فصل 5 بخش 4

CHAPTER 5.4

TIME TO WIN: YOUR INCOME IS THE OUTCOME

The question isn’t at what age I want to retire, it’s at what income.

—GEORGE FOREMAN

Annuities have long been the whipping boy of the financial industry. When I first heard the concept of using an annuity a few years ago, I scoffed. I had been conditioned to believe that annuities are bad news. But when challenged, I didn’t really have a solid reason why I thought they were bad. I was simply picking up my torch and pitchfork like the rest of the mob.

But the conversation has been shifting. Imagine my surprise when I was handed a 2011 issue of Barron’s with this cover line: “Best Annuities—Special Report—Retirement: With Their Steady Income Payments, Annuities Are Suddenly Hot.” Barron’s? The classic investment magazine, with an annuity cover story! Is the sky falling? I flipped open the pages, and there it was in black and white: “Now, as baby boomers approach retirement with fresh memories of big market losses, many sharp financial advisors are recommending an annuity as an important part of an income plan.” Wow. Annuities have been given quite the promotion lately. From your grandpa’s annuity stuffed away in a dusty drawer to the hottest product recommended by sharp financial advisors. But guess what? Annuities are not just for retirees any longer. More often, younger individuals are starting to use annuities, specifically those where the growth is tied to a market index (such as the S&P 500), as a “safe-money” alternative.

To be clear, they are not an alternative to investing in the stock market, or a way to try to beat the market. We already made it quite clear that nobody beats the market over time, and as Jack Bogle and so many others have echoed, using a low-cost index fund is the best approach to investing in the markets. But certain annuities, specifically those “linked” to market returns, can replace other safe-money alternatives such as CDs, bonds, Treasuries, and so on—and offer superior returns.

But I am getting ahead of myself! Let’s take a moment to do a quick overview as to what’s available today and what’s coming soon.

First, let’s be clear: there are really only two general categories of annuities: immediate annuities and deferred annuities.

IMMEDIATE ANNUITIES

Immediate annuities are best used for those at retirement age or beyond. If you aren’t there yet, you can skip over this page and go right to deferred annuities, or you can keep reading because this might be applicable for some special people in your life, such as your parents or grandparents.

Simply put, immediate annuities beat every other potential vehicle for providing a guaranteed lifetime income for one reason: a concept called mortality credits. I know it sounds gruesome, but it’s really not. Remember how annuities got their start 2000 years ago in the time of Caesar? For hundreds of years, insurance companies have successfully guaranteed lifetime incomes for millions of people because when a bunch of people buy an immediate annuity, some people will die early, while others will live a long time. By “pooling” the risk, the annuity buyer who lives a long time gets the benefit, while those who die early leave some money on the table. But before we shun the potential of leaving some money on the table, let’s look at the power of annuities when wielded appropriately.

2,750% MORE INCOME

My son Josh has been in the financial services industry his entire adult life. He was telling me a story about a client of his who came to him ready to retire. He had just turned 65, and over his lifetime he had managed to sock away about $500,000. He needed a secure income stream, and he felt taking risks in the market was not an option. Sadly, his former broker had him allocated to a very aggressive portfolio, which resulted in a near 50% drawdown in the 2008 crash. It wiped out hundreds of thousands of dollars that had taken him a full decade of hard work to sock away. And like so many other people, he’d barely gotten back to even, and now he was more afraid than ever of running out of money.

He wanted his income checks to start immediately. So Josh began to walk him through his limited options.

• He could go to a bank, and a CD would pay him 0.23% (or 23 basis points) per year. This arrangement would give him $95.80 per month in fully taxable income for a $500,000 deposit. That’s a whopping $1,149 a year—before taxes. Don’t spend it all in one place!

• Bonds would pay him closer to 3% per year, or about $15,000 a year before taxes, but the risk that option would entail would be if interest rates rise. This would cause the value of his bonds (his principal) to shrink.

• Josh showed him that a $500,000 deposit into an immediate lifetime income annuity, as of today would pay him $2,725 per month or $32,700 per year, guaranteed for life!18 That’s a 2,750% increase over CDs and an 118% increase over bonds, without their risk.

At today’s life expectancies, this man has at least 14 more years to live, and if Ray Kurzweil is right, he could live well beyond that! When he added this guaranteed income to his Social Security payments, he had more than enough to maintain his standard of living and could spend his time focused on what mattered most to him: his grandchildren and fishing.

Do you see the power here? When compared with any other type of “sure thing” investment, he will certainly run out of money. But with an immediate annuity, which is really a form of income insurance, he has protection for life.

Critics will say, “Yes, but if you die early, they keep your money! You will have left that money on the table.” When I asked David Babbel about this concern, his response was swift and blunt: “If you are dead, who cares?! What’s painful is if you live too long with no income—that’s when you’ll really suffer.” And if you are really worried about premature death, you can select an option where the insurance company will refund your heirs the same amount you put in. (This arrangement, however, will decrease the size of your income payments, so there is a trade-off.) Or as David recommends, use an inexpensive term life insurance policy. So if you live a long fruitful life, you win because you have income insurance. Or God forbid, if you pass early, with a life insurance policy, your heirs win as well.

CONTROL IS AN ILLUSION

We all love control. But control is often an illusion. We think we have control over our health, our finances, our kids—okay, maybe not our kids. But we all know that things can change in the blink of an eye. A storm can cause your house to flood (as it did to my brand-new home in Florida after a torrential rain had my wife and I wading through 12 inches of water at three in the morning). Or you could get a callback from the doctor after a supposedly routine checkup. The point is, control is often more of an illusion than a reality.

Stockbrokers will tell you that by handing your money to an insurance company in exchange for a lifetime income, you are “losing control” of your principal. Let’s look at this a little more thoughtfully. Say you are 60 years old and have accumulated a $1 million nest egg. Your broker advises the traditional approach of stocks and bonds, and you apply the 4% rule for your income (which means you’ll be able to take out $40,000 per year). The reality is you will need every bit of that $40,000 to pay your bills. You know your money needs to be invested, so you really can’t afford to touch your principal. And what happens if the market drops? You don’t want to sell at the bottom, but at the same time, you may also feel that you can’t afford more losses at this stage of life. You are between a rock and a hard place. This so-called control is an illusion. Floating with the whims of the market waves and hoping the tide turns in your favor can be a recipe for disaster.

Remember, our focus is not just on asset growth. Our theme is: guaranteed income for life!

It is better to have a permanent income than to be fascinating.

—OSCAR WILDE

DEFERRED ANNUITIES

Okay, so we said there are two general types of annuities. You now know what an immediate annuity is: you give your money to an insurance company, and it immediately starts to provide you with an income for life.

The other type of annuity is called a deferred annuity. This simply means you give the insurance company money either in one lump sum or over a period of years, and instead of receiving an immediate income, your returns are reinvested in a tax-deferred environment so that when you’re ready you can, at will, turn on the income stream you want for the rest of your life. You literally have a schedule for what your income will be when you’re 40, 50, 60—for every year of your life.

While there are many different versions of immediate annuities, with different terms and rewards that vary by the company that puts them out, similarly, there are a variety of types of deferred annuities. Here’s the good news, though: there are roughly only three primary types of deferred annuities. Once you know these three different types, along with your understanding of immediate annuities, you will fundamentally understand what your options are, and you will be able to tap into the power of this safe-money vehicle.

So let’s make it as simple as 1, 2, 3. There are three types of deferred annuities. They are:

1. Fixed annuity: This is where you get a fixed, guaranteed rate of return every year (independent of any stock market ups or downs), very much like you would receive with a CD or bond, but the rates are different.

2. Indexed annuity: This is where your rate of return is tied to how the stock market does, but you get a percentage of the upside of the market (not all) with no downside and no possibility of loss.

3. Hybrid “indexed” annuity: This is where you get the benefits of an indexed annuity with the addition of a “lifetime income” rider. This lifetime income feature gives you the ability to turn on a paycheck for life! (Note: technically speaking, there isn’t a product called a “hybrid.” However, it has become a common name among professionals to describe the category, which includes the lifetime income feature.) HOW SAFE ARE ANNUITIES? THE POWER OF INCOME INSURANCE

A guarantee is only as good as the insurance company that issues it, so highly rated insurance companies are key. Many of the top companies have over 100 years in the business, succeeding in spite of depressions, recessions, and world wars. But with over 1,000 insurance companies in the United States, it’s really only a handful that command the top ratings. I asked Dr. Jeffrey Brown about the safety of annuities and people’s concern that the insurance company could go under.

“Yes, this is a concern that a lot of people have,” he acknowledged. “I start by reassuring the people that to my knowledge—and I’ve been studying this for, you know, fifteen years or more—I don’t know of anyone who’s ever actually lost money in an annuity product, and there are a lot of reasons for that. Depending on what state you’re in, there are insurance guaranty associations run by the state insurance departments that will guarantee up to a certain amount/deposit of the product you buy. And the way these work is essentially every insurance company that operates in that state is basically agreeing to insure all the other ones.” Each state has its own limits, but the guarantee can be as high as $500,000, for which you are insured against loss in the rare event of an insurance company failure. How rare? According to the FDIC (Federal Deposit Insurance Corporation), there were 140 bank closures in 2009 alone, yet not a single major insurance company went under.

VARIABLE ANNUITIES

There is one type of deferred annuity I deliberately didn’t mention above, and that is the variable annuity. The reason for that is, nearly every expert I interviewed for this book agreed that variable annuities should be avoided. They are extremely expensive, and the underlying deposits are invested in mutual funds (also known as sub accounts).

So not only are you paying fees for stock-picking mutual funds (which don’t beat the market and can average upward of 3% in annual fees), you are also paying the insurance company (between 1% and 2% annually). These products can be toxic, and yet brokers manage to sell about $150 billion in new deposits each year. I spent more time addressing variable annuities in chapter 2.7, “Myth 7: ‘I Hate Annuities, and You Should Too.’ ” Feel free to flip back for a refresher.

So let’s take a few moments and go a little deeper with each of these three options.

FIXED ANNUITIES

A fixed deferred annuity offers a specific guaranteed rate of return (for instance, 3% or 4%) for a specific period of time (such as five or ten years). The money grows tax deferred, and at the end of the term, you have a few options. You can walk away with your money, you can “roll your money” into a new annuity and keep the tax protection, or you can convert your account balance into a guaranteed lifetime income. There are no annual fees in a fixed deferred annuity. You will know in advance what your growth will be at the end of the term.

Pretty simple, right? These rates of return might not be terribly exciting in today’s market, but they change with interest rates. And at least this type of annuity has tax efficiency, so handled properly, this can increase your net rate of return significantly.

But let me share with you something quite a bit more interesting:

THE LONGER YOU WAIT, THE MORE YOU GET

What if you’re young and just getting started building your financial future, or you’re at a stage of life where you don’t need income today but you’re concerned that your investment income may not last as long as you live? Remember, if someone retires today at 65, he or she may have 20 or 30 years of income needs. Trying to figure out how to make your money last that long is a fairly daunting task. So a new approach called longevity insurance has become increasingly popular. These products allow you to create income insurance so that you have guaranteed rates of income from, for example, age 80 or 85 until your passing. Knowing you have an income starting at that later stage gives you the freedom to have to plan for only 15 years of retirement instead of 20 or 30. Let me give you an example: In a 2012 Wall Street Journal article titled “How to Create a Pension (with a Few Catches),” writer Anne Tergesen highlights the benefits of putting away $100,000 today (for a male age 65) into a deferred fixed-income annuity. This man has other savings and investments, which he thinks will last him to age 85 and get him down the mountain safely. But if he lives past 85, his income insurance payments will begin, and the amounts he receives will be staggeringly large compared with how much he put in.

“Currently, a 65-year-old man paying $100,000 for an immediate fixed annuity can get about $7,600 a year for life . . . But with a longevity policy [a long-term deferred fixed-income annuity—I know the language is long] that starts issuing payments at age 85, his annual payout will be $63,990, New York Life says.” Wow. At age 65, if he makes a onetime deposit of just $100,000, his payments at age 85 are close to $64,000 per year! Why is this so valuable? Because at age 85, if he lives another ten or 15 years, he will get $64,000 every year, dwarfing his initial investment. But the best part is that he has to make his initial savings and investments last only 20 years, not 30 or 35. And with the volatility of markets and the inevitable challenge of sequence of returns, this task can be challenging for almost anyone.

I ran these numbers myself, and since I am only 54, my payments at age 85 would be $83,000 per year for the same onetime $100,000 deposit today! (And you don’t have to have a $100,000 lump-sum payment. It can be sizably smaller, which would also provide a smaller income.) That means if I live until I am 95, I would receive $830,000 in payments (10 years × $83,000) for my $100,000 deposit. And I don’t have to wait until age 85 to turn on the income. The day I make the deposit, I’m given a schedule of what the annual income payments will be at any age I want to begin taking income. If I felt I needed or wanted money at age 65 or 75, I know exactly how much that’s worth to me.19 Income insurance, when structured correctly and as part of an overall plan, is an incredible tool that reverses or eliminates the risk of living too long and becoming a burden on your family members. When I met with Alicia Munnell, director of the Center for Retirement Research at Boston College, she echoed my enthusiasm: “So many people that I work with are very excited about and positive about the advanced-life deferred annuity, which is essentially longevity insurance.” At my annual financial event in Sun Valley, Idaho, I interviewed famed publisher Steve Forbes. I asked him about his own approach to personal finance, and even he said that he has longevity insurance in place!

One more very cool thing? The IRS looks very favorably on these deferred income annuities, so you don’t have to pay tax on the entire income payment (because a good chunk of the payment is considered a return of your original deposit).

THE ULTIMATE INCOME SOLUTION

It’s been said that if you give a man a hammer, everything becomes a nail. This is to say that the solution outlined below, as exciting as it is, is not the be-all and end-all solution, nor is it for everyone or every situation. It’s part of an overall asset allocation. My objective here is to outline a powerful financial product, a hybrid annuity, that gives us great upside potential during its growth phase but also provides a guaranteed lifetime income down the road, when we crest the top of the mountain and begin the “second act” of our lives. It’s called a fixed indexed annuity (FIA).

To be clear, there are two relatively new types of deferred annuities that have surged in popularity since they were introduced in the early 1990s: 1. the indexed annuity, where the rate of your return is tied to a stock index, and . . .

1. the even more popular hybrid version, where you get both a fixed rate of return and the option of a return tied to the growth of the stock market index as well as a guaranteed lifetime income feature. These hybrid annuities are more commonly known as fixed indexed annuities, with a lifetime income rider or a guaranteed minimum withdrawal benefit. (I told you we’d make sense of this alphabet soup of financial terms.) In 2013 alone, these annuities collected over $35 billion in deposits. In fact, as we were wrapping up this book, fixed indexed annuity deposits were at record levels through the first half of 2014, with over $24 billion in new deposits, a 41% growth over 2013. Why this record growth?

• In a fixed indexed annuity, your deposits remain entirely in your control. You are not giving up access to your cash.

• It offers the potential for significantly higher annual returns than other safe-money solutions such as CDs or bonds.

• It provides a 100% guarantee20 of your principal—you can’t lose money.

• The growth is tax-deferred, providing maximum compounded growth for the expansion of your Freedom Fund.

• It provides income insurance, or a guaranteed income for life, when you select an optional income rider.

As I alluded to earlier, these structures offer upside without the downside. Gains with no losses. In many ways, they are an antidote to the problem of sequence of returns.

How do they work?

First of all, a fixed indexed annuity is fixed, which means your account is guaranteed never to go down. No matter what happens, you will not lose your original deposit. That’s half the battle! However, instead of getting a small guaranteed rate of return like a traditional fixed annuity, your “base account” growth is determined by tracking the gains of a stock market index such as the S&P 500. As an example, if the S&P 500 goes up 8% in a given year, you would get to keep (or “participate in”) a certain percentage of that gain, which is typically subject to a cap. For example, if your cap was 5%, you would receive a 5% credit to your base account value.21 In other words, there is a “cap” or a “ceiling” in most annuities on how much of the gain you get to keep. But conversely, if the market goes down in that year, you don’t lose a dime!

In recent years, there have been a few unique products that allow you to keep 100% of the market/index gains and, yes, still avoid the down years! There is no cap on your upside. What’s the catch? Instead of putting a cap on your annual gains, the insurance company will share in a small portion of your gains (1.5%, in many cases). So let’s say the index/market was up 8% in a given year; you would receive 6.5% added to your account, and the insurance company keeps 1.5%. Or if the market has a stronger year, with gains of 14%, you get to keep 12.5%. Many experts I spoke with anticipate that these uncapped annuities may be the future.

Okay, but what happens if the market goes down?

If the market index drops, even if it’s one of those nasty 20%, 30%, or 50% drawdown years, you don’t lose a dime. You get to avoid all the bad years and only participate in the up years of the market index.

Now, I know what you are thinking. It’s exactly what I was thinking when I first heard of these products: “How in the world can insurance companies give you the upside with no downside?” “There is no magic here,” said Dr. Babbel when I asked him the same question. He explained that the insurance company parks the bulk of your money safely in its cash reserves, never actually investing it in the stock market. This is how it guarantees your principal. The remainder is used to buy “options” on the stock market index and to cover expenses. So if the market is up, you receive your portion of that gain. If it goes down, the options “expire,” but you don’t lose—and neither does the insurance company. Win, win.

LOCK IN YOUR GAINS

In addition to having the upside without the downside, these FIAs have another special benefit. Look, we all love opening our stock account statements and seeing our account balance on the rise. But we never really know if those dollars will truly be ours to spend one day or if another market drop could wash away those gains. One of the huge benefits of an FIA is that each and every year, any gains or upside are locked in, and now this becomes our new floor. For example, if I earn 6.5% on my $100,000 account, I now have $106,500 locked in. Never can I lose that $6,500 in growth. Each and every year, the account will be either flat, because I am guaranteed not to partake in market losses, or the account will be up. Like an elevator that only goes up, this unique feature of locking in gains each year is a powerful tool for our safe money.

INCOME! INCOME! INCOME!

As powerful a tool as these FIAs can be for a safe-money return, it’s their ability to simultaneously provide you a guaranteed lifetime income stream that makes make them so darn attractive. And while I like fixed indexed annuities for the reasons above (principal guarantees, tax efficiency, upside without downside), I have come to love them for the guaranteed income aspects. This is what happens when we elect to add a guaranteed lifetime income rider. Let me translate into English.

No matter how your account performs, even if it is flat or up moderately over many years, the addition of a guaranteed lifetime income rider ensures that you will receive a guaranteed annual income stream when you decide to turn it on, regardless of what happens to your base account.

Get this: I have an annuity in which the income account is guaranteed to grow at 7% per year for 20 years with no market risk. The day I went to buy it, I received an income schedule, so that whenever I decide to turn it on, I will know exactly how much income I am guaranteed for the rest of my life (no matter how long I live). And the longer I wait, the more my income account will grow, and thus, the higher the income payments will be. This account has become an important part of my Security Bucket. Again, sounds too good to be true, right? I had my fiduciary advisor dig beneath the surface, and he discovered that not only was it legit, but also it was attracting billions in annual deposits from baby boomers like me.

After all, who wouldn’t want a product with a 7% guaranteed return in their income account while simultaneously avoiding market risk, sequence-of-returns risk, and so on? Remember, this was early 2009, when the market was melting down. There was seemingly no such thing as a safe place. And other guaranteed vehicles like CDs came with tiny returns. As you probably recall, there was a panic in the air, and people were scouring the world for financial safety. I found out later that this specific product became the fastest-selling annuity on the planet at the time.

After I made the investment, my next thought was, “How do I set this up for my kids and grandkids? This is too good to be true.” So what’s the catch? I came to find out that the insurance companies offer this product only if you are in your mid-50s or older. They can’t offer 7% forever, so they give a maximum of 20 years. If you are younger, the insurance company obviously can’t afford to give you a 7% return in your income account forever. Also, this annuity requires a sizeable lump-sum deposit up front. I was baffled and frustrated. If this product is this powerful for someone my age, it would be even more powerful for someone in his 20s, 30s, or 40s who has so much time to allow his deposits to compound. That day, I made it my mission to create an affordable solution for younger people. Where else could they build a secure lifetime income plan that would allow them to carve a clear path to financial freedom without all the stress and volatility of the market?

YOUR PERSONAL JACKPOT

Cody Foster and his two partners, David Callanan and Derek Thompson, are living Horatio Alger stories. In 2005 these three buddies sat around Cody’s kitchen table in sleepy Topeka, Kansas. They had pooled their life savings, and with $135,000 in the bank, they decided to launch Advisors Excel. You might never have heard of Advisors Excel, because it doesn’t service the end consumer. The firm services only top-tier financial advisors. And “service” is the understatement of the year. Advisors Excel works with the top insurance companies to give financial advisors access to the most innovative and secure annuities in the country. You could think of their company as the advisor to the advisors.

Fast-forward just nine short years. Advisors Excel is now the largest annuity wholesaler in the country, with nearly $5 billion in annual deposits. In an industry of firms that have been around for decades, Advisors Excel dominates. In the company’s short existence, it’s grown so quickly that the three founders have outgrown their office space five separate times! Their first location was in the basement of a dentist’s office (where they used boxes as a makeshift desk for their first employee). Today they are in an 80,000-square-foot state-of-the-art facility. Who knows how long until they outgrow that space!

When you meet Cody, you would never know that this humble man from Topeka owns a multibillion-dollar company. He is salt of the earth and hasn’t forgotten his roots, or the grace of God that he credits for his success. I met Cody for the first time in my hotel in San Jose, California, the morning after he attended a 6,000-person Unleash the Power Within event. We had been brought together for this meeting by my son Josh. The meeting was scheduled for an hour but ended up going three hours (not uncommon in my world!).

I dove in . . .

“Cody, I have an idea that I believe can transform the lives of millions of people by helping them reach their financial goals sooner and with a whole lot less stress and risk.” “Okay, shoot,” he said and inched to the end of his chair in anticipation.

“I want to see if we can take what’s available for wealthy older folks and give the same opportunity to younger people who may or may not have a lot to invest. A fixed indexed annuity where younger people could contribute monthly, similar to how they would a 401(k), and know that for every dollar they contribute, they are guaranteed a lifetime income stream. A personal pension plan.” Cody sat back. He seemed slightly skeptical.

This was outside the box by a mile.

I went into full-on “seminar-style” assault mode. I gave him my most passionate plea as to why this solution could be a game changer. Engaging with the millennials is the Holy Grail for the financial services industry, as they are independent self-thinkers and notoriously tough to reach. And studies show that they aren’t huge fans of the stock market. Just as they were getting their feet wet, the crash of 2008 wiped out the little they had saved. Even worse, one study by LIMRA, the largest trade association for the life insurance and financial services industry, found that Gen Xers lost 55% of their median net worth between 2005 and 2010! Ouch. Now they want guarantees! They want protection. They want income. And they want it to be easy.

Cody began to nod. He understood what I was thinking, but he also knew the challenges. After all, he has been in this industry since graduating college and knows intimately the limitations and strengths of each of the biggest insurance companies in the world.

“Tony, I can see what you’re going after, but you need to understand the business. Insurance companies can’t do this for somebody younger because what makes lifetime income annuities work, and what makes the insurance numbers work, is that they are driven by understanding mortality rates. And at fifty-five, they know your lifespan, on average, and they can make financial decisions based on that. It’s harder to do it at forty-five or thirty-five or, heck, twenty-five.” I had anticipated this answer and had an idea:

“What if you gave them a guarantee that they won’t lose their money, first and foremost? And since it costs more to insure their future income, why not give them a smaller annual growth guarantee and then add to it whatever upside the index in the stock market brings? That could end up being more than seven percent, especially for younger people in their twenties, thirties, or forties, because they have so much time for their investments to compound. Most people know that, over time, the stock market has produced the greatest growth, but the problem is the risk of those nasty market drops! You could give them upside without the downside on their deposits and a guaranteed income for life.

“You still have to make it affordable by not requiring a lump-sum payment up front, but instead, only small monthly payments in the amount they choose. With this approach, the insurance company won’t have to worry about superlong life expectancies, and the client has the potential for a much higher income stream since the majority of the income is tied to the market upside.” Cody liked the idea because over long periods of time, the market will perform for investors, especially when you are participating only in the up years. But one major hurdle remained: “Tony, the way I see it, this product would need to be efficient and lean. But traditionally, the most expensive aspect when pricing an annuity is the commission. Insurance companies pay commissions up front from their own pocket so they aren’t deducted from the customer’s account. So for this to work, insurance companies can’t afford to pay large amounts of compensation to sell this, which means it is tough to get traditional agents to sell it. It’s a catch-22.” Again, I had a counter prepared.

“What if they don’t pay any up-front commissions?” I asked. “Think outside the box in terms of sales. Fifty years ago, life insurance was sold door to door. Today you can do it online and never speak to a salesman—and as a result, it’s now ultraconvenient and cheaper than ever before. This new annuity should follow suit. Younger ages actually prefer not to talk to anyone! Cut out the middleman!

“This should be as simple as going online, deciding how much money you want to invest per month, and having it deducted automatically from your checking account. Set it and forget it. The site could project exactly how much income it will provide for you at any future age—fifty, fifty-five, sixty—depending on how much you can afford to set aside. With just a few clicks, a person could be set up with an income plan for life. They don’t have to be rich or old to take advantage. Heck, they could even track it with an app on their iPhone.” Cody was catching the vision. So I asked him, “Cody, how many lives do you think this could impact? How many lives could be touched if you guys used your sway with the insurance companies to create a product that anyone could access and would provide them with a more secure financial future?” Cody smiled. “Over the years? Millions! Tens of millions! The vast majority of America!” My words had struck a chord with this small-town farm boy who grew up on the lower end of the middle class. Cody is incredibly benevolent with his wealth and wants everyone to get a fair shot. Especially a fair shot at financial freedom.

Cody left the hotel. He was on fire. He left on a mission: to see if he could use his influence to convince the world’s largest insurance companies to build a “lifetime income plan” solution for younger ages and with smaller deposit requirements.

FAST-FORWARD

Just a few years back, the minimum age for most fixed indexed annuities was 50 or 55, depending on the company, and most required a minimum $20,000 to $50,000 deposit. And finding a guaranteed lifetime income rider for the younger marketplace (below 50) was virtually impossible. But the game has now officially changed. I’m proud to report to you that through the efforts of my partnership with Advisors Excel, we have managed to get some of the largest insurance companies in the world to begin to set up and build new, revolutionary products for you, regardless of your age or income level.

These new FIAs provide benefits such as:

• Guarantee of your principal: whatever money you’ve invested, you’ll never lose.

• The upside without the downside: you participate in 100% of the stock market index growth. That’s right: 100% of the upside with no downside, no chance of loss, and no cap on your winnings. The insurance company simply shares in your profits by taking a small “spread” (ranging between 1.25% to 1.75%). If the market is up 10%, and it keeps 1.5%, you get 8.5% credited to your account value. Conversely, if the market is down in a given year, the insurance company does not keep anything, and you don’t lose a dime or pay any fees! You pay the spread only if you make money.

To understand how powerful this arrangement really is, I came up with a metaphor when I was having dinner with a buddy at the Wynn Encore in Las Vegas. I looked out over the casino floor and said to my friend, “Imagine if this casino had a special gaming table reserved only for VIPs. The rules would be that you could gamble all night, and you would never lose a dollar. No matter what happened, Steve Wynn would guarantee that you would leave with what you started—a guarantee of your principal.

“If you win, you get to keep all your gains with the exception that the house gets to keep 1.5% of your winnings. How much would you bet? How long would you play for if you knew you couldn’t lose, and if you won, you just had to pay a small portion of your upside?” He smiled and said, “As much I could, for as long as I could!” I laughed. “Me too!” That’s exactly what this fixed indexed annuity does, and now it’s no longer limited to older people with lots of money.

• There are also no annual management fees or sales charges that come out of your account.

• If you’d like to have a guaranteed income for life, you can select that optional income rider as well. When you do this, you’ll have two accounts that compete with each other: (1) a base account that accumulates as the stock market grows and locks in its returns each year, as we described earlier; and (2) an income account where, depending upon the issuing insurance company, you’ll have a guaranteed rate of return or a combination of a guarantee and market performance. To your benefit, the income you’ll receive will be based on whichever account is larger at the time you decide you want the income.

Most importantly, on top of all this, Cody was able to influence the insurance companies to eliminate the lump-sum payment and make this financial vehicle available to almost anyone. The days of needing $25,000 to $50,000 to get started are gone. Now you can start with a small initial deposit as low as $300. You can even set up the convenience of a monthly auto-deduction program from a checking account so that your Freedom Fund is growing every month into a “personal pension”—an income for life.

Even if you have a very small amount or no amount in other investments, this product can be a phenomenal place to start. Why? Because it gives you the upside of the stock market index without the downside. Imagine knowing that for every dollar you contribute, you are guaranteeing yourself a lifetime income stream. The more you save, the higher your income will be. And you are guaranteed not to lose your deposits!

Since there are thousands of income annuity products with a wide range of income payouts, Cody and his team have established a website to educate and empower you when it comes to finding and selecting the right annuity products for your specific situation: www.lifetimeincome.com.

By visiting LifetimeIncome, just a few simple steps will allow you to quickly and easily set up your lifetime income plan. Within seconds, you can calculate your potential future income based on how much you can afford to contribute. Regardless of your age, the system will reveal the best approach for you and show you the most competitive income payouts available. So whether you are younger and want a flexible, smaller monthly contribution, or if you are over 50 and have a lump sum and are looking for longevity insurance, the system will guide you to the best income solution. You have the option to set it up online, over the phone with a specialist, or be connected to an annuity advisor in your hometown. Lifetime Income has a network of over 500 annuity specialists in all 50 states. It will also provide a free review and analysis of any existing annuities you might have to see if you should hang on to the one you have or transfer your account value to a different insurance company in a tax-free exchange.

As I mentioned, when coupled with the All Seasons portfolio, the right lifetime income product is a powerful tool! Lifetime Income is the exclusive annuity provider for Stronghold. So if an annuity is just a portion of your overall asset allocation (and just part of your Security Bucket), you can also access these same products through Stronghold. It will connect you to an annuity specialist.

TOOLS OF THE .001%

We have come a long way! Not only do we have the mind-set of an insider, we have the tools of the insiders! In this section alone, we have learned a powerful portfolio model from icon Ray Dalio that has proven resilient throughout every economic season since 1925. And most people have to invest $100 million to get his insights! We can be confident that his portfolio model will survive and over the long term thrive in all environments.

We have also learned how correctly structured income insurance, an annuity, can give us a paycheck for life without having to work for it. And not only that, but with the right fixed indexed annuity, our deposits can participate in 100% of the upside of the market/index but avoid losses when the market goes down! A Security Bucket with some excitement. Although there are many approaches to achieve financial freedom, the one-two punch of an All Seasons portfolio and the certainty of a guaranteed lifetime income stream is a powerful combination for peace of mind.

But once you build your wealth, you also must protect it for you and your children. The ultrawealthy protect their wealth with an entourage of extremely sophisticated advisors. So who or what do they protect it from? Let’s find out the secrets of the ultrawealthy in chapter 5.5!

FREQUENTLY ASKED QUESTIONS

Here are a handful of common questions that seem to come up when people learn about fixed indexed annuities: What happens if I die “early”?

If you die before turning on your income stream, your entire account balance is left to your heirs. This is a huge benefit over a traditional income annuity. When you do decide to eventually turn on your lifetime income stream (with a simple phone call), you do not forfeit your entire account to the insurance company. Your heirs would still get your account balance minus any income payments you had taken to that point.

Can I take out money in case of an emergency?

Most FIAs allow you to withdraw up to 10% to 15% of your account without any penalty or surrender charge. Keep in mind, if you make this withdrawal prior to age 591/2, you will be charged a 10% penalty by the IRS, which is standard for any investment that gives you tax deferral on the growth. If you need all your money back, you can surrender your annuity and get your money out (plus any growth). However, this withdrawal may incur a surrender charge, depending on how long you have owned the annuity. A surrender charge is really a self-imposed penalty because you are taking back your money early. The typical schedule will start at 10% and go down by 1% per year until you reach 0%. So if you have held the annuity for five years, you would have a 5% charge if you surrender the contract and get back all your money. Any money invested in this vehicle should be considered money invested for the long term.

What are the fees within an FIA?

There are no annual management fees withdrawn from your account. However, if you select the guaranteed lifetime income rider, the annual fee for this ranges between 0.75% and 1.25% annually, depending on each company’s individual offerings.

Can I put my IRA money into an annuity?

Yes, you can use money from your IRA (or Roth IRA), or you can also use after-tax dollars (money you have already paid tax on) to fund an annuity. This scenario is also known as qualified or nonqualified dollars, both of which can be used.

What is the cap on my account growth, and how is it determined?

The cap, the ceiling on how much of the market growth you get to keep, is typically tied to interest rates. If interest rates are higher, the cap is high (and vice versa). Some newer products offer 100% upside with no cap, but they take a small spread, which is a share of your upside/profits. If the market is up 10%, you might get 8.75% credited to your account (which means the insurer kept a 1.25% spread). But if the market goes down, it doesn’t take anything, and you don’t lose a dime. I like these uncapped strategies because they give the highest upside potential in a given year.

To what underlying markets will my account be “linked”?

The most popular index is the S&P 500. But newer indexes are being added quite frequently. For example, some accounts can be linked to the Barclays Dynamic Balanced Index (a mix of stocks and bonds) or the Morgan Stanley Dynamic Allocation Index (a mix of 12 different sectors). Some indexes are even tied to commodities.

What factors will determine how much income I get?

The amount that you contribute to the annuity, the length of time before you decide to access your income stream, and your age at the time your income begins are the primary factors that will ultimately contribute to the amount of income you’ll receive. However, the biggest factor is the product you select. Every annuity contract is different in the amount of contractually guaranteed income it will provide, so it’s important you understand this before you pull the trigger.

What is the tax treatment of an FIA?

The growth within your FIA is tax deferred. When you turn on the income stream, you will be paying ordinary income tax rates on the lifetime income payments. Because the government is giving you tax deferral, it will penalize you if you take money out before you reach age 59. If you own the FIA within a Roth IRA, there no will be no tax on either the gains or the lifetime income stream.