Why Our Clients Don’t Like Using Annuities | 683

MORI 683 | Passing On Annuities


Have you considered setting up an annuity for your retirement? Do you already have one? In this episode, Chris Miles will share why his clients pass on annuities to invest in something much better. Find out what that is!

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Why Our Clients Don’t Like Using Annuities

Welcome to the show that’s for you. Those that want to make so much more money than what you’ve been making so far in the marketplace, you want freedom of cashflow today, not 30 years or 40 years from now, but right now, so you can live that life that you love with those that you love. Most importantly, it’s not just about getting rich. It’s about living a rich life because as you are blessed financially, you have a greater capacity to bless the lives of others.

Thank you for tuning into our show. Thank you for binging. You’ve been sharing it with other people, and I appreciate it because that’s what allows our ripple effect to keep expanding. Thank you so much for doing so. As a reminder, always go to our website, MoneyRipples.com, especially if you’ve got questions for us, reach out to us today for any questions. If you haven’t done so already, check out the Passive Income Calculator to see how much passive income you could create in the next twelve months. What’s the risk? What does it hurt? Try it out.

I want to talk about a question that I haven’t addressed much on this show, but I know it comes up from time to time from our own clients. In fact, this is coming from an email, from someone who’s becoming a client, and he’s saying, “Chris, we had this interchange back and forth. I want to get your thoughts on this and my situation.” As we’re talking about this, it was interesting to see his question come up about an annuity. His 401(k) plan offered the ability to convert his annuity here. Let me share that with you.

I highlighted this in blue here. It says, “I got a statement from my 401(k) that is a good baseline. It said if I were to take my money and purchase their basic annuity, it would generate $2,700 a month for life. This is a single-life annuity with $480,000 in the plan today.” Assuming he says, “I was aged 67 when I began,” dope minor point, not so minor I would say. “Now we have a lower acceptable limit. I could extrapolate that with the $200,000 I have and so forth.” Pretty much what he’s saying here, he has a 6.75% cashflow return that’s coming from this.

When they do pay you that money, they pay you that annuity for life. This is when you have to “annuitize” an annuity. The thing is, once your life is over, it stops. It’s done. If you live long, great. If you live short, not so great. One thing to understand, if you’re not sure what annuities are, annuities aren’t much different from anything else you might have seen out there. They are offered through life insurance companies. It’s done with insurance. There’s this death benefit per se, although the death benefit is a minor part of these annuities. They’re a savings vehicle and can even be held inside an IRA.

Many times, people have IRA annuities or sometimes they just have plain annuities, but these IRA annuities that they have where they can pull money out, but they might add little extra bells and whistles on them, little extra features. Some of them are like what he’s describing where they’ll pay you an income stream for life.

The nice thing about annuities is that they can offer some more fixed or lower returning interest rate type of options. It’s not tied to the stock market. There are variable annuities that are tied to the stock market or indexed annuities, which are semi-tied in the stock market, but they have a floor. They will also give you a ceiling or a spread as they call it when they’ll take off the top. I used to sell these things quite a bit, in fact, back in my financial advisor days because they do offer some great options, and sometimes they even offer you some little bonuses.

MORI 683 | Passing On Annuities
Passing On Annuities: The nice thing about annuities is that they can offer more fixed or lower-returning interest rate options. It’s not tied to the stock market.


Sometimes they’ll give you some bonus and say, “We’ll give you an extra 6% bonus if you sign up today. If you put $100,000 in this thing, we might give you an extra $6,000 to add to your balance.” Those are more deferred annuities, which means you defer it for a while, and then you can pull off income down the road. There are immediate annuities where you put the money in and immediately start getting an income stream off of it.

It is nice that they can give you some income streams. Know this, the more bells and whistles you put on an annuity, the more expensive it gets. When many of our clients are working with us, from time to time they will ask about annuities. It is an option, but it seems ridiculous. One, because when you do get all those extra bells and whistles on them, especially when there are variable annuities, if it’s tied to the stock market, those things can get expensive. They can be more expensive than even a 401(k).

Two, the other reason is for what he was saying here. He’s getting the 6.75% annual cashflow. In the insurance company’s mind, when they’re offering this annuity and decide to pay you an income stream for life, it is based on how long they expect you to live. They will say in this case, if he’s 67 years old, they will pay him $2,700 a month out of that $480,000. Again, not an amazing amount of money. Even if you paid that principal, not including interest, if he lives another fourteen years, he has pretty much made his money back. That’s not bad. That would put him into his 80s. That’s beyond the average life expectancy for a male in America.

Anyways, in any case, they always have these numbers figured out. The thing is, if you die early, you lose out. It’s not like your family gets the rest. There can sometimes be options like that where there’s a survivor type of option that goes with it for X number of years or a payout, but again, you pay for those benefits. They are extra benefits or riders that you put onto these things. This is what I responded to him, and I’m going to give you guys the same response. He’s saying $2,700 a month for life. That’s not bad. As you said, this is a lower-limit option, and it’s true, but that limit is so low.

This guy is 51 years old. He has to wait 16 years before he even gets that benefit of $2,700 a month. It’s almost like waiting for Social Security. Here’s the thing. I told him, “You can take that $480,000, and let’s say you only made 10% a year.” This is like some of our basic types of funds or things that we have as different options in our network of investment operators. Ten percent is a good baseline. Sometimes it’s a little bit less, but often it’s more. It’s usually in the double digits with some of these investment options. Even if we get a 10% baseline, that money will reinvest if those next sixteen years, that $480,000 turns into $2.2 million.

If he was able to live on 10% of that $2.2 million, what does that mean? He’s living on $220,000 a year, not $2,700 a month. It’s a very big difference. Right there, that reason alone is why most of our clients say, “Why am I doing annuity? Why am I paying all these extra fees in hopes that I might have this income stream down the road?” That’s a big reason. The second reason is this. He’s 51. He wouldn’t mind retiring before 67.

What if he even wanted to take that money out today? If he took that money out today because it’s in an IRA, he will be penalized. He will get a 10% penalty on that money. If he has $480,000 earning 10%, that’s $48,000 a year. If you take that 10% off the top, it leaves him with just over $43,000 a year. That’s $3,600 a month. He’s still making $900 a month today, even after that 10% penalty comes out. He is still earning $900 a month more today than waiting 16 years for that annuity to pay out.

Of course there are no guarantees. I’m not saying there are. At least with the annuities, there are some guaranteed type features in there. It doesn’t mean though that things can’t happen. There have been times when companies have had issues, but again, if it’s an insurance company, they have reinsurance. They have things that usually protect them to ensure they keep their guarantees in place like FDIC.

That’s the thing is that you can do much better with so much less. That was the point I made to him. Of course, he got it. He’s like, “That’s it, Chris, we’re getting rock and rolling here. Let’s get these things in order.” Shout out to you. You know who you are. I’m keeping you anonymous, but I know you read our blogs like many of you guys do. Congratulations on choosing to work with us because that’s what we want.

You can do so much better with so much less. Click To Tweet

We want to be able to benefit your life that very way. He even mentioned the other $200,000. Even with that $480,000 only making $3,600 a month, if you’ve got $200,000 making $20,000 a year, that’s another $1,600 a month on top of that. What does that mean? That is roughly about $5,200 or so a month that he’s able to make. That’s over $60,000 a year. That was the number he was calculating. It was annually. Over $60,000 a year just from doing that strategy. That’s a big deal.

That’s something that’s significant to have a $63,000 a year benefit now versus $2,700 a month, 16 years down the road. That’s the thing, guys. It’s always about what creates cashflow and passive income now. We don’t have any guarantees. We don’t know if we’ll be alive sixteen years from now. I don’t know if I’ll be alive sixteen minutes from now. I’ll make sure we end this show beforehand just in case.

That’s the truth. We just don’t know, but the thing we do know is that we can create cashflow and passive income now. That is a true benefit. Nothing wrong with throwing your money. Nothing wrong with even putting money in annuities for the most part. Again, as an option, as a traditional basic option, there are some good reasons to use it, but when we realize that we can do something so much better, that annuity becomes an opportunity cost.

It’s something that costs us our freedom down the road. Not even just down the road but also today. There are things you can do today to generate annuity-type of returns where you can create passive income each and every month, each and every quarter, having money coming in on a regular basis now. Making a benefit in your life today, not someday, and not even possibly never depending on what happens in your situation.

If you have any questions, I’m going to keep this pretty short and sweet, but annuities have a purpose. That’s why it’s always good to know because every situation is different. I’m not recommending against them. I’m not recommending for them for you and your example. I’m not even giving you investment advice saying you should go and find some 10% or more type of investment to do this in.

I want to open your mind and open those possibilities so that you understand that it’s about what you can do today. How can you create the most leverage with your dollars now? If you want to know how to do that, reach out to us at MoneyRipples.com. Go to the Contact Us page and send us a request. If you haven’t done so already, use that calculator as I mentioned, and find out what’s possible for you. Make it a wonderful and prosperous week. We’ll see you later.


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