The Scoop On Annuities With Mike Miller

This faith and finance podcast is underwritten in part by Soundmind Investing. For more than 30 years, do it yourself investors have relied on SMI for proven strategies and trustworthy guidance. SMI helps people build wealth so they can provide for their families, prepare for the future and give generously. Learn more at soundmindinvesting.org. Are annuities the best product since sliced bread or a house of mirrors? Or could they be both? Hi, I'm Rob West.

Well, they say beauty is in the eye of the beholder and one man's trash is another man's treasure. So which of those are annuities? I'll talk about it today with Mike Miller and then it's on to your calls at 800-525-7000. That's 800-525-7000.

This is faith and finance, biblical wisdom for your financial decisions. Well, it's always great to have my friend Mike Miller on the program. Mike is a partner and senior private wealth advisor at the South Carolina office of Ronald Blue Trust.

He's also a certified financial planner and a certified kingdom advisor. And Mike, it's great to have you back with us. Oh, it's always good to be with you, Rob. I just appreciate what you and your team and of course the sponsors, we have to have them to put this great information. I mean, people just crave information that's not tainted with sales.

Yeah, well, that's exactly right. And I know it's fun to have a fellow broadcaster on the program. You've been in this space of biblical finance on the airwaves for a long time.

So I'm delighted we get to chat today. Mike, as you might imagine, we constantly get calls about annuities, despite the fact I've made it no secret that I'm not a fan in most cases. It's kind of like whack-a-mole.

You knock one down, another one pops up. So I guess we should maybe take an objective look at annuities and maybe to start, we can tackle this first question. And that is, what is the main problem with any investment that guarantees returns? And that would include annuities. Well, number one rule guarantees cost something. Yeah, there's always trade-offs. I had a radio listener that called some years ago that said, I just don't like annuities because I don't like the idea of paying someone else just to give me my money back. And I've seen that way too many times where somebody really thought they were going to get X return, and then it ended up being hardly anything that they got. And some are better than others, of course, but you really have to understand what kind of costs those guarantees really are. Yeah, that's exactly right.

There's always a cost with a guarantee. That's takeaway number one. Let's look at this through a biblical lens. I know you approach everything you do that way. We, of course, won't find the word annuities in the Bible, but perhaps there's a biblical principle involved with investing in annuities.

What would that be? Well, most people have heard of the parable of the talents. So you had in Matthew 25 where the master is leaving and he gives one five, one two, and one one. It's interesting that he says, I gave it to them, each according to his ability, which is important to know.

And then in verse 25, he says, you know, the when he's talking to the when he comes back and speaking to the one who had the one talent that hit it in the ground and didn't do anything with it. Why did you do that? Well, I was afraid and went away and hid your talent in the ground. So I think that's a key thing that when it comes to annuities, oftentimes, many times they are sold from a fear side. We're fearful of this. So we ended up really maybe not being the best steward because of that fear.

Yeah. Well, you mentioned being sold an annuity. And that's, I think, one of the key points we need to look at, because when I get calls about annuities, it's not because somebody's saying, I think I need one of these. It's because somebody has told them they need one of these. So perhaps what should folks ask themselves when someone tries to sell them an annuity?

Man, you're absolutely right. They're always sold. I don't know anybody ever just bought one.

They're sold. So I think through questions like, what does the salesman have other options or its annuities or nothing? So if that's all they have, well, then, you know, you're going to fit any square peg and round hole, whatever. You know, it's not always going to be the right thing. Are they trying to get you to put a large portion of your money in it?

So that's a huge red flag. I mean, because you ought to diversify, even if you end up getting annuity. I've seen too many people that put these large chunks in just one annuity.

They don't even diversify by different types of annuities, which they should. And another one is, does it feel like the person's selling something because they're up for a contest and they're really trying to win a contest? I think you can sense that sometimes like, OK, that's really they're selling it.

They want you to buy it for them, not for you. Yeah, there's no question about that. And so we need to unpack this bike and just around the corner, we'll actually take a step back and really ask you to describe the three basic types of annuities. We'll look at both fixed as well as the variable and the indexed annuities and then the two phases associated with those, both the accumulation and the distribution. We'll talk about the pros and cons. We'll even look at some of these riders specifically around the area of generating income in a volatile market. We have a lot of interest in annuities.

So what do you need to know and are they the right solution for you? Mike Miller with us today, Mike, his partner and senior private wealth adviser at the South Carolina Office of Ronald Blue Trust, and much more to come just around the corner. Stick around.

We'll be right back. Would you consider becoming a monthly faith by patron? Learn more about the faith by patrons membership at faith by dot com and click Give. We are grateful for support from sound mind investing in the faith and finance program. For more than 30 years, they've been helping Christians reach their financial goals with step by step guidance for investors at every stage, from those just getting started to those getting ready for retirement through scriptural principles and practical suggestions. SMI offers financial wisdom for living well. More information, including the short video webinar on profit and peace of mind, no matter what's happening in the market, is available at soundmindinvesting.org. Delighted to have you with us today on faith and finance.

Joining me today is Mike Miller. Mike is partner and senior private wealth adviser at the South Carolina Office of Ronald Blue Trust. He's a certified financial planner and certified kingdom adviser. And today we're talking about annuities. What do you need to know? And perhaps are they the right solution for you?

Or do you need to stay away? Mike, as we continue to unpack this, perhaps we ought to really bring some definition to annuities for those that maybe aren't familiar with these products or they're confused. So perhaps start with the three basic types. Yeah, my sister was being sold or tried to be sold an annuity down in Florida, and she called to ask me about it. And I first question, I said, what kind is it?

Well, I don't know, she said. So people don't know what they have. So the fixed annuity, the variable, which is the most basic and then a variable and then an indexed annuity, which is probably, last I saw, the most popular one that's being sold the most. And they all can have accumulation part where you accumulate at different rates and then they all have different kinds of ways to distribute those funds once you retire, whenever you want to take out the money.

Yeah, exactly. And so obviously, in a market like this, Mike, when we're still seeing a lot of volatility and some economists still predicting a recession, folks are worried about their 401ks and IRAs. Perhaps they were allocated a bit aggressively for their age toward stocks and they're close to retirement. Annuities can seem attractive for somebody in that position, right?

Oh, obviously, yeah. When when things go down, they think, oh, I need to do something that prevents this. They had invested properly where they were in really income phases, where they kept some conservative money for the first couple of years of needs and then had a little more aggressive money, some bonds or something like that for the second phase of income needs. And then the long term money was in that part that's the most volatile in stocks and so forth, where they knew that was long term money. Then the ups and downs is still not fun, but it still shouldn't bother you as much because it's money you're really confident you're not going to need for eight to 10 years plus. Yeah, yeah, exactly right.

All right. Well, you mentioned the three types of annuities, fixed, variable and indexed. Let's talk about the fixed annuities first.

Give us the pros and the cons. Well, the fixed annuities actually have gotten some more pros now. And as we hear the Fed increasing interest rates, keep in mind that that positively affects things like money markets and fixed annuities because these companies can start paying higher interest rates. And when you look at any annuity, whether it's the fixed, variable or indexed, you want to look really at what are the guarantees? I mean, that's what you're buying it for, the guarantees. So it's nice to see these fixed rates going up to where it's unfortunately they don't do like they used to do in years, my early years of my career, where they would say, I'm going to give you a five percent guarantee for the life of the contract. Now it's now it's probably five percent, but it's for three years or five years or something like that.

That's a big positive. There's usually a higher guarantee and fixed annuities than there is in the other types of annuities. OK, what are the downsides? Well, downside would been when interest rates fluctuate, it goes down. So up to the last until the last year or so, the downside was you get nothing if you invest in one and now you get something for it, but it's going to be limited for five years.

So the the restrictions, of course, you have with all annuities applies to fixed as well as well as the indexed and variable. If you try to get it out earlier, then the surrender charge allows surrender period allows you to you're going to be penalized a lot. So there's a definitely a liquidity risk in all annuities. Matter of fact, there's a there's a people don't like to hear this, but there's a guaranteed loss with annuities.

As long as there's a surrender charge, that's a guaranteed loss. You can't get all of your money out without a big charge. And a lot of people think a lot of agents will come back and say, oh, yeah, but you don't really need that money. You're not planning on touching it.

Well, my come back to that is, well, then why don't you invest it the same place the insurance companies investing it? Yeah, it's going to go down some. It might look like it's lost its its value, but it's going to come back because you don't need it because you're not going to touch it.

If you touch it down, of course, you lose. But if you don't pay, it comes back up. Yeah. Yeah. Helpful.

All right. You talked about fixed annuities. Let's move to indexed annuities.

You mentioned that these perhaps at least now are sold more than the other two. What should folks know about indexed annuities? Well, you really need to understand the guarantee. The proposal that you get typically with an indexed annuity agent is one that shows the zero downside if the market's down. Then they'll show you past history of what the annuity would have done had it earned a certain rate of return percentage of the markets over that time. But then you get back to, oh, wait a minute, I'm trying to get away from that market risk and now you're really telling me I'm not going to make money unless the market goes up.

So it's really have to understand really what that guarantee is because there's a definite a lot of risk that you can't pay somebody six, seven, eight percent to sell you an annuity and not have it affect you someplace. You just don't see it. And the average person thinks when they read the brochures, oh, that looks great, but it's not as good as it looks. It's kind of like cotton candy. It looks pretty good. But once you bite it, it's kind of gone. All right. Let's move along to variable annuities.

How do they work, Mike? So variable annuities have better upside because you're actually investing in some mutual fund type accounts so you can you can put them in growth stocks and things like that. They don't have the downside protection unless you buy one of those income writers that you can put on those. But that I call that more monopoly money than I call it anything else. But yeah, there's there's higher potential upside, but more potential downside as well.

Yeah. Anything else we need to know about those income writers you mentioned? Well, the income writers are you get be really careful when you read their material because they'll give you like sometimes an upfront bonus or they'll say you're going to increase your account by six percent. But this is all typically in this income bucket and the income bucket is different than your account bucket. The income bucket is not going to be available to you as a lump sum.

It's going to have to come out to you over some period of time. And the ones I've looked at say, OK, I'm accumulate four to 10 years in my income bucket. Then I'm going to take a four or five percent distribution for the next the rest of my life. Well, if you think about it, it's going to take you 20 years to get your money back. So if you were 65 and you started at 75, when you start the distribution, you're going to be 95 when by the time you just get your money back. Well, how long are you going to live?

So, yeah, watch out. Think through some of those things and see what the guarantees really are. Well, there's no question that annuities are complicated. So perhaps as we wrap up today, maybe you can simplify things a bit. Who should consider buying an annuity and who shouldn't? I wish I could simplify that.

It's not that easy to do. But, you know, in most cases, I recommend folks just invest in the same types of investment that the insurance companies. Maybe it's a bond, a total bond index fund or something that's very inexpensive to get into.

There's no commissions. That's what the insurance companies investing in. Probably 65 percent of their investments or 70 percent are in just high quality long term bonds. And the other type of person that may need one had a client years ago. This is probably 20 years ago or longer when when interest rates were actually higher then. And I had this one client that he needed to protect himself against himself.

If he didn't have his money in something that was locked up, he was going to spend it all. So it's the only one in my whole career that I said, you need to buy an annuity and annuitize it so you get a monthly income so you don't spend it all high rate taxpayers. High tax rate taxpayers will be another one, because if they've maxed out the retirement, the IRA options, other retirement plans, they still need some tax deferral. This this is a way to get some tax deferral and get more benefit from it because it's obviously accumulating tax deferred.

It's not tax free, but it is tax deferred. And that could be a benefit. But I think for most people, there are better ways to get a guarantee. I love it. Well, that's been really helpful, Mike. A wealth of information on annuities. Really grateful to have you stop by today. Thanks for having me with you today, Rob. Go to TalkingMoneyRadio.com and you can learn more about annuities right there.

That's exactly right. If you want to learn even more. And we just scratched the surface. Mike's two part podcast on the topic at TalkingMoneyRadio.com is just what you're looking for. And we're going to take your calls next. Eight hundred five two five seven thousand. That's eight hundred five two five seven thousand. This is Faith and Finance.

We'll be right back. Have you downloaded the faith by app yet? You need to do that today because this is going to make your life easier. Yes, you can manage your money through the in-app envelope feature, but also plan out future goals. I want to buy a house in five years and I'm on track to do that.

Here's also what I like. You can connect with people around the country. It's like social media, but better. Ask a question, get an answer and share what you're learning about money and investing. So why don't you grab your phone right now and download the faith by app? As the leading advocate for the Christian financial industry, Kingdom Advisors serves the public by promoting the integration of a biblical world view across every aspect of the financial services industry. And we serve a growing network of thousands of Christian financial professionals, equipping and empowering them to carry biblical financial wisdom to their clients, peers and community. For more information, visit kingdomadvisors.com. That's kingdomadvisors.com.

This is Faith and Finance, biblical wisdom for your financial decisions. I've got some lines open. All right, let's head to the phones to Chattanooga, Tennessee. Hi, Carol.

Go right ahead. I'm a widow of 82 and I live on a very low income, just a little over a thousand a month. I have a little in my savings in case of car problems. Yeah, but I feel really lost right now on the whole financial thing. The only thing I have is I own my home, but I need to know how to make out a will and estate plan and I can't afford an attorney or a lawyer. I'm friends that, you know, want to do the estate thing and all with me, but they want a lawyer, an attorney.

Yes. So is there someone out there that can help me with all this? Yeah, there are free will services out there that you can take advantage of and many of them are online. And I realize that may not be the most comfortable place for you. Are you accustomed to being on the Internet or do you have a family member or friend that could help you navigate that? I'm not on a computer. I barely can manage my phone. I've really gotten many of this. I push the wrong buttons and I get my things in trouble, you know, more than help. Sure.

Okay. Well, maybe somebody from church or a friend could help you. I mean, there is a services including freewill.com that allows you to make a last will and testament. Given the opportunity, if you have the money, I would encourage you to go to an attorney, but I understand you can't.

So that would be better than nothing. And, you know, they're I mean, they're legal in all 50 states and Washington, D.C. So you can absolutely use a free will service because we do want to make sure that your wishes are able to be carried out by having a will that's valid and enforceable. And so I think perhaps asking somebody at church, a friend or a family member to help you explore the online tools like freewill.com and some of the others.

American Red Cross has some solutions, something called LegalZoom, you know, but I think freewill is probably the biggest and most well-known. And I think that would be a great tool for you. Are you I realize things are really tight, but are you able to keep your bills paid? Are you kind of going underwater every month? No, I'm able to keep them paid. A cousin just recently has offered to help me. He gave me a card I could to help me get my groceries and my gas only. That's very kind. And I get off in the city.

I fill out papers and they help me with my EPB and my water. And then I do vouchers on my property. So I'm doing all that. Yeah. Well, you're doing a great job, Carol. Fabulous. What is the value of your home? Do you know?

I think it's two hundred thousand. OK, because the only other option I would throw out and I wouldn't be quick to do this because I would, you know, first tell you to pray about it. And you may say, no, that's just not for me. I mean, one option for folks in your situation where income is just very low, you know, they're barely making it cover in their expenses and they're sitting on an asset that could be leveraged is something called a reverse mortgage, where either by paying you an income stream every month for the rest of your life or by just giving you a line of credit so you can tap into it if you need it. In either of those cases, it's not it's what's called non-recourse debt, meaning you can never owe more on the reverse mortgage than your home will satisfy. And if you ever did owe more because you live to 150 and they paid you every month till you're 150 and they paid you more than your house was worth, well, the government would cover the difference between what your home sells for and what you owed. But for folks in your situation, it can be a way to dramatically improve your quality of life because you'd be able to systematically pull a modest amount out as an income stream from the house. As it's paid out to you, there would be an interest rate that it's attached to it and some fees, and that would grow over time. And then it's your death. Or if you moved out, the home would be sold, the reverse mortgage would be paid off and whatever's left would go to your heirs or to charity, whatever you want.

But that can be a game changer for somebody in your season of life. Is that something that's appealing to you or would you rather just continue to own your home free and clear and kind of make it the way you have been? And again, you've been doing a great job. Yeah, it sounds good, but because of my inability and concept of money stuff, it all confuses me. Yeah, let's do this.

I'm going to make a suggestion. I'm going to connect you at no cost with somebody that's a certified Christian financial counselor. They don't sell anything.

They don't have any products. They're just people that love Jesus and they've been trained to help people manage their finances, set up a budget, pay off debt, you know, think through just the basics of personal finance. They'll connect with you over the phone and it won't cost you anything. We're going to pay for their time just as our gift to you.

And they'll just be there to answer your questions, maybe help guide you through some things that are confusing to you. Would that be helpful? Yes. Okay. All right. I'd be happy to do that. So here's what we're going to do. I'm going to have my team get your phone number and we'll have that person give you a call that will help you take care of that. And we'll pass along, you know, we had a call from Carl after he heard your question and he said they have lawyers in his church that would be happy to help you. And so we'll pass that information along to the certified Christian financial counselor so that when he or she, whichever one it is, contacts you, they can make you aware of Carl's church who called in to be a blessing to you. Okay.

He's in Chattanooga as well. So his church is there in your town and it sounds like they may be able to help you with that will. Okay. I would like that.

I feel better with someone from the church. Great. So you stay on the line, Carol, we'll get your information and we'll get somebody connected to you to help you.

And there's not going to be a cost for any of this. And listen, may the Lord bless you and keep you. And we are so thankful to have you on the program today and don't hesitate to call back in the future.

All right. Quickly to West Virginia. Rick, you've been waiting patiently. I've got just about a minute left. How can I help, sir?

Yes, Rob. I'm 63. I've got a 401k in a previous company that I work for, possibly 200,000. And I've been really wanting to change it so that it's invested in a biblically sound company. And they're telling me that I can't do that. I can't do it because it was set up through the company I work for. And I was just wondering, do I need to pull that out and reinvest it in another direction until I know it's going in there?

Yeah. The good news there, Rick, is because it's a previous employer, you can absolutely roll it out to an IRA at Fidelity or Schwab or wherever you'd like to go. And then you've got unlimited investment options, including those faith based options. You'll find a list of them on our website at faithfi.com. Click on the show and you'll see some great asset managers like Timothy and Eventide and One Ascent and others that really are building some incredible mutual funds and ETFs that are faith aligned. So, yeah, you would need to roll that out. You could also find a CKA that could help you with that and then roll it to their firm that they work with.

But you've got unlimited options as soon as you get out of that 401k. Hey, God bless you, Rick. Thanks for calling today. I hope you'll make plans to join us again next time for another edition of Faith and Finance. Faith and Finance is provided by FaithFi and listeners like you.