Fixed Index Annuity
Annuities 101
Video Notes
Four Basic Types of Annuities:
Multi Year Guaranteed Annuity (MYGA): AKA Fixed Annuities
Short-term annuities with fixed rates of return (3, 5, 7 years) .Often referred to as "CD Busters" for conservative investors. Higher rates of return than CDs. Not tied to the market – returns are guaranteed by the annuity company.
(SPIA and DIA) AKA Income Annuities: Provide a stream of payments in exchange for a lump sum payment.
SPIA (Single Premium Immediate Annuity) SPIA offers immediate payments
DIA (Deferred Income Annuity) Offers deferred payments. Guarantees a high income but lacks flexibility and principal preservation.
Variable Annuities: Requires a securities license to sell. Offers potential market growth but also risk of market downturns. Fees can be high, and guarantees may be inferior to other annuities.
Fixed Indexed Annuities (FIA):Also known as hybrid annuities. No market loss – not directly tied to the stock market. May have optional riders with costs for extra benefits. Fast-growing annuity type, surpassing variable annuities in popularity.
Understanding Fixed Indexed Annuities (FIAs):
FIAs are based on a fixed rate (e.g., 4%) that is used to purchase call options on an index (e.g., S&P 500). Call options allow participation in market gains while protecting against losses. FIAs offer steady growth without the rollercoaster of the market.
Seven main benefits of Fixed Indexed Annuities (FIAs):
Power of indexing
Security and guarantees.
Tax-deferred growth.
Elimination of fees.
Elimination of market risk.
Guaranteed lifetime income for the individual and spouse.
Avoidance of probate.
7 Benefits Of An FIA
Video Notes
Understanding Retirement Challenges:
Such as outliving savings, healthcare costs, inflation, legacy planning, market downturns, investment returns, probate, and charitable giving.
7 Benefits of Fixed Indexed Annuities (FIAs)
The Power of Indexing: FIAs participate in market gains rather than trying to beat the market. The concept of indexing is explained using a hypothetical scenario where gains are locked in while avoiding losses. The key is participating in market growth without being exposed to market downturns.
Security and Guarantees: The speaker stresses the value of guaranteed safety for retirement funds. Annuities are regulated at the state level, have strong financial ratings, and contribute to state guarantee funds for added protection.
Tax Deferral: The benefit of tax deferral is explained, allowing for triple compounding interest over time. Comparisons show the advantage of tax-deferred growth over taxable alternatives.
Eliminating Fees: The detrimental impact of fees on retirement savings is highlighted. FIAs are presented as a way to eliminate various fees associated with other investment products.
Eliminating Risk and Sequence of Returns Risk: Sequence of returns risk is discussed, where market losses early in retirement can significantly impact the longevity of savings. FIAs are described as a means to eliminate market risk, thus reducing sequence of returns risk.
Guaranteed Lifetime Income: The concept of mortality credits is introduced, which allows annuities to provide guaranteed lifetime income. This is compared to pensions and Social Security, which also use mortality credits to offer income security.
Avoiding Probate: The potential cost and complications of probate are mentioned. FIAs are presented as a way to avoid probate and safeguard assets for beneficiaries.
3 reasons everyone should have an FIA
Video Notes
FIAs are explained as guaranteed contracts offered by life insurance companies that preserve the principal investment and provide returns based on market performance. The script clarifies that FIAs are not investments and are not subject to market risk, making them suitable for sale without an investment license.
Indexing Mechanism of FIAs: An example of an index, such as the S&P 500, to demonstrate how FIAs indirectly participate in market gains through the use of indices. It explains that FIAs lock in gains when the market goes up but do not participate in market losses when the market goes down.
Benefits of FIAs for Clients:
Benefit 1: Eliminating Market Loss: The script discusses the importance of protecting clients from market losses, especially during retirement. It highlights that FIAs provide safety by preventing market losses, ensuring peace of mind for clients.
Benefit 2: Participating in Market Gains: While FIAs focus on safety, the script also emphasizes their potential for high gains. It showcases historical examples of strong gains achieved by some FIAs.
Benefit 3: Guaranteed Lifetime Income: The script introduces the concept of lifetime income provided by FIAs. It explains that FIAs offer guaranteed lifetime paychecks, which can alleviate the risk of outliving one's retirement savings.
Intro To Annuity Sales
Video Notes
Use a financial inventory or lead sheet to gather necessary data from clients.
Uncovering Annuity Opportunities By Asking the Golden Question: Asking the "golden question," is a key inquiry that agents should pose to clients during their interactions.
The golden question is essentially,
"What do you have that acts like insurance and will pass to your spouse upon your death?"
This question is designed to prompt clients to reveal any assets they possess that have similar characteristics to insurance policies, assets that can provide financial protection and pass to beneficiaries.
Emphasizing the Value of Annuities:
Fixed index annuities acts as a solution for clients with assets that they want to protect and pass on to their beneficiaries.
It underscores the benefits of annuities, including:
Safety and elimination of fees.
Mitigation of market risk.
Providing a stable source of income.
Facilitating the transfer of assets without going through probate..
Commission and Benefits:
Selling annuities can result in significant commission for agents, even for relatively large assets. For instance, it suggests that an agent could earn substantial commission (e.g., around eleven to twelve thousand dollars) for selling an annuity on a two-hundred-thousand-dollar IRA.
Using the Quad Fold
Use a resource called the "quad fold," which outlines the seven benefits of FIAs (Fixed Index Annuities) to educate your clients on the advantages of annuities.
Protect Human Capital with Life Insurance
Protect Financial Capital with FIAs
Shawn discusses protecting financial capital with fixed index annuities. He stresses the need to safeguard assets from market volatility and references historical examples.