step represents the new year's payment to me a little bit bigger than it was last year for the rest of my life.
Speaker 1:One of the things on the Cola Rider to just be aware of is that if you elect that, you know they'll show you the income projection without the Cola Rider and then they'll show you the income projection with the Cola Rider. Don't be surprised if your initial years of payouts from your annuity are higher if the cost of living adjustment rider isn't applied or used, whereas if you use the cost of living adjustment rider, oftentimes you'll see the payment in the initial years are lower and over time they ramp up. So there's sort of a break-even calculation you can arrive at figuring out how much would I receive before age 82, I'm making this up in retirement income if I take the non-cola rider versus the cola rider schedule of payments. It's a good method of math to use to help you ascertain whether one is better than the other and so forth.
Speaker 3:I did some quick inflation math Using your $10,000 of annual income example. If inflation averages 3% per year, the income for life would need to grow to 13,000 in 10 years and over 18,000 in 20 years, and that's just to keep up with inflation.
Speaker 2:Wow, I can definitely see why a person would want to transfer at least some of that risk, and I'm getting a better feel for how you can customize annuities as well, which is pretty flippin' cool actually.
Speaker 4:If you two are done with your calculators. By my count, folks, we are at the fifth most purchased rider. We should get a drum roll or something.
Speaker 1:And the last one, similar to the fourth, which is enhanced income rider. Again trying to solve the same problem how do I increase the amount of income I can get out of my money? And so what's the difference? Right, what's the difference between the inflation protection riders versus an enhanced income rider? Well, think of it this way the inflation protection rider is going to increase the income benefit amount paid to me, the annuitant of the annuity, when I'm in retirement. When I turn that faucet on and the paychecks start coming every year, that paycheck will grow, by our early example, by two and a half percent. With an income enhanced rider expands the income that the annuity promises to pay me. So if I buy the annuity without anything on it, maybe the annuity says look, I'll pay you 4% of the contract for the rest of your life. When that date comes and Kelly, you tell me turn my income on. I'm in retirement, I'm ready to receive some cash. But, kelly, just so you know, if you buy this enhanced income rider, it won't be $4,000 that we'll send you, it'll be $6,000 that we'll send you. Huh, it's pretty good. That's a 50% increase in the income. And you know, when you multiply that over the course of 10, 20, 30 years. That's a lot of money compared to what you put into the annuity contract. All true statements.
Speaker 1:The one thing that we want to remember when we're looking at these riders and solving for concerns that we have or fears that we have in retirement and running out of money that $4,000 or that $6,000 getting paid to the household year in and year out will face that inflation math that the group was just doing earlier. So keep that in mind. You might consider when you're looking at that annuity. You might consider looking at it with well, that $4,000 to $6,000 increase, that tastes pretty good. That's a 50% increase. I know by math that's a good number, 50% increase. But I know that over 10, 20, 30 years of retirement that $6,000 will not buy as much as it did at the beginning of my retirement. So maybe I need to solve for some cost of living adjustment mechanism to the income that's being paid to me and enter the opportunity to talk about cost of living adjustment rider. So you see how when you layer some of these riders together, it makes perfect sense. Just be aware of the cost of all of this quote unquote security and peace of mind that can be built with the annuities and what are people doing with them? They're attempting to customize the money that they're investing in the annuity contract and the income side of that money down the road in retirement. They're customizing it based on the type of riders they're purchasing and adding to that annuity to create reliability with regards to income in retirement retirement.
Speaker 1:I feel like you've missed something important. I would be remiss not to talk about another oftentimes rider or option within annuity land and we're going to call this option the bonus option. What I mean by that is annuities offer bonuses. Sometimes they bonus the investor up front with some dollar value that expands the value of the annuity contract. It might be a bonus on a index crediting strategy within an index policy or index annuity where, with that strategy, you have the opportunity to have a larger credit occur within your annuity, where, with that strategy, you have the opportunity to have a larger credit occur within your annuity contract, or even index universal life policy, by the way. So the bonuses exist and they're out there. So let's make sure that we're understanding what that bonus does. So on one end, the bonus adds real money quote, unquote to your contract value.
Speaker 1:If I had a 20% annuity bonus, I might put $100,000 in the annuity contract and on paper, with the 20% bonus somewhere on my statement, there would be $120,000 value.
Speaker 1:That's my money plus the bonus money.
Speaker 1:But here's the little devil in the detail is you always want to find out in that example, when does that $20,000 of extra money become all mine?
Speaker 1:When do I own it outright?
Speaker 1:So it's a vesting schedule, meaning that over time, little by little, a percentage of that 20 grand becomes mine.
Speaker 1:Meaning that if I surrender my contract, I take all my marbles and I leave the game, so to speak. I will get the contract value plus the vested amount of the bonus I've earned thus far, less any surrenders and all that other stuff. That's what I'm walking away from the contract with. So how long does it take for that schedule to be vested? One, two, when it comes to kind of an index crediting strategy bonus, it's going to be a cost, there's going to be an at-a-cost question and sometimes that at-a-cost might include some exposure to loss regarding investment performance. And remember, an index annuity is, you know, zero's your hero. So be weary of the bonuses, the cost to them, and when does the money truly become mine and does it expose me to downside investment performance risk if I were to purchase this rider bonus whatever for the opportunity for an increased return. It's one of the main ways insurance agents win new annuity investors or annuity clients away from old insurance annuity carriers is through bonus activity.
Speaker 3:So what are the costs of these riders?
Speaker 1:Yeah. So that's a great question what are the costs of these riders I'm going to give you just kind of a bandwidth here rather than each individual rider itself. So really you're looking at costs that'll range anywhere from a half of 1% all the way upwards of 1.5%, depending on the rider, depending on the insurance carrier. You want to read the small print and you also want to. If you're thinking about buying an annuity and looking at some of these riders as geez, a great way to customize once again your retirement income planning. You might want to compare riders between carriers and find that maybe some are less expensive and maybe, just maybe, they offer you a little bit better deal quote unquote on your money at hand. Just keep your eyes out, your sniffer down and you'll see them where you need to see them. It's all in small print.
Speaker 1:Thanks for tuning in to another episode of Bullshit on Stills. We hope you enjoy season two and find it as refreshingly honest as ever, because who needs financial fluff when you can have some facts? Remember we're here to help you navigate through the financial fog and come out the other side with a clear head. A big thank you to our talented content creators from bensoundcom, upbeatio and pixabaycom, who make this journey a little bit funkier. Special shout out to Andre Rossi's Funky Street and Upbeatio for providing the groovy theme music that's been setting the tone for our season. Two adventures Got a topic you want us to tackle or a financial myth you're curious about. Drop us a text and let us know what's on your mind. Until next time, keep your detectors on and your sniffers down.
