401k/IRA Review Transcript
Producer: [00:00:00] Fixed annuities, including multiyear guaranteed rate annuities, are not designed for short term investments and may be subject to restrictions, fees and surrender charges as described in the annuity contract guarantees are backed by the financial strength in claims paying ability of the issuer. Any examples used are for illustrative purposes only, and do not take into account your particular investment objectives, financial situation or needs, and may not be suitable for all investors. It is not intended to project the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Producer: [00:00:31] Welcome to the Active Wealth Show with your host Ford Stokes. Ford is a fiduciary and licensed financial adviser who places your needs first. He’ll help you protect and grow your wealth. The act of wealth show has grown because activators like you want to activate their retirement planning with sound tax efficient investing. And now your host Ford Stokes
Ford Stokes: [00:00:54] I’m Ford Stokes, your chief financial advisor. Welcome to the Active Wealth Show right here on AM 920 the answer. We’re so glad you’re with us this weekend. And we’ve got an extremely special guest. It’s James Holland with Millennium Investments. And James, you guys have over a billion and a half dollars in foreign assets. And it was great to host you guys over at Chatillon for the first ever, George 401K Summit this week. Literally, it was just this past Thursday. James, can you talk a little bit about the issues you see in furrowing K management out there and what’s going on with foreign case?
James Holland: [00:01:34] Sure. And again, for thank you. What a great event. You guys did a terrific job putting that together. The turnout was terrific. The interaction with the plan sponsors and fiduciary was great, which obviously makes one of those events worthwhile. We could spend all weekend. Create some issues with regards to forward days. But from a from a plan sponsor employer, the people who are running the plan, what we’re starting to see more, obviously, in this day and age, everyone has access to information. But the problem is, is that information accurate and do they fully understand it? So when our industry talks about basis points and expense ratios and fifty five hundreds and parties and interests, that’s not what regular people talk about. So they want to know how much money is in the plan. Are they paying too much? And as you know, because you deal with on a daily basis, are they going to be able to retire in some fashion that they’re looking for? So we feel, again, this might come across not in the politest fashion, but not everyone should be allowed to be working in the 401k space. Just because you’re a financial advisor doesn’t mean you’re a 401k a risk expert. We don’t do any wealth management. We don’t do any tax, you know, strategy type of stuff here. Our focus is 401k plans, because, I mean, you and I have joked about it before. I still have to read your book on annuities because we don’t do it. So you know, besides the fact I know what’s the difference between a fixed and a variable is other than that, that’s about it. So the idea that just because someone’s if there are a lot of people who are saying, oh, my person’s a financial adviser, so they must be in a risk expert, and it’s just not the case. You know, again, I use the same example over and over. You break your arm severely. You’re not going to the Internet. You go into the orthopedist. Why? Because that’s the person who specializes in bones and breaks. And so when you’re working with a four on K plan, it’s very difficult. A lot of. And a lot of our plan sponsors, you know, employers don’t fully understand it and they believe they’re getting sound advice and that advice that they’re getting might not be so sound because the person they’re dealing with is not an expert in that area.
Ford Stokes: [00:04:04] When you guys first of all, it was incredible to have you there at the Georgia 401k Summit. And you guys led all of it. And we were just happy to play a small part. I would also say that it was pretty remarkable that we had over 15,000 employees represented. We’re just so glad that so many foreign key plan sponsors care about their participants. And we’re there, especially in a post Covid pandemic year and all that stuff. It’s just fantastic to see the dedication of the H.R. folks. But what was interesting that came out of that meeting and a lot of stats that we heard during the meeting, I thought it was remarkable that only twenty five percent of all. For K plan, participants actually retire with enough money to adequately retire where they’re not going to just depend on Social Security and Medicare. I thought that was like a really scary stat. And part of that reason was there were just weren’t enough dedicated savers. We weren’t doing automatic enrollment. Some of the things that are coming up with the Secure Act 2.0, which I think they’re calling, you know, securing a strong retirement act of 2021 that did pass in May the House Ways and Means Committee for, you know, by 100 percent. All the Republicans, all the Democrats voted to move it forward. And I just I just wanted you to share what are some of the problems that you see, though, with following Kate plans? Whether it’s excessive fees or poor active or tactical management, that they should have been more strategic and follow the indices and using mutual funds instead of ETFs and revenue sharing that ends up coming out of participants pockets in their accounts within their form. Just if you could just elaborate on some of that.
James Holland: [00:05:53] Sure. And again, that’s the biggest concern. Again, expenses are the are what’s going to eat away most from a participant account. So even if you have good savers and this is the argument, you know, I hear people talk about what we have to get them to save more. And we do we clearly do not save enough. On average, I get that. But going from four percent to eight percent into a bad plan, it’s not helping anybody. OK, because now I would argue more money is being wasted than being say so. And a lot of it is because they don’t understand. So when you when you’re mortgages do every month or you get a bill that says we want this amount of money, that never happens in a fall, nobody gets a bill. No one says, OK, the well, I shouldn’t say that. Sometimes you can see what the admin costs are. But most of the time is why you mentioned revenue sharing, which is basically a way for brokers and record keepers to get paid via the mutual funds without anyone seeing a bill. So it gets taken out of the return, which most people don’t understand anyway. So it’s not like it’s not like even if they saw it, they would know what it means.
James Holland: [00:07:00] But that is a constant drip in terms of. So it’s one half of one percent being taken out every time that fee never stops. OK, so if you’re using that to pay for administration or to pay a broker or an advisor, you know, they’re going to constantly get a raise, even though they might not be bringing any more value or doing any more services. If your accountant came in and said, hey, for it, I’m not going to charge you four hundred dollars an hour anymore, I’m going to charge you 20 percent of the revenue that ActiveWealth.com management makes every year. You’re going to find. I know that’s not how the process works. Well, sadly, that’s how it’s worked in this space for a long time. So we are trying to bring light to that via obviously advisors like yourself who are willing to have these type of conferences and speak to people and say, OK, we know there’s a lot of language. You don’t understand that. Maybe a lot of people understand that. Let’s take the time to break it down so that you can see what the true costs are. And that’s what’s preventing your people from making it to retirement.
Ford Stokes: [00:08:05] Right. And also, I mean, our listeners don’t really have to take our word for litigation about poor management of on K plans. It’s just exponentially exploded.
James Holland: [00:08:19] I mean, there’s hundreds. I mean, literally, I’m not sure. I don’t think a day passed this week where we didn’t see goal of a new lawsuit being filed. Yeah. And I mean,
Ford Stokes: [00:08:31] The whale got Shamu the whale. I’ve got to. I mean, Sea World got sued by their employees for excess fees and money being put in. Also, I believe it was Wells Fargo that’s sitting on a significant lawsuit because of their management of 401k’s
James Holland: [00:08:53] Xerox was just recent. There’s a whole host of colleges for four or three years. And not that we want to use that as the organizations.
Ford Stokes: [00:09:03] We’re just saying these are lawsuits that have been filed against them. And obviously those lawsuits need to go through. We’re not presuming the outcome of those lawsuits,
James Holland: [00:09:14] But it’s not. But to what? To the point there is next large organizations who have the resources and the people to defend themselves. What happens when you get down to the small the mid-sized market who don’t have an in-house Oreste counsel, who don’t have hundreds of thousands of dollars in defense budgets, who have the same problems as these plans? Well, the really one
Ford Stokes: [00:09:37] Thing that you shared with me, I mean, there was a there was an auto repair shop that got sued,
James Holland: [00:09:42] You know, nine million dollar plan. Or something, yeah.
Ford Stokes: [00:09:45] Yeah. And you’re just trying like crazy to fix cars. You’re not you’re just, hey, can we just take care of our employees and do the right thing? So what I’m saying is, listen, if you are a small business owner, let’s say you own an auto repair shop or a body shop or an AC, you’re an AC contractor or a plumbing or electrical contractor. And you’re listening to James and we talk today. I would encourage you to visit ActiveWealth.com and click that set an appointment button, the upper right corner. Again, that’s ActiveWealth.com. And we’ll be happy to conduct a full analysis of your four on K plan. And James will talk about this after the break. But you know, James, you guys created the plan analyze or you own a US patent with the US Patent and Trademark Office, with USPTO on the plan analyzer that shows four K plans, the issues that they’re facing, the potential litigation they face, their excessive fees that are being charged, their plan participants, and also what happens with poor performance and poor investment selection.
James Holland: [00:10:58] And all that information comes from the information they give the federal government. So this is not something that, again, this is you’ve already put it out there. Have you had the opportunity to review it again? We’re just talking about getting a second opinion, no different than the medical diagnosis. And if you’re not interested, great. Then you can continue down the path you’re on. But if you’re really concerned about your participants, but also your own liability, you know, in protecting yourself all, it is the review that Ford just made mention his 401k insurance. That’s all it is.
Ford Stokes: [00:11:31] Yeah. So we’ll talk more about that. And also, what does this mean for your own retirement as an individual, as a four one K plan participant or a recent retiree? Your list, the active well show right here on AM, where the answer will be right back with James Holland with Millennium Investments. When we come back from the break. All right, and welcome back, activators on Ford Stokes, chief financial adviser, And if you’re wondering who and activator is it someone who
Ford Stokes: [00:12:13] Wants to retire successfully? It’s someone who is religiously and consistently listens to the active wealth show here on the weekends on AM nights when the answer also we want to thank you as activators that you are listening to our show on a weekly basis because you have turned the active wall show into the number one listened to radio show on Amnion, Twitter, the answer of the entire weekend. And most of the time the 12 to one time slot and the 11 to 12 time slot on Sundays doesn’t equal the most listeners. But you guys found the right content. You found the right show. You found the right education for retirement, because, again, retirement knowledge is power because we want to help you retire successfully. We’re also going to help you get a fee efficient, market efficient and tax efficient portfolio. And we’re going to work really hard to protect and grow your wealth. And we’ve got James Hall with Millennium Investments here on the Active Wealth Show with us. And James, first of all, thanks for being on the show again. And thanks for coming back after the break. I know you’re busy. Second is, can you just talk about kind of the biggest piece of the pie of these business owners own with this for on K and also if they sign the fifty five hundred form, what are they signing on for as fiduciary for their plan participants and the kind of exposure they have, but also how much more money they could be growing within their own following case if they do some of the right things.
James Holland: [00:13:42] Sure. And for this is a little bit of what we talked about at the 401K summit as well, is, again, we understand the relationship aspect of financial services and wanting to be comfortable with the person that you work with. But again, Ford made mention again the words, whether it’s the HVAC guy, the auto guy, the pizza guy. I personally don’t care what you do in the small business owner in your 401k plan. In most cases, you have the biggest balance. Right? Right. If you’re paying on the percentage of those assets, then you’re subsidizing the retirement plan for everybody else, but you’re not getting any tax break for it. It’s just coming out of your return. So horded. And I work together for the business owner. I’m the employee. He has one hundred thousand dollars. I have a thousand dollars. When you use that ratio for paying 100 times more than me for the same exact investments, the same exact website, the same exact advice. So not that we don’t want to take care of the participants. The participants are absolutely the only thing of the focus.
James Holland: [00:14:43] But business owners forget that, in fact, you are a participant in a lot of these cases as well. From the liability standpoint. You know, again, we argue and I’m sure I can get some pushback, but it’s your greatest personal liability. There is no there’s no corporate veil for making mistake in in the retirement plan space. So, again, we don’t want to scare people into thinking they’re going to get sued. OK, this is not the point. The point is you have a liability, just like when you when you buy general liability insurance, you buy health insurance, you buy a homeowner’s insurance, you buy car insurance, why don’t you get some 401k insurance, make sure the plan is protected so you don’t have these liabilities? Because, again, those lawsuits that Ford made mention, you know, again, they have to be within reason. You can’t you know, obviously, you can’t just sue for any random number. It’s your money. You should you want to make sure that you’re protecting it. And it’s growing at the at the rate and in the manner in which you wanted to.
Ford Stokes: [00:15:41] Right. And so, listen, if you’re driving around right now or you’re listen to us on iTunes or Google Play or Stitcher or Spotify on active well show dot com. I would encourage you to just visit ActiveWealth.com and click that, set an appointment button and book an appointment with myself, and we’ll get James on and the Millennium Investments folks on as well. They’ve got over a billion and a half dollars of foreign assets under management. They know what they’re doing. They’ve also created the plan analyzer to analyze everything that goes on with a four one K plan that is patented by the US Patent and Trademark Office. And again, just visit ActiveWealth.com and click that set an appointment button in the upper right corner. Also, if you want, you can send me an email at Ford at ActiveWealth.com. That’s Everhard at ActiveWealth.com. And just put four on K review in the upper. I mean, in the subject line. We’ll take care of it for you.
James Holland: [00:16:39] Yeah. Again, I mean that I’m sure the folks at Geico might be a little upset with us, but, you know, 15 minutes on the phone and you know, we can have a conversation and we can probably get pretty deep into and you know, and understand this, if the plan is in good shape, you’re going to be told the plan is in good shape and you’re fine. And now you have an independent source telling you now that you’re on the right track. So this is not about trying to. I’m problems this is trying to help folks who have the problems, see them in a different light so that they can get them addressed before they grow into something bigger and causing more.
Ford Stokes: [00:17:14] Well, we also did. You did. Your team did some analysis of the people who actually attended the forum, Kate Plans, who attended the Georgia Fallen K Summit. And you found significant opportunities for improvement. Would you say that’s true?
James Holland: [00:17:27] Yeah, there were there were four a few. Again, remember, this is all public information. So this is stuff that is filed where anyone can see it’s on a free government website. So there’s not some grand conspiracy that Ford and James have put together this nugget. All you have to do is go on every website and you can dig it out. And again, it’s not it’s not that there is not that we’re trying to say, oh, somebody’s doing something bad or somebody. It could simply be a misunderstanding. I mean, that people make mistakes in life. We understand that. All we’re saying is now that has been brought to light. You know, address it. And then therefore and the beauty behind correcting this stuff from a 401k standpoint is when you fix the vast majority of things and you change the process you put in place, it never comes back. So you literally don’t ever have to worry about having these issues ever again after you’ve corrected. I mean, there’s not very many things in life that affords you the opportunity to fix it once and then, you know, go from there.
Ford Stokes: [00:18:26] You know what else is remarkable, Rick, your partner. He actually is an enrolled IRS agent and he’s the good guys. I mean, he’s the one that represents folks and is an advocate for for and care plan sponsors and individuals and corporations when they’re when they’re in trouble with the IRS and trying to work out solutions for them. That was a remarkable thing. But James, can you also just kind of go in to what is a IRS fifty five hundred form, what gets put on it? And also what can an employee do? Who’s got concerns that maybe their foreign plan hasn’t performed as well? What can they do to try to get their own plan? Analyze, review?
James Holland: [00:19:09] Yeah. So I and let’s start with the last part there. We always encourage folks go to human resources or the business owner first. OK. Fix it internally. While there are governmental agencies that can get involved, that becomes, you know, very TVIs. And then, you know, some people get very defensive that way. But walk into H.R. and say, hey, you know, I this is what I’m looking at, you know, show me that I’m wrong or I have some more information or when was the last time we’ve had somebody look at it? So we always encourage folks to do it internally first or say, hey, listen, I was listening to the ActiveWealth.com report this weekend. And, you know, Ford and his group look at retirement plans. Can you at least give them a call? You know, try that approach first and see what they, you know, see what the response is. Again, a lot of it has to do with. Friendships and loyalty and you know, H.R. might not be the final decision maker, they might have to answer to the business owner or the CFO who has that relationship. But at least they can start the conversation. The 5500 itself is a report. I mean, it basically it’s that, you know, the number of participants, how much money is in there, whether any gains and losses, what the expenses are on larger plans, they have to list what the actual investments are.
James Holland: [00:20:26] So it’s just the reporting that the government requires in order to keep the tax qualified status for the plane. But a lot of that is done. Again, I would hate to say in the dark, but at least in the shadows in terms of the information gets provided by a TPA or a record keeper needs to be checked by that fiduciary that, you know, that that person we talked about internally or the business owner, most of them don’t know how to check it or have the time to or just assume it’s right because those people did it. And that’s where that’s where the real trouble comes from. As far as. You know, for the Ronald Reagan fans on the radio show, you know, trust but verify again, it just assumes that everything is right because and if you don’t understand. Hey, raise your head. I don’t understand who can help me, you know, better interpret what this is. The check that it’s right. I mean, we talked about it at the at the summit. The doctor comes in and says, hey, Ford, you know, X happened. You’re going to get a second opinion. So just get a second opinion. That’s all you know. Doesn’t mean you have to follow the second opinion, but now at least you have some more information. And then you can go about and make a more informed decision.
Ford Stokes: [00:21:42] Yeah. James, thanks so much for being with us here on the Active Wealth Show. We had to have you on post the Georgia 401k Summit. We’re going to do it every single year. Also, you’ve been able to provide some continuing education course hours for CPAs and HR members of SHRM, which is their association. And I thought that was incredibly helpful. Also, if you’re an H.R. person or if you want to make sure that HRs and CPAs can get continuing education hours to do is just visit ActiveWealth.com and click that set an appointment button the upper right corner, or you can visit GA401kSummit.com and we’ll get you the link to the three and a half hours that were spent and recorded of all the presentations. And we’ll get you a for our continuing education credit course hours certification. And as long as you’ve watched all that and possibly take a short, easy quiz. But we’re here to make sure that we’re taking care of all the business owners out there, taking care of all the plan participants. And for one case, because that’s where most of the money is. And we want to do everything we can here within the state of Georgia to protect people’s assets because we are fiduciaries. We care about you. We want to make sure that your retirement as the nest egg is growing so you can retire comfortably and successfully. James, thanks again for being with us on the active also for.
James Holland: [00:23:10] Appreciate it. Have a good one. Thanks, guys.
Ford Stokes: [00:23:12] Right after the break, we are going to talk about what this means to an individual investor. And I’m going to share a couple stories that happened this week that are real opportunities for people to continue to improve their financial situation just because they left money in their four one K and what the impact was for that. It was the act of also right here, and I am not sure the answer will be right back. And welcome back, activators of the ActiveWealth.com Ford Stokes, the chief financial adviser, and we just listen to James Holland with Millennium Investments, they manage one and a half billion dollars worth of 401k assets. And we’re kind of the leaders of the content for the Georgia Foreign Summit that we planned here with ActiveWealth.com. And we were over at the Chateau Elan and wanted to thank all the great folks at Chateau Alan Resort for taking great care of us this week. It was Wednesday and Thursday were just an awesome time. And thank you, ladies and gentlemen, for all the things you did to take great care of us at Chatelain. And if you got if you want to do a great kind of staycation that’s local in Atlanta, they’re not paying me to say this, but I would recommend you go ahead and check out Chatillon if you haven’t. It is a pretty place for sure. Next, I kind of want to talk about what came about this week. So we had two people that called in from the active wealth show from listening to active.
Ford Stokes: [00:24:59] Wealth, show two activators called in this week, and both of them bless the show for over six months. And they both had just left their retirement plans at their respective employers. One of them was a federal employee who worked for the CDC and just but he retired literally a year ago and had left his money just within his GSB. And when he looked at the performance, comparatively, he just felt like he would have been better off having been invested elsewhere and possibly invested in our portfolios. And he was just like, I don’t know why I left it in. I was just kind of lazy and I shouldn’t have done that. And then the other is there was an executive with a company who is getting a pension. He turned on his SPIA, single premium, immediate annuity, but he left his 401k there as well. And he’s got limited investment options. He couldn’t continue to invest even though he has a surplus for his pension. And he felt like he’d made a mistake over the last two years. He’d gone two years just leaving his money in his 401k and he was also trying to figure out how I would do withdrawals from up basically a Fortune 500 company. And he’d formerly been in sales, never had a financial advisor and was like really thrilled to talk with us. And he learned quite a bit. At least that’s what he shared. And I just want to make sure you understand that you shouldn’t be leaving your money in your old 401k when you leave, even if you go to work for a new employer.
Ford Stokes: [00:26:28] Is your roll that over into an IRA and control on your own, whether you’re getting it managed by us or you’re trying to manage it on your own? You should be investing in an individual retirement account and you can roll that over. There’s no tax of that. Draw the money for me or for on K to your IRA, just through a traditional rollover process. And you’ve got 60 days from the time you withdraw the money from your fiancé to get it into an individual retirement account. So there’s no taxable event. We make sure that doesn’t happen to you. And if you want to if you want us to take a look at it and analyze your old in case, all you have to do is visit ActiveWealth.com. That’s ActiveWealth.com and click that set an appointment button in the upper right corner. And we’re happy to work with you. You’ll get booked directly into my calendar or we’re happy to help you. And with that, we’re going to play a couple of chapters about what to do, where you can actually create your own personal pension, and also the type of annuity that is just right for you. Go ahead, Sam, and play two chapters from my new book, Annuity 360. You can also get a copy of my free book at Annuity 360 dot net. That’s annuity 360 dot net.
Ford Stokes: [00:27:43] Chapter nine. You can create your own personal pension. Big idea using an annuity to create a personal pension helps you create a lifetime income stream. But it also helps you leave a legacy for your beneficiaries. All annuities can create annuity income to supplement the income you need before or during retirement. Those who are approaching retirement are afraid that they will run out of money. But an annuity can help make sure you have an income you can never outlive. An annuity can be a great investment for your portfolio. But I encourage you to be careful that you don’t overpay for your annuity. When you put your money into an annuity, the annuity company will pay you your money back at a date you specify. You don’t want an annuity company to charge you too much to simply pay your money back to you. I’m confident that leaving a remarkable family legacy is important to you. You likely want to have money left over when you pass away to leave your beneficiaries. The goal of a personal pension is to generate lifetime income with no risk that grows your money and allows penalty free withdrawals. An annuity can create a lifetime income with market like gains and no market risk. While also allowing you to build enough wealth to leave your beneficiaries when you pass away, don’t give the annuity company fees for doing nothing. We prefer fixed indexed annuities for our clients that do not have an income rider fee. But you can still create a personal pension without an income rider on your annuity.
Ford Stokes: [00:29:13] If you get an annuity with an income rider, but don’t utilize the features of that income rider. Then you are not getting what you paid for. You are literally just paying the annuity company one to two percent each year. You defer annuities and your annuity without receiving a single benefit for that annual fee. This income rider fee will also draw down your account value or principle. Depending on how that index is performing, the growth on your entire account value could be significantly and negatively impacted. Some accumulation focused annuities are built to deliver increasing payments without an income rider. You should consider the features your income rider is providing you before deciding to purchase it as an add on. Make sure you utilize the features you are paying for more ways to get the most out of your annuity. The longer you wait to turn on the annuity, the more you’ll receive an annual payments. This is because your annuity will spend a longer time in the accumulation phase, meaning it will spend more time building up your account value. Your annual payments will grow as your account value grows. Believe it or not, you can generate your own personal pension by distributing no more than five percent a year with penalty free withdrawals from your accumulation based annuity policy. Many accumulation annuities are set up to be armed, friendly, so you won’t suffer a penalty when you have to take your arm d.
Ford Stokes: [00:30:31] It would be silly for you to be penalized for something you are required to do. Annuity companies take this into account by creating products that make taking your Ahmadi’s easier. Inspect what you expect with any annuity. Don’t just go with what the annuity agent or advisor tells you. Read it for yourself specifically. You should read the annuity illustration guaranteed and non guaranteed tables included within the annuity illustration. Also, please remember that annuity policy is a contract between you and the annuity company. So caveat emptor or buyer beware applies here. Be aware of the annuity you are buying and choose an annuity that works best for you. That will help you build a successful retirement and they’ll offer you peace of mind. Whether you choose to generate income through penalty free withdrawals or invest annually in an income writer. Know the consequences of both. This is a decision you will make at the beginning of the investment process. One poor decision here can cost you one to one and a half percent of annual growth over a 30 year retirement. This could come out to be a significant loss. Educate yourself on your options and the specifics of each option you are considering. Making the right decision up front will save you a lot of frustration in the long run. Also, please remember that if you withdraw too much annually, say, 10 percent, you will run out of money in 10 to 12 years. Make sure that you’re working with an advisor who can help you choose the appropriate withdrawal amount so that your money lasts for your entire lifetime.
Ford Stokes: [00:31:58] As discussed above, we recommend no more than five percent be withdrawn each year from your account. Chapter 13, the annuity. That is just right. The fixed indexed annuity, big idea, a fixed indexed annuity gives you a portion of market like gains without market risk. How does it work? An FIA gives the owners or annuitants the chance to earn higher yields than fixed annuities when the index they are tied to perform as well. They typically will also provide some protection against market declines. The rate on an FIA is calculated based on the year over year gain in the index or the average monthly gain over a 12 month period. Fees often have limits on the potential gain at a certain percentage. This is known as the participation rate. The participation rate can be 100 percent, which means the account would be credited with all the gains, or it could be as low as 25 percent. Most FIA’s have a participation rate between 80 and 90 percent benefits. Guaranteed income stream with Americans living longer and spending more time in retirement. Many retirees are concerned about outliving their savings. In turn, they are searching for a product that can help ensure a steady income stream FIAs are designed with guaranteed lifetime income. So you can never outlive your earnings. Diversification of portfolio, a balanced portfolio is essential for managing risk and reward in the financial markets.
Ford Stokes: [00:33:22] Designed for the long term phase are a great retirement vehicle to ensure you’re not putting all your eggs in one basket. eBay’s offer the ability to make some money without the risk of losing it. Secure principal. Even with market volatility, investors will not lose value on their fixed indexed annuities. Your savings aren’t exposed to market fluctuations. So even in a negative market return, you will not fall below zero. You can never lose your interest once it is credited to your principal. Cafes offer long term tax deferred savings. As long as your money stays in the annuity, you will not be taxed on the interest earnings once you receive a payout. The annuity will be taxed just like ordinary income, predictable earnings, because FIA’s offer predictable income. Americans feel more comfortable when withdrawing funds from these retirement vehicles as opposed to an IRA or 401K. Choosing an FIA is an efficient way to plan for your future as your interest earnings rate always remain somewhere between the interest rate floor and the cap. No matter what happens to the market, you can still count on payments throughout your golden years. Potential drawbacks of fixed indexed annuities surrender charges. A surrender charge is a type of sales charge you must pay if you sell or withdraw money from a fixed, indexed and even a variable annuity during the surrender period. A set period of time that typically lasts six to eight years after you purchase the annuity. Surrender charges will reduce the value and the return of your investment.
Ford Stokes: [00:34:56] Withdrawal limits almost all fixed indexed annuities play surrender free withdrawal limits within the annuity contract that generally range from five to 10 percent of the principal. While all annuities must be R&D friendly and provide for a penalty free withdrawal from a qualified annuity account equal to the RMD requirement for the client’s age, carriers’ limit the amount of withdrawal to enable them to grow the money invested for themselves and the client not suitable for short term investing. If you want to grow your money, but you also need access to 100 percent of your money, then a fixed indexed annuity may not be right for you. Chapter 15. Bond replacement with fixed indexed annuities. Big idea. Historically, bonds have seen volatility when the market is volatile. Fixed indexed annuities are not subject to the same volatility, which makes them a much safer investment. You might have heard a financial advisor talk about replacing your bonds with annuities to protect your wealth and grow your retirement funds. And my firm, active wealth management, we believe this is a smart way to protect your future. Many people have learned that bonds are a safe way to invest your money. But there are some downsides to bonds that should make you think twice. We’ll talk about some reasons why you should consider replacing your bonds with annuities. First, here’s some information on the history of bonds in the United States. The nineteen hundred saw two secular bear and bull markets in U.S.
Ford Stokes: [00:36:40] fixed income. Inflation peaked at the end of World War One and World War Two. Due to increased government spending, the first bull market started after World War One and lasted through World War Two. The US government kept bond yields artificially low until 1951. The long term bond yields were at one point nine percent in 1951. They climbed to nearly 15 percent in 1981. In the 1970s, globalization had a huge impact on bond markets. New asset classes such as inflation, protected securities, asset backed securities, mortgage backed securities, high yield securities and catastrophe bonds were created. Early investors in these new asset classes were compensated for taking on the challenge. The bond market was coming off its greatest bull market coming into the 21st century. Long term bond yields declined from a high of 15 percent to seven percent by the end of the century. The bull market in bonds showed continued strength in the early 21st century. But there is no guarantee with our current market volatility that this will hold. See chart fifteen point one to see the incredible difference of investing in a fixed index annuity versus investing in bonds. Why you should consider replacing your bonds with annuities. The first question you should ask yourself is this Why would you take market risk with your bonds when your bonds can lose their value? If you just look at the history alone, you can see how uncertain the future of bonds is. Inflation and fluctuating interest rates play a big role in bond yields.
Ford Stokes: [00:38:13] Interest rate risk of bonds, bonds and interest rates have an inverse relationship when interest rates fall. Bond prices rise due to the COVID 19 pandemic. Investors have moved their money to bonds because they believe it is a safer investment option. However, this is caused bond yields to fall to all time lows. As of May 24th, 2020, the 10 year Treasury note was yielding point six. Four percent, and the 30 year Treasury bond was at one point to seven percent. Reinvestment risk of bonds. This is the likelihood that investments, cash flows will earn less in a new security. For example, an investor buys a 10 year one hundred thousand dollar Treasury note with an interest rate of six percent. They expect it to earn six thousand dollars a year. At the end of the term, interest rates are four percent. If the investor buys another 10 year note, they will earn 4000 instead of 6000 annually. Consider the possibility that interest rates change over time when deciding to invest in bonds systematic market risk. This refers to the risk that is inherent to the market as a whole. It will affect the overall market, not just a particular stock or industry. This can be unpredictable and it is impossible to avoid. Diversification cannot fix this issue. But the correct asset allocation strategy can make a big difference. Unsystematic market risk, this type of risk is unique to a specific company or industry similar to systematic market risk. It is impossible to know when unsystematic risk will occur.
Ford Stokes: [00:39:49] For example, if someone is investing in health care stocks, they may be aware of some major changes coming to the industry. However, there is no way they can know how those changes will affect the market. There are two factors that contribute to company specific risk, business risk. There are two types of risk, internal and external. Internal refers to operational efficiency, and external would be similar to the FDA banning a specific drug that the company sells. Financial risk. This relates to the capital structure of a company. A weak capital structure can lead to inconsistent earnings and cash flow. They can prevent a company from trading reduced advisory fees. Investors who trade individual stocks may know how much commission they are paying their broker. But individuals who buy bonds often have no idea what type of commission they are paying. Bond dealers collect commission on bonds they sell called markups, but they bundle them into the price that is quoted to the investors. This means you are unaware of how much commission you were. Actually paying. Standard and Poor’s estimates of bond markups is zero point eight five percent of the value for corporate bonds and one point to one percent for municipal bonds. However, markups can be as high as five percent, up to fifty dollars per bond. Bonds have finite durations. Bonds only provide income for a finite amount of time, unlike an annuity which provides income for life. You must reinvest your money if you want to continue generating interest with bonds.
Ford Stokes: [00:41:20] However, reinvesting with a bond can sometimes come at a loss. As we discussed above, annuities will provide you with an income you can never outlive. Chapter 16 Reduced risk in your portfolio with annuities. One of the biggest benefits of investing in annuities is reducing risk in your portfolio. With current market volatility, pre retirees and retirees are more concerned than ever about their retirement funds and protecting their hard earned wealth. We believe that annuities can be the answer to risks in your portfolio. Retirees and pre retirees are concerned about outliving their wealth. We have offered some strategies in this book that will stretch your retirement funds, such as following the four percent rule. But annuities can offer even more protection against this fear. We are living longer, so it is important to plan for at least three decades of retirement. An annuity can help create an income you can never outlive. Fixed indexed annuities can protect you from market risk. These annuities are not actually invested in the market. They’re only tied to a specific market index. This means that you enjoy all the benefits of your market index when it performs well, but you are not exposed to any of the market risks should your index perform poorly. You will either make money or remain flat. Annuities can offer riders that can help you adjust for inflation, even though a rider might reduce your payout. Protecting yourself from inflation will ensure that your money lasts and is not exposed to any unnecessary risk.
Ford Stokes: [00:42:50] It is important to have an annuity with a payout linked to the consumer price index or CPI instead of one that increases at a fixed rate each year to ensure you are protected against inflation risk. An annuity that increases at a flat rate each year does not offer sufficient protection against inflation. An annuity with a lifetime withdrawal benefit can counteract the effects of a down market at the start of your retirement. Research conducted by retire one has shown that you can flip 15 years of returns from retiring during a recession to retiring during a market that is up and completely change your retirement outlook. The positive returns would offset your withdrawals and grow your assets before your account felt the effects of a negative return. Consider a smart, safe plan with a smart, safe plan. Your money is invested, not in the market. The characteristics of investing, not in the market include growth with safety. Market upside limited to no downside principle and gains protection. Low cost zero to one percent. Annual fee time horizon of seven to 14 years can earn five to seven percent annually. Options are available for guaranteed income. Here are some examples of not in the market investing bank CDs. The annual percentage yield is about one to two percent. Your time horizon is typically one to three years, and you cannot access the funds until the contract is up. Treasuries. The AP is about three percent.
Ford Stokes: [00:44:22] Your time horizon is 10 years. And you cannot access the funds until the 10 years is up. Fixed annuities, the annual percentage yield is between three and four percent. Your time horizon is typically four to seven years. You are able to access the funds during the contract period, multiyear, guaranteed annuities or MYGAs. You get between two and four percent growth on your principal, depending on the duration of your policy. This is less growth than a fixed indexed annuity, but it is guaranteed the annuity company is required to pay you the rate they promise for the duration of your policy. Fixed indexed annuities you receive between five and seven percent growth on your principal. The time horizon is seven to 14 years, and you do have access to the funds in your account if you need them. A smart, safe plan does not invest your money directly in the market. Your investment is tied to an index without being invested directly in it. This means that you get a portion of the market gains without the market risk. You may want to consider investing in a fixed indexed annuity over other not in the market options. If you invest in Treasuries or CDs, you will lose ground in your investment due to inflation. Investing in a fixed index annuity will likely cut down on your inflation risk. We prefer accumulation annuities because they minimize your risk in several areas and they lock in your gains for the use of point to point protection periods, meaning you won’t lose money. It’s the.
Producer: [00:45:53] So let’s recap what you may have missed. It’s the final
Ford Stokes: [00:45:57] Countdown to the final. So we just had a great show, we had James Holland with Millennium Investments, who specializes in 401k plan management. They’ve got a billion and a half dollars of 401k plan money under management. We also talked about all the things that people can do to reduce their fees within 401k’s and to try to get their 401k investment options are optimized if they get a new plan manager and all they’ve got to do is visit ActiveWealth.com and click that set an appointment button, the upper right corner. And we talked about what is the best type of annuity out there, which is the fixed indexed annuity and how to reduce risk within your portfolio with annuities. We’re so glad you’ve been with us here on the actable show this week. And when we come back next week, we’re going to talk more about how to create a smart financial plan with smart, safe, smart risk and smart tax investment strategies. And we hope everybody has a great week. Remember, with retirement, if you’re going to be a bear, be a grizzly, be really focused on your retirement inspectors. You expect about your retirement. Knowledge is power. And we’re happy to help you. Just visit ActiveWealth.com. And we’re more than happy to give you a free consultation of fifteen hundred dollar value. Thanks for listening to well show. And we’ll be right back next week with more ways to build a smart financial plan.
Producer: [00:47:28] Thanks for listening to the active wealth show. You deserve to work with a private wealth management firm that will strategically work to protect your hard earned assets to schedule your free consultation. Call your chief financial advisor. Ford Stokes at (770) 685-1777. Or visit ActiveWealth.com. Investment Advisory Services offered through Brookstone Capital Management LLC. Become a registered investment advisor, become an active wealth management are independent of each other. Insurance products and services are not offered to become, but are offered and sold through individual licensed to the point of agents. Investments involve risk, and unless otherwise stated or not guaranteed past performance going to be used as an indicator to determine future results.