#48 – Luke Gunnells: Present Saving Is Future Income

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Episode Summary

Welcome to the Wealthy Wellthy Life with Krisstina Wise. Luke Gunnells is the Vice President and Marketing Director at Guardian, a leading financial planning company. Luke is an expert in annuities and sheds some light on the topic, while debunking some myths around how you should think about replacing your working salary when you’re ready to retire.

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You can also click on the time stamps below to jump to those specific points in the conversation.

What We Covered

  • [02:10] – Who is Luke?
  • [04:00] – Why does personal finance excite Luke?
  • [06:10] – Luke spends about 50/50 of his time on teaching fellow financial advisors and clients about annuities.
  • [10:40] – The word ‘retirement’ is very limiting and it isn’t always positive.
  • [16:15] – How does annuity work?
  • [22:30] – The goal is to have income for as long as you live.
  • [25:35] – Annuities garatunees income no matter what’s going on in the market.
  • [31:15] – As we age, we become fearful about whether we have enough money. Annuities help us relax a little bit.
  • [38:20] – Once you have some annuities, when do they take effect? How should you structure them time-wise?
  • [42:35] – Can people with a 401k or IRA convert some of their assets to annuities?
  • [46:55] – You don’t want to have a ‘set it and forget it’ mentality to your money.
  • [51:10] – Although Krisstina hates the term retirement, at the end it boils down to freedom and replacing your working salary.
  • [53:20] – Luke busts some myths!


[Tweet “The word annuity just means a periodic payment.”]
[Tweet “If you think about a pension, the idea of annuity is basically the same thing.”]

Links Mentioned

My Retirement Walk
Paychecks and Playchecks, by Tom Hegna

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You are at the intersection of wealth, health, and happiness. Welcome to the Wealthy Wellthy Life.

Hello, and welcome to the Wealthy Wellthy Life, the show about becoming wealthy without sacrificing your healthy. Each week, I interview a counter-cultural thought leader to bring you a unique millionaire mindset. I’m Krisstina Wise, bestselling author, millionaire coach, and your personal guide to money, health, and happiness.

Today I tackle money wealth with Luke Gunnels. Luke is Vice President and Marketing Director at Guardian, a leading financial planning company. Luke is one of my personal wealth advisers and is an expert of annuities, a powerful wealth building tool that few understand. Luke is on my team because he’s an innovative thinker when it comes to financial planning for your future self and legacy. He’s an educator of money and holistic financial planning.

This was a great interview about one of my favorite topics, money. Even if you don’t think you want to learn about annuities, I encourage you to listen. I promise you will learn a thing or two. Luke has opened my eyes to financial strategies I never knew about. He will likely do the same for you. Enjoy.

Well Luke, welcome to the Wealthy Wellthy Life Podcast. I’m really excited for our conversation today because we’re going to talk about a money topic that I think most people are probably unfamiliar with or, if familiar, a little bit scared of. I’m really thrilled to be able to talk about this money subject and see where we wind up. Thanks again for joining me.

Absolutely. Good morning. Thank you.

Tell us about yourself. Obviously, I know you through Guardian and we’ve met through some mutual friends and colleagues. Tell me about your journey. How did you wind up in the financial space and have you always been interested in the money side, this money world?

Sure. Appreciate it. I’ve been always interested in personal finance. I was a business major at Stanford University in Birmingham. Driven, really, that way by my father who took a keen interest in his personal finances, a small business owner and a dentist in rural Alabama.

That kind of permeated to me and I’ve been in finance ever since. I started out banking industry, and for the last ten years I have been in the wholesale part of financial services. So, I started with an asset manager of The Hartford back in 2006 and for the last seven years, I have been with Guardian Retirement Services focusing primarily on educating financial advisers and their clients on making their retirement income the best that it can be. That’s a little bit about how I got here.

Great. What is it that you love about financial services world? I sometimes even steer away from financial services, financial advisory, some of this terms because I think I can be scary to so many people when they think of this financial services as this massive industry and not quite even sure how to approach it. We’re just talking personal finance, money and how to organize our money or structure our money so that we can live good today and have enough to live during our older days. What is it about this sort of industry or this work, I guess, that really excites you?

Well, the personal connection I have been able to make with people I’ve helped. Whether it’s a financial advice, or giving advice, or whether it’s one of their clients, to be able to simplify what can be intimidating to a lot of people in finance, to me, it’s one of those things that I have been drawn to. To be able to take a complicated subject and make a personal connection, and simplify it, and make it consumable, in a way, it really helps people be at ease and gives people the confidence to live a happier lifestyle.

I’m so glad you said that because that really is my goal too is on the money side of things that I teach is to start simplifying some of this conversation. I almost think it’s sort of the agenda of the financial service industry, to keep things really complicated so that we advocate and sort of give our money over to the planners, advisers, whomever.

Part of the podcast and even the work that I do is to educate and teach us just the basics of money mechanics and some of this long-term strategies that industry talks about retirement, I have another name for it. It’s a way that once we understand this things, they’re actually much less complicated than most of this think, and it’s something most of us can all learn to and we can start working with the right people to put the right plans in place so that we can take care of our lifestyle today and take care of our lifestyle as we age.

You’ve really done that for me. You and I have had several conversations and you simplified and educated, for example, the conversation around annuities that I was really scared of, prior to talking to you. But now, after several conversations I’m like, “Oh wow! This is so interesting, fascinating, and I’m really excited to delve deeper and to see how annuities might fit into my financial plan.”

How much have your time spent educating financial advisers on this world called annuities and just your personal customers?

I spent probably three quarters of my time with the financial advisers and other quarter with their clients and people that they wish they help. You mention it earlier about simplifying and breaking it down because the idea today is a simple one. We spend our entire working career right out of college or at some point accumulating dollars for this future, freedom after work or retirement as it’s conventionally known, and really, the only thing that changes when we transition is the paychecks from our work stop. We just need to make sure that we’ve got adequate plans in place to make sure those pay checks that we’ve been generating ourselves are in a spot to generate paychecks for as long as we live so that we can maximize that time in retirement or when we’re pursuing those things, those passion that we cannot pursue when we’re working.

Right. That’s basically what annuity is, correct? It’s future cash flow that replaces your working cash flow at that conversion point. It’s where you start collecting money from the annuity that you’ve pre-purchased basically that at some future point in time when you don’t want to live off your working income and you wish to live off the more passive side of things, that annuity can go into effect. Is it as simple as that? I know annuities can be complicated and there’s different types and it can be complex. But, simplified, is that more or less how you’d describe it?

Sure. You’ve got the essence of it. The word annuity just means a periodic payment. Like our salary or paycheck, we have been used to 30 or 35-year working career. We need to replicate that to pursue our passions in retirement. Annuity is expert in that. That is the purest definition. If you think about a pension or salary, the outcome form of annuity is essentially the same thing. There are variations that try to do more than that but when you really pull it back and simplify it, come back to the base and the idea of how annuity would be incorporated and beneficial is replacing income.

Exactly, at some future point. So, we’ll dig into annuities a little bit more here in a second. I really want to, for everyone who’s listening to have a basic understanding of annuities and then perhaps be able to talk to their financial advisors more about it or at least have some good questions to ask to see if it might be something to fit into their plan and their strategy.

But, first, I’d really like to tackle this word retirement. The way I teach money to my personal clients and to my students is that I’m really working to break some of this retirement mindset that I called retirement even is the “deferred life plan”. That we’re deferring so much of living today for some future date and time, usually some age or whatever. I’m not sure that that’s — basically, retirement, even the idea of retirement, was conceived probably 1940s when the Social Security Act took place and then corporations and government started offering retirement income through social security or pensions. Through this factory industrial age, we started talking about  retirement, that when I retired at 62 I’ll live seven more years and can live off that retirement income before I die, which was the sort of actuaries, the life span at the time when this stuff was created.

So today, we’re living a lot longer and today, we have resources. We’re not necessarily dying at 68 and have to retire at 62. Like I said, part of the work that I’m trying to do is bust some of this retirement myth. But when you say retirement, what is your definition for retirement? Are you looking at, “Okay we’re trying to coach people that you should retire and just stop working and stop being productive in society at 62 and then start living off of some other income?

Yes, conventionally, that’s the way retirement is looked at but I agree with you. The word “retirement” is limited. It’s not necessarily a positive in that it almost is like the end of something. For most clients now, when you could live another 30 to 40 years after a working career, it shouldn’t be the end. It very well should be the beginning of a pursuit of things that you want to do. The conventional view of retirement for most is — work for 30 years, somewhere in your 60s, have built the financial freedom or financial ability to pursue something different and to retire. But, retirees today, have the opportunity to really pursue passions, the things that they want to do. I like the way that you frame retirement, and really to change the perception of retirement.

I would really like to, even when we’re having these conversations, is because it’s as though we have to sludge through this working life and it sucks so bad, and I hate my life, and I’m just working through this to hit this retirement thing that, at that point, then I can start enjoying my life and pursue all these passions that I’ve sacrificed because i had to work so hard and sludge through and working for the man or whatever.

I want to challenge that a little bit because I really want to move people, if possible to, “No, let’s live our passion. Let’s work our passion for our entire lives.” Who needs to retire at 62? Why not maybe work until we’re 100 if we’re healthy and we take care of our body and mind? Maybe we could do that. Maybe that work is hard or is long of hours but I just don’t like this notion of we get to pursue our passions when we retire. No, let’s pursue our passions all the time but let’s make this life plan that allows us to work and enjoy our work and impact and pursue, and then set up for future strategies so that as we age, at some point, there are different types of incomes we can live off of, including maybe working income. You’re not going to pull me out of workforce until — you know. I mean, they’re going to have to yank me out or it will be the end of my days.

But that doesn’t mean that I don’t want to set up my future in a way that if something happens that I need the non-working income, because as we age, that will happen, but that too, I do have my freedom and flexibility to choose what I do with my time and I’m not locked in to work for paycheck.

There’s the challenge there. I just want to take every opportunity I can get to sort of bust some of these retirement myths that says that life starts when you retire and before that, it kind of sucks, and that there’s no value, you’re not valuable to the workforce when you’re old, so we have to pull you out of the workforce because old people aren’t valuable. I just think that there’s a lot of belief systems and things that come with that.

If we can replace the word “retirement”, I like to call it this transition point of self-actualization or this financial freedom point where we reach a place in our life at any age – it could happen at 35, it could happen at 45, it could happen at 65, it might happen at 75. But whatever the age is, it’s not about this future event or this set point in time that I’m going to retire with this capital at work number that says that I have enough to retire and that’s the day that my life gets to begin. It’s more about working towards financial freedom, which means at whatever age that it happens, it’s a place where there’s an event, like an annuity, that might take over or many different things that happened.

But it’s a future place in time where we have the cash flow, where we have the income that comes from our different assets that can replace our working income if we want it to. That’s a place of freedom where we can choose to work or not, or we can choose to work less or not. But, it’s not about retiring, it’s what I call this transition point of freedom and this place of self-actualization where we fully actualize  that we can actually work, and live, and make impact, and do these things and we want to maybe continue to do, but not do it for the money. We can still make money doing it, but that’s what I call this true point time of self-actualization.

That’s why I love the idea of annuities and I want to have this conversation today, because what annuities are, the way you described it to me, that I really liked it’s guaranteed future income. So, when you buy an annuity, that annuity will guarantee a certain amount of income in the future, whatever future date that is. How great is that? We get to determine as we’re setting up some of this future events so that we have the option and we have the more flexibility or the more freedom.

Talk about annuity. When you say guaranteed, more or less, “guaranteed” is such a risky word, but we’re talking about, more or less, guaranteed future income, and that’s an annuity. Can you really start breaking down what an annuity is and how it works?

Sure. Just to kind of go back and look at what retirement used to be for our parents and grandparents, and you mentioned earlier in the conversation, pensions, and I think that’s a key theme when thinking about an annuity, because our parents, our grandparents, they had their lifestyle taken care of by social security, they had a lifestyle taken care of by pension, and if you ask them how much their retirement plan was worth at age 50 or 55, most of them would probably say, “80% of my current salary,” because that’s what their pension was going to pay out at age 60 or 62 when they retired.

So, they were already conditioned to think about a life in the future and a lifestyle in the future around income. Today, it’s completely different. You mentioned capital at work earlier, this capital at work number, and a lot of people approaching retirement today think about, “What’s on my balance sheet? This big number, I need $2 million or $3 million to retire,” but they have no concept of what that means in terms of a lifestyle or the income replacement.

So, most accumulation dollars that we’re putting away in retirement accounts, they’re meant, at some point, for a lifestyle which translates to income. So, the outcome of a working of a working career, the outcome is really income all along as we prepare for the future. Annuities is a simple way to say, “I can buy units of income for the future, and for every $100,000 I invest today at age 50, that could be $10,000 to $12,000 in cash flow 10 years later.”

Then, you start to say, “Okay, well $12,000 in cash flow 10 years later is $1,000 a month,” and then when you think about that on an individual level, now it’s in a simpler place where I can consume it and say, “Well, what does $1,000 a month mean to me?” So, annuities are really meant to take those assets that we’ve built over 20 to 30 years, and when we get into our 50s, we can start converting those numbers, those dollars, our capital at work, we can start converting them into units of income in the future, which is essentially basically saying, “I’m going to solve for a comfortable lifestyle so that I can pursue the things that I want to pursue.”

I’m going to challenge you there a little bit just because of the wording. But, I really hope that people are pursuing what they’re already wanting to pursue. It’s just, really, it doesn’t necessarily have to — again, I really hate that retirement thinking, because I think it gives us flexibility and freedom that if we want to continue to work, we can. If we want to do different things with our time that we can. But, it doesn’t mean that’s where I get to start pursuing my passions because I have not ever done that until this date that I retire. Anyway, I just will continue to plug that as I’m trying on my mission to break some of the retirement language.

But, you said a couple things there that I would really like to dig in a little bit deeper. One, most retirement planning that I know of, and hearing what my customers, what my clients listen to is it’s all about this accumulation of assets, and this net worth, and getting this capital at work number, and maybe you’ll be able to pull 4% out for the rest of time. But, the missing part of the conversation that you said that’s so important is what’s missing is it doesn’t really matter, does it, how much capital at work? I mean, it does, but that’s not the goal. The goal is cash flow. But, most financial advice is saying, “Okay, let’s build up the net worth and maybe we’ll pull this percentage out.”

But, talk a little bit more about the strategy that needs to be. How much future income, replacement income am I looking to replace the working income so that if I want to quit working, I don’t have to rely on my work in order to produce the income that underwrites the cost of living the lifestyle I want? So, why is that? Why is income and cash flow a missing part of the financial conversation with most planners?

Well, there’s several different reasons, but perhaps the most obvious is — or, obvious to me but not obvious to most is that we have been reprogrammed because we no longer have pensions that are showing us what sort of lifestyle in the future that we’re guaranteed from our company. The traditional way to save for retirement has changed and now it’s a 401(k), or a 403(b), or an IRA. Every single quarter, four times a year, you get in the mail a 401(k) statement, and the very first thing you look at, or at least I look at in a 401(k) statement is to say, “Okay, I’m going to look at how much my account value is worth and I’m going to look at a rate of return.”

So, really, it’s constantly being reinforced that my retirement is this number and it’s all about a rate of return. And because it’s not about income anymore, there’s no pensions, it’s primarily a defined contribution plan, or a 401(k), or an IRA. It’s going to account balances and it’s going to rates of return. So, we’ve been reconditioned every 90 days, for those of us who are investing in those vehicles. So, mentally, we’re just driven away from the idea of income.

That’s really what the conversation is today is to pull it back and to say, “Yes, those instruments are good and that’s what most people have access to.” They don’t have access to a pitch in, but at some point, we can go back to that idea of you can take control and go back that idea of income, and income for as long as you live, income for your life.

Yeah, and thank you for that, because that’s really what I want to, again, another place for what I want people to start thinking about is it’s always income, because it requires income, cash flow, to live, to support, the cost of living our life. We use our working income during our working years to pay for the cost of living our life, that cash flow, that income. So, all of what we need to be concerned about is the replacement income and what sort of vehicles will enable me to replace 100% of my working income, or some percentage of it – hopefully at least 80% or more. Then maybe some situations, we can even go up an income, strategically, with some of our assets.

But, to go back to the planners, or the advisors and say, “Okay, let’s talk future income. What does my future income look like and where might that transition point be?” And how does rate of returns, because that’s another thing that traditional advisors are always talking about, like, “Oh, we can guarantee your promise,” and there’s no guarantees or real promises but, “This is our history for rates of return,” and that’s always the conversation, and we’re always looking at, “Okay, my portfolio got this rate of return as opposed to somebody else’s.” But, again, versus rates of return, that conversation, what should people be paying attention to?

Well, the idea of rates of return, and because we’re all pushed to the 401(k) today, we’ve really been also reconditioned that the risk associated with accumulating assets in a 401(k), we basically look at those risky assets as safe, because that’s all we have exposure to. The trouble with that is when you’re not pulling income off of those accumulation vehicles, that your rates of return are fairly easy to understand. You average 8% to 10% in the market over the last 80 years, and my portfolio is going to repeat that hopefully. But, once we transition into income, then it’s a much different ball game. Those rates of returns don’t tell the full story.

Just for instance, try telling someone that the market’s average 7% over the last 20 years, and then go to a retiree whose portfolio was down 40% in 2002 or in 2008, 2009, and that million dollars is cut by 40%, and we try to take the same income number for lifestyle off of those portfolios, and we seriously have damaged our ability to make that money last for the rest of our life because we’re taking income when it’s ill-timed, essentially.

So, rates of return can be dangerous as it relates to how we take income from those accumulation assets. What annuities do is, one, first and foremost, it guarantees income that we can outlive no matter what’s going on in the market, no matter what’s going on in election year, no matter what’s going on with global events. Those income numbers are not going to be affected, like a pension, not going to be affected when the market’s down and when our rates of return, in the short-term, are down. So, it’s protection against the timing of the market, and it’s a guarantee that you can outlive your money.

There’s a lot of risks these days. I’m guessing that a lot of, even, baby boomers now, and now the Gen X that are starting to even hit some retirement ages that we’re living a long time. So, how much risk is there running out of money even if you’ve been a pretty prudent saver and investor?

Well, there is risk. There’s plenty of risk, and unfortunately, like I said earlier, because that’s all we know, the conventional way or the status quo of retirement planning today, we’ve been reprogrammed to think of risk as safe or acceptable. So, there’s plenty of risk out there. We’ve mentioned the sequence of returns, or when the markets do what they’re going to do. Currently, in the marketplace, we’ve seen an all-time low in interest rates for those clients that are already in retirement. It’s so much harder to get income out of the same dollar than it was 10 years ago because interest rates are so low.

But, one of the risks that most people don’t think about that’s turned around in the last just two months is those rates are going up and their asset levels are going down. So, while income is going up, they’re actually losing money in bonds. So, there is plenty of risk in those traditional retirement assets, and annuities is an asset that can take away that risk.

I like the way you described annuities to me when we first sat down. Because, again, this was one thing I did not understand and thought they were evil. Like, whole life insurance, I thought was evil and now I’m a big holder of whole life insurance and working towards annuities now that I understand them. I really loved how you when you sat down and we chatted about this is that I think the way you explained it too is back in the day that our parents and grandparents, they had these pensions, they knew that they were going to have some percentage of their income, their working income. So, they knew how to prepare for part of that future, they could get an idea of, “Okay, if I’m going to be guaranteed that amount of income for the rest of my life, I know I can live off of that.

So, annuities, really, is the new-age way to replace those pensions. It’s just that we’re accumulating the assets and then maybe converting them over to annuity. So, we’re creating our own pensions. Annuity is our own created pensions, so we have that same future guaranteed income. Am I understanding that correctly?

Sure, and you mentioned whole life insurance earlier, and it’s just a matter of realizing that it is critical to know that the inclusion of guaranteed income in your portfolio, whether that guaranteed income is coming from an annuity, social security, or a pension, it’s critical to have those units of guaranteed income to solve for a basic lifestyle and retirement.

So, it’s not to say 100% of your assets needs to be placed into annuities, or 100% of your assets need to be placed into whole life, or X, Y, Z financial instrument. It’s to say, “Okay, what is a basic lifestyle for me in retirement that I will have the comfort and confidence to retire and wake up every day knowing that I’m safe?”

So, that’s typically, for most people, a basic framework of, “What is food, shelter, clothing?” To have guaranteed income to solve for that basic lifestyle of food, shelter, clothing, basic living, it’s not to say that we should solve for all of our income needs, the income to send us to Europe twice a year, or the income to go to Disney World with our grandkids. It’s just to say, “Okay, can I cover all my insurance payments? Can I cover the shelter over my head and the food that I need every day?”

That’s where we start to implement annuity strategies, and that’s how the income replacement works in retirement planning.

Yeah, and that’s what was so helpful to me when I had my big a-ha after talking to you is that with our complete portfolio and what we do in looking at that future income is that the one thing when you and I talked, you talked about, “This is great, Krisstina. You have a beautiful portfolio. You guys are building something very strategic.” But, what’s missing is the guarantee that depending if you’re forced to, let’s say, “retire” – the word that I hate, but I’ll use it – that if you are forced to, for example, and it’s the market low, your cash flow, your dividends, or your cash flow from investment properties, or your cash flow from some of these different assets may be at an all-time low, so there’s no guarantee.

So, this helps, at least, cover the guaranteed income of your basic lifestyle. We want to at least cover that so if just the timing, these other assets aren’t producing, at least you have this guarantee. Especially as we age, that’s what we’re most fearful of is what? Running out of money and not having that guaranteed other than maybe social security. Most of us don’t have pensions.

So, that’s the part that I really love like, “Oh okay, now you and I are talking about, strategically, when would be the right, maybe, time and how much to convert into annuities to replace that amount of income so that that baseline is covered?”

Sure, the timing, typically, it will vary from person to person, but in the ballpark, in your late 40s and in your 50s is where you really, seriously start to think about transitioning to that financial freedom, or the retirement stage of the rest of your life, so people in their late 40s and 50s.

But, going back to the concept that you mentioned earlier about the timing when it’s a bad time to take money out of the market, I’m not anti-traditional assets because I’m pro-annuities and I’m such an advocate for guaranteed income. It’s the inclusion of the guaranteed income and the portfolio can make all your other assets perform so much better, whether it’s real estate, whether it is equities, or stocks and bonds, they have a cyclical nature. So, the timing of when to maximize those assets, or get out of your investment property, or start a distribution stream from a stock account, they’re cyclical and we can’t control that.

So, if I have those base level units of income or income for life solved for, then I can optimize the rest of my assets. I can choose when to get out at the top of my real estate portfolio, I can choose not to lock in losses when the markets are at temporary lows or down 30% and 40%. So, the inclusion of the guaranteed income can make the rest of what we own act so much better.

Yes, and there’s the longevity piece too that are you saying that once you lock in an annuity, if I live to 120, I’m going to be guaranteed that income for that long of a life?

Absolutely. So, the number one secret sauce, what annuities, or pensions, and social security do that no other financial instrument does is it guarantees income for as long as we live. Those other traditional assets: real estate, stocks, bonds, insurance simply cannot do that. So, whether you’re a client that lives into their mid-80s and well past 100, you know you have a guarantee of income for life.

Yeah, and even, let’s say, worst case, some of the assets run out of money, if you live a long lifespan and you have to dip into some of that principle or whatever, things lose value or whatever, that this is that guarantee to cover those baseline things so that you’re never, basically, on the streets. As we age, we don’t want to be completely broke or just have to rely, maybe, on social security. Is that correct?

Exactly, exactly. So, just putting it into place. For most retirees, finding that comfortable non-negotiable lifestyle level. I call it “basic expenses”, but what’s a lifestyle that would be non-negotiable to you? For some, it could be keeping a $2,000 a month golf club membership. It could be just solving for a simple level of food, shelter, clothing. But, it’s finding that lifestyle and matching it with the income to ensure that that lifestyle can be met.

Right, and so purchasing annuities for example, it’s just like any other financial instrument. You just buy it based on the cost. There’s many different variables, but one thing we’ve talked about, for example, is at a certain time, and we’re watching that timing and talking about it strategically, but it’s like we may want to cash in this real estate asset and convert that over to an annuity and use the money from that sale and move it to an annuity to replace the unguaranteed income from that real estate asset future to a guarantee. That’s one thing we’re talking about, but basically, you just buy an annuity, correct?

Yes, and if you can continue to think about these assets that you’ve accumulated that, going back to the idea that the outcome of most of our assets we’ve accumulated always has been income. So, the outcome has been income from the onset. When is the best time to buy? Big picture, I would say, when I can afford to. So, when you have the financial confidence and flexibility and freedom to make those decisions, the market, as of yesterday, hit an all-time high, so when your assets are performing well, you can periodically take those gains off the table and start shifting it to units of income or an annuity purchase for income in the future.

Okay, so you don’t have to buy one big annuity all at once? You can buy units of income?

Sure. The earlier you start to think about it, “Converting my hard-earned savings to income,” the earlier we do that, the more flexibility and freedom you have. The last thing that you want to do is be someone that’s, “I’m 64 years old, I’m retiring in six months, and now I’m going to start thinking about retirement,” and then I retire when treasury rates or interest rates are an all-time low in the summer of 2016, and I’m looking at a historical poor time to buy income. The purchasing environment is much better than it was in the summer of this year today, by the way, but you just want to talk with your advisor and say, “Okay, I’m serious about retirement, I’m serious about taking some of my gains off the table in an environment like today where equity prices, or real estate prices in most areas are at comfortable highs, or even all-time highs,” and saying, “Is it prudent for me to take some of the gains off the table and start building baseline levels or safety nets of income?”

I like what you said there. You said, “Buy income.” I mean, that’s counterintuitive, isn’t it?


It is, and I really like this, and I hadn’t really thought about that this way before, but it is buying income, and it’s buying units of income, and you can just continue to buy those units until, maybe, you’ve reached that baseline, and like you said, ideally, you’d like to start buying these when the market’s at the high and you can use the gains to buy more units, perhaps. What about when do the annuities take effect? So, do you create some future date that they start paying out the distribution? How does the timing factor in?

In general, you would set a date, and there’s some flexibility there when setting that date. But, if I were a pre-retiree still working in my 50s, I could go to most any financial planner and say, “Show me a few options on annuities for age 65,” and for the most part, you would just set a date just to know what your guaranteed income would be. Some annuities offer upside to that income where it could be better. For some, it’s just a pure pension-like purchase where it’s a guaranteed income on every dollar of purchase. But, you set the income date and as you approach that income date, most annuities would offer the flexibility to push that or pull that back a few years if your financial situation changes.

What if people – let’s say someone listening – is going to their planner or advisor, and again, I’ve talked to a lot of planners and advisors in my lifetime, and what most advisors I’ve noticed either they don’t know anything about annuities, so it’s just not part of their planning, the strategy that they might talk about and/or, they will completely poo-poo annuities and say, “Oh, you don’t want an annuity. Oh my god, those things are X, Y, and Z.” So, what do you have to say about that?

Great question. Yeah, there’s definitely many a different opinions on annuities. Again, the traditional way to accumulate is 401(k), IRAs, and a lot of financial advisors are kind of stuck in that traditional way of accumulating. So, you go and you’ve got an 80/20 mix of stocks and bonds and a 401(k), and you say, “Hey, what are we going to do with this?” and they say, “Oh, you enroll it over to an IRA at my financial shop and instead of being 80/20, we’re going to go 60/40, but we’re just going to stay in a similar approach and we’ll just draw income off of that for the rest of your life.”

The annuities, the financial planning industry has not done a great job of articulating the value of annuities, and annuities, when they were first introduced, were simply a purchase of income, and over the last 15 years, different variations of annuities have tried to do more of that, and they would say, “Okay, it’s income plus market upside, or income plus a death benefit, or some sort of legacy benefit and there’s added fees.” As it relates to mutual funds, maybe they say, “It’s too expensive.”

But, there are definitely annuities out there, like a single premium immediate annuity or a deferred income annuity that has no equity exposure, it has no fees, it has no expenses, and I think the further away you get from the income idea, the more complicated the products can get and the more watered down they can potentially get. So, I would just say to the financial planning community that is anti-annuities, “How are you going to look your client in the eye and say, ‘We’re confident this portfolio is going to last into age 100 if one of two of a married couple live that long?'” How are they going to talk to that married couple with confidence to say that they can make those funds last? Most traditional products can’t do that.

So, today’s annuities, if you just think about the simpler approach of an income annuity, a deferred income annuity or a single premium immediate annuity, you can really take away a lot of the negatives that you would read about in a financial planning magazine or someone on the radio might talk about.

Can somebody that has a traditional 401(k) or IRA, can they convert to annuities?

Sure. It’s a fairly simple process. A college graduate today, I heard the statistic, was going to change jobs eight times over a working career. So, most of the dollars that we see at Guardian into annuities are coming from an old 401(k). If you are in your 50s, the likelihood is you’ve changed jobs multiple times, you might have taken that old 401(k) and put it into an IRA, or you could still have it in a 401(k). We see quite a few pre-retirees that will take those assets from an old job and convert them into an annuity for future income.

Yeah, and that conversation’s not being had. There’s a lot of conversion into Roth IRAs, some self-directeds or whatever. But, I don’t hear people saying, “Hey, let’s talk about converting some of these previous monies into an annuity.” It’s a conversation that’s not had.

One of the issues with annuities is the worst thing that could possibly happen in converting that asset into guaranteed income in an annuity is that you miss out on some big potentially greater return. But, if I’m talking to a client, if I’m talking to a pre-retiree, the majority of those would easily pick a situation where they take a small portion, less than half of their assets, and say, “Okay, I’m willing to convert that into income, and if the market goes up 20% over the next 20 years, I’m safe, I’m living comfortably,” but the market’s not doing that.

Most people are keeping the prospects of some great return keeping them from making the decision to lock in that income. I think it’s unfortunate because when faced that choice to say, “Okay, the worst thing that could happen is that I miss out on some 12% return versus the worst thing that can happen if I don’t secure that income being my portfolio being cut in half in sort of tech bubble in the 2000s, or real estate bubble or credit bubble in 2008, 2009 that is literally taking away all their savings and forcing them to return to work, or giving them less financial freedom. That’s where annuities can come in and make their situation better.

Yeah, and let’s be real. It’s not like people are really moving money at the height of the market and doing anything. It’s sort of a “set it, forget it”, and hopefully there’ll be enough there when I “officially retire”.


So, annuities, the way I’m looking at it and the way it’s part of our financial planning and strategy is it’s one instrument of many. I mean, Gary and I, certainly, annuities is going to be part of our portfolio. We’re talking to you now about our strategy for that, and really, it’s looking, taking your advice, and figuring out, “What is that baseline that we want guaranteed and we both plan on living a long time?” We take care of our health, so hopefully, we’ll have a long lifespan and be very healthy well into our 100s. So, that guarantee for us is really important.

But then, also, we have real estate, we have whole life. I mean, we do have a full portfolio, and the point is the annuity is one of many instruments that we’re using as part of our strategy, our long-term freedom strategy.

Absolutely. Thank you for sharing. That’s the key is to talk with an advisor, or talk with someone who can put it in proper perspective and help you find that balance. I make the analogy of different tools in your toolbox. When you think about the ownership of guaranteed income and how that’s optimal for retirement, or if you think about the ownership of equities and how that’s optimal for accumulation, or you mentioned whole life insurance and insurance, that is the best to transfer legacy, to transfer dollars from one generation to the next, and you do it tax-free.

I think the pitfall is that most in that set it and forget it mentality, Krisstina, is that they take that one big asset that they’ve had in a 401(k), and that’s 90% of what they own, and then they try to make it do so many different things. It, by default, becomes their income strategy. It, by default, becomes their life insurance strategy. They try to make it do so many different things when it’s not optimal to be a multi-purpose tool. It’s taking a picture of your financials and saying, “Okay, what buckets need to go where for income? What dollars need to go in this bucket for legacy transfer?” Again, annuities are optimal for income replacement and I appreciate you sharing that.

Well, thank you for your time. Again, you made this very simple to understand and I think a lot of people listening will at least be more curious about annuities or talk to their planners about them. What would you say to someone that goes to their advisor or planner that says, “Stay away from annuities”? What advice or coaching would you offer them?

I would just challenge the client to think about what financial peace means to them. We mentioned earlier what you said earlier that you were challenging me on, as it relates to personal finance, you want to have the comfort and confidence. So, when you see the volatility in the market, if the advisor says, “Stay the course, let’s not change anything,” it’s really just challenging the status quo and to say, “Okay, what does comfort and confidence in retirement mean for me?” We have that in a guarantee, and so many of the traditional assets don’t.

There are plenty of advisors who are comfortable with the use of annuities, but there are advisors and financial professionals who have made a living being against something. It could be they’re against annuities, it could be that they’re against life insurance, you name it. But, whatever they’re selling, they’ve got to get you to buy it to be against something else. There is plenty of that, but you can certainly find advisors who are a certified financial professional who would be very well-versed in a multitude of products that can provide a multitude of outcomes.

So, what would be a good resource that if somebody wanted to read up on annuities, something pretty simple, again, sort of breaking this down to layman understandings so that just anyone could at least have the basic knowledge and know, maybe, the right questions to ask, or considerations when meeting with their planner? Are there any books or places to go to start learning some of the basics about annuities?

Absolutely. I’ll give you two. I would tell you that just in terms of an online resource, Guardian has a great website called myretirementwalk.com as well as you can find My Retirement Walk through Facebook, and our updates and blog posts can be pushed to you. But, it’s a constant dialogue of visualizing retirement and preparing for that financial freedom that we’ve talked about. So, that’s a great way to get connected through the internet or social media.

The second resource is a book by an author named Tom Hegna called “Paychecks and Playchecks”. He talks about income and retirement and paycheck replacement. To some, it could be a playcheck at the country club membership. But, Tom Hegna, Paychecks and Playchecks is another great resource, a very short read that can help change perspective in terms of how you would want to optimize your retirement.

I’ve read that book, and it is a great book. That really helped me tremendously, and again, it’s written where you don’t have to have a finance degree to understand these things. Well, Luke, thank you so much. Again, I don’t use the word “retirement”. I know it’s just an industry term, and we’re all conditioned to, especially in the financial services industry. But, to me, it’s freedom. It’s working towards some point in time where we have full financial freedom. And what freedom is what you said, it’s comfort and security.

So, it doesn’t mean it has to be about retirement, but it’s at a future point in time where we know we have income that will replace all or, if not, most of, or even more of our current working income that gives us that freedom and flexibility to make whatever choices we make. Some people may wish to choose to quit working. I don’t plan to ever quit working, hopefully, because I love what I do, and I think the more wisdom I get and have with age and experience, I’ll be that much more valuable when I’m 62 as opposed to dropping out. But, that’s my own personal philosophy that I like to squeeze in when possible.

It’s really not so much about retirement, I think. That’s just a term we’re used to using. Would you agree it’s really about this financial freedom, like having the place where we know our bills will be paid?

Absolutely. I mean, it’s waking up every single morning and having the security, comfort, and confidence to know that we’re taken care of and that we’ve been a good steward of our assets. It’s not about turning on CNBC every morning and seeing what the market’s going to do. It’s having the security and comfort and confidence to pursue a lifestyle to maximize self-actualization or whatever that you want to pursue.

Yeah, and it is just pursue whatever lifestyle, having the lifestyle, and we work. It’s the same thing when we’re working. We’re working to produce the income for a certain lifestyle, and then we want that lifestyle to stay consistent all the way through the end whether we’re working or not working. That is the goal is a certain lifestyle.

So, one final question that I ask all of my guests, and I think you’ve done a good job of doing this already, but I like to do a little myth busting because so much of the status quo, the conventional wisdom out there when it comes to money and health – in this case, money – it’s just we’re living our lives according to these truths that aren’t true. They’re a real fallacy, and as a result, when it comes to our money, it’s probably costing us money. So, what’s a myth out there? It can be with money, it can be your profession, or even personal. But, what myth do you bump up against all the time that’s just a misconception that you’d like to bust?

Well, I’ll just go to the value of annuities. Annuities are bad. There’s a gentleman on the radio that runs commercials all day long about, “If you have an annuity, you should call this number and we can help you.” Hopefully, I’ve articulated that it’s absolutely critical to make retirement the best that it can be, meaning that you know you can wake up every single morning, regardless of whether you’re living 20 years or 45 years through your retirement to 100, 100 and beyond, that you’re waking up with the financial security and confidence with income to solve for that lifestyle.

So, I would just bust through what you asked me about earlier that annuities are something evil, or annuities are something that I should shy away from or stay away from. So, hopefully, we’ve articulated that over the course of our conversation, and I would just challenge clients to educate themselves and hopefully, we’ve done so.

That’s great, and for me, once I learned about annuities, really, through you, and you really educated me on this, I realized that that was the one missing piece for my portfolio, that guaranteed income which is like, “Holy cow, I’m so glad that you shared this with me,” because I’d hate to think now that that guaranteed income would be a missing part because I had this belief that annuities were bad.

Well, I’m so glad that you’ve seen it that way and I hope that some of your followers, or all of your followers have the opportunity to kind of shift their perspective and see annuities and income in a different light.

Well, Luke, you’ve been so great. Thank you very much for being here with us today, and thank you personally. I appreciate you.

I had a lot of fun. Thank you so much, Krisstina.

And so ends another episode of the Wealthy Wellthy Life. This was one more millionaire strategy that will make you wealthy while keeping you healthy. Before you leave, remember that if you want to get it all together, then make sure to sign up for a free online training session at howto.money. You will learn my signature formula for transforming your life from debt to multi-millionaire. It’s already helped thousands of others, and it can help you too, and it’s the only moneymaking system that makes your health your number one asset. So, if you’re curious how it all works, visit howto.money and sign up today. Remember, it’s free, so why not invest some time in learning “how to money”? Again, that’s howto.money. H-O-W-T-O dot M-O-N-E-Y. As always, be sure to subscribe to this podcast to make sure that you catch next week’s millionaire strategy. Signing off, this is Krisstina Wise, your personal guide to having it all. Here’s to living a Wealthy Wellthy Life. I’ll see you next time.

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