Retirement For Life

Social Security 2.0 vs. Annuities Clearing up the Confusion - Ep 28

• Christian Cyr, CPA, CFP® • Season 2 • Episode 28

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Intro:

Retirement for Life, your passport to a comfortable and confident retirement. The podcast that's equal parts, education and entertainment, where we break down the retirement maze with a dash of fun and a heap of wisdom from your host, christian Sear, cpa, the passionate retirement specialist and president of Sear Financial Wealth Advisors. The independent registered investment advisor specializing in the AIM retirement system.

Brooke Fay:

All right, hey everyone and welcome to the Retirement for Life podcast. How are we doing Good, welcome, welcome. Today is a fun episode, kind of a different spin on what we're usually doing. But today we're tackling a question we hear all the time in our YouTube comments like beating a dead horse here all the time. Why do we call it mailbox money instead of just an annuity?

Christian Cyr, CPA, CFP®:

I got to say already I love the new format. I don't have to open the show anymore. We're doing a new format today and the team here has taken over. It's like what do they call that when people gang up against you and revolt against?

Brooke Fay:

the Like a revolution, yeah, yeah it's like a podcast revolution.

Christian Cyr, CPA, CFP®:

I was ousted. We're doing a new format, the viewers love Brooks.

Emma Bean, CFA®:

Yeah, we need to hear more from her.

Christian Cyr, CPA, CFP®:

Thanks to Mike. This is a great idea because we have all these comments. We started 2024 with like 26 subscribers on YouTube.

Brooke Fay:

Yeah.

Christian Cyr, CPA, CFP®:

Christmas Day this year, all of our phones were dinging like crazy. That was awesome, yeah, it was. So what happened was we've been putting videos out on YouTube and this video has, I don't know, 180,000 views or something like that, and with I looked at, we now have a million views, over a million, well, over a million views, and so you can imagine, when you have a million views, you have thousands of comments. So the idea is to look at the comments and some of them are very friendly, very complimentary. What would you say about the others?

Brooke Fay:

Oh my gosh people, you need to be nice People are really mean to me.

Emma Bean, CFA®:

We get a lot of comments and I feel like, as far as mailbox money is concerned, there's like two camps. There's the people that are like what are you talking about mailbox money? Why don't you just call it like it is? It's an income annuity. And then you have people that are kind of hating on income annuities, which you know is fair if you don't really know exactly what we're talking about.

Christian Cyr, CPA, CFP®:

So I think, yeah, those are like the majority of the comments we get, all right. So, Brooke, you highlighted three comments. Why don't you just read what the comments have been about? First of all, mailbox money. We've done several podcasts about mailbox money. The data, the research is clear. When you add mailbox money to a retirement plan for the typical retiree, it significantly increases chances of retirement success. We have been doing mailbox money now for five years and I often say mailbox money because I think it does a good job easily explaining what it is and the purpose of it.

Christian Cyr, CPA, CFP®:

Money in your mailbox every month. Just like Social Security, Social Security 2.0 is another good name for this.

Andrea Brannon, CFA®-IF:

Right.

Christian Cyr, CPA, CFP®:

But you could also and we're going to have to today explain to people this mailbox money. What is it actually? Because we get comments like this, brooke, what is the?

Brooke Fay:

All right, justin said mailbox money question mark.

Emma Bean, CFA®:

You mean an annuity question, call it like it is. Yeah, I think the disconnect here is there's a lot of people watching our YouTube videos that are very educated, and so sometimes, when you're talking to the typical retiree, they have no idea what an annuity is, let alone an income annuity, and so we're trying to talk to those people where we have a lot of educated viewers that know their stuff. So really, we're just trying to make it easy to understand.

Andrea Brannon, CFA®-IF:

Well, plus, there's different types of annuities, so we're just trying to specify which type of annuity we're talking about.

Christian Cyr, CPA, CFP®:

That's a good point I just feel like go to the reference right. It's like if I'm talking about the US Constitution and I say the document that started it, all right, yes, I'm talking about the Constitution. Yes, you can go back and read chapter and verse about the Constitution. If you want to know about mailbox money, go to our channel and look at the 15 videos on mailbox money. But I'm trying to make it easy, All right.

Brooke Fay:

So yeah, it's an annuity. Yeah, Rolando said, is mailbox money an annuity?

Christian Cyr, CPA, CFP®:

Yes, it's an annuity.

Brooke Fay:

Third Coast Slots. Great name.

Andrea Brannon, CFA®-IF:

This guy appears to have renamed an annuity because of the poor reputation of annuities, and I think, yes, variable annuities have a bad reputation, and for good reason, but I don't think all do necessarily.

Brooke Fay:

Yeah.

Christian Cyr, CPA, CFP®:

All right, this is what I want to say. Do you remember, andrea, the file we have saved on our servers? Sure do. What's the name of the file?

Andrea Brannon, CFA®-IF:

Annuities suck.

Christian Cyr, CPA, CFP®:

Variable annuities suck. That's the name of the file, and sometimes people will start talking about annuities, and it's true that there's a spot for variable annuities, but generally what we are trying to do is give income. Now think about this. We are taking a person's nest egg let's say it's $1 million and we are saying, yes, we are going to put a large portion of your nest egg into something that grows. Yeah, Yep.

Christian Cyr, CPA, CFP®:

What do we do with the other portion of it? We turn it into mailbox money, okay. So what do we want for mailbox money? We want it to deliver income. We want it into mailbox money, okay. So what do we want for mailbox money? We want it to deliver income. We want it to be low fees. What else do we want it to be?

Emma Bean, CFA®:

We want it to be guaranteed, something they don't have to worry about, if it's going to go away.

Christian Cyr, CPA, CFP®:

Lock-in gains, right. Okay, so what is a variable annuity? It has not low expenses, high expenses, right. Can an annuity drop in value?

Andrea Brannon, CFA®-IF:

Yeah, it fluctuates with the market, which is the opposite of what we're trying to do.

Christian Cyr, CPA, CFP®:

Right. And so if you said to me, mr or Mrs Retiree can only have one of these two investments, a variable annuity or a mailbox money, fixed annuity, maybe you could argue that a variable annuity would be the one thing. But are we putting people into just one thing?

Emma Bean, CFA®:

No.

Christian Cyr, CPA, CFP®:

No, so we don't want to put that safe portion of money into something that could literally lose a ton of money. So that's the difference. Plus, what I don't like about variable annuities is the large commissions. We're a fiduciary right, and so that's another reason we stay away from variable annuities, but the whole point of my mailbox money is to take a portion of the nest egg and put it somewhere safe and generate income for the rest of your life and your spouse's life.

Emma Bean, CFA®:

Yep, Well, I think, Third Coast slots. Here he says you know there's a poor reputation. It's not just because there's fees and there's variable returns. I think the other part that I've seen a lot in our comments is your money is locked up, which that's true, but I think, in order to think about this in like a broader plan, we aren't looking for the annuity as something that we can access. It is strictly for the income. We're accessing money, you know, through the income of that, not you know, to get access to it 10 years down the road when you need that principle.

Christian Cyr, CPA, CFP®:

That's a great point. Now, what was that movie we used to show people? What was it called? Do you guys remember? Oh, we went to a movie theater and we watched it oh, shoot yeah.

Christian Cyr, CPA, CFP®:

It's the something dilemma, baby Boomer Dilemma. Yes, yeah, it's the something dilemma, baby boomer dilemma. Okay, now you're going to put a little spot in here, you're going to play it and it's the. It's the space where the expert, the Nobel peace prize winner guy, talks about why he and his wife invest in mailbox money not one or two, but several mailbox monies and what he talks about. We'll go ahead and play that.

Outro:

Have you ever noticed a lifetime income annuity has a lot higher payout rate than the interest rate. How can they do that? How can an insurance company who buys the same bonds and stocks as everybody else pay so much a greater rate of return? The answer is they pay it only for as long as you live, but they take that return that they're getting the extra return and spread it among the people while they're living, and so they're able to give not only the interest rate that they're earning but the mortality credits, and as their pool of annuitants gets older, each one of those is more likely to die, and so the mortality credits increase, because there are going to be fewer and fewer people to share all that money.

Brooke Fay:

So everyone came today prepared with their own guess the number, and that's how they're able to always have payout rates that are substantially higher than the interest rates.

Outro:

So it could be as little as 2% if you're young and it can be as high as 15% or 20%, even 25% so, if you're older. So by 25% I mean that you get the interest rate. Nowadays it's 2, 2.5%, say, insurance companies are paying, and another 25% if you happen to wait and get one of these annuities when you're older.

Christian Cyr, CPA, CFP®:

Okay, so the reason he says that the returns are so incredible is because of the guaranteed income for life. The guaranteed income for life, so it is possible that you can get 9, 10, 12, as much as, as he says, 20% return on these, because you're guaranteeing that this money is going to pay you and your spouse for the rest of your life. That is powerful.

Andrea Brannon, CFA®-IF:

Yep.

Christian Cyr, CPA, CFP®:

And what happens if you die and the mailbox money is there? What happens to it?

Andrea Brannon, CFA®-IF:

Well, it just goes to your beneficiaries.

Christian Cyr, CPA, CFP®:

Goes to your kids.

Andrea Brannon, CFA®-IF:

Mm-hmm.

Christian Cyr, CPA, CFP®:

Yeah, that's why I think so.

Intro:

Guess the Number Game.

Brooke Fay:

So everyone came today prepared with their own Guess the Number. And, andrea, if you want to start with yours, yeah, so I got mine from LIMRA.

Christian Cyr, CPA, CFP®:

Look how nice Andrea looks in that picture. Big smile on the face. Looks like it was a warm day, yeah, as opposed to today, unfortunately, not like today, yeah. Sorry, go ahead.

Andrea Brannon, CFA®-IF:

Yeah, so mine came from LIMRA, so basically it was talking about the growth of annuities and how they have become more popular. Become more popular. They had record growth in 2024. So my question is how many Americans are turning 65 each day?

Christian Cyr, CPA, CFP®:

Okay, let's get our whiteboards out. How many Americans are turning 65 each day? Yes, oh, wow.

Outro:

Okay, I'm going to go.

Christian Cyr, CPA, CFP®:

Brooke, write a number down. I already know it.

Brooke Fay:

Oh well, you can't do it, then I'm not going go Brooke write a number down.

Christian Cyr, CPA, CFP®:

Oh, I already know it. But oh well, you can't do it then? Yeah, I'm not going to.

Brooke Fay:

He knows I shouldn't have said that, I should have just lost it Right on the dot.

Christian Cyr, CPA, CFP®:

Wait, wait, wait, wait, wait, wait a second. Can I change my answer? I have zero. How many Americans are turning 65 every day? Yep, okay. Every day? Yep, okay that.

Emma Bean, CFA®:

That I'm going to say. I hope I'm not way off. I've got to guess.

Brooke Fay:

Ready, alright, chris.

Christian Cyr, CPA, CFP®:

Boom.

Brooke Fay:

Oh wow, whoa, Whoa.

Andrea Brannon, CFA®-IF:

It's actually only 11,000.

Brooke Fay:

Okay, okay.

Andrea Brannon, CFA®-IF:

You were closer, so that's about 4.1 million annually.

Christian Cyr, CPA, CFP®:

Wait a second Technically for the record who won.

Emma Bean, CFA®:

You won, thank you, thank you.

Christian Cyr, CPA, CFP®:

Just let the record reflect. You know, like when you listen or you watch the NFL during the NFL season, there's like five broadcasters Terry, Bradshaw and Gronkowski and they show their, they predict like what's going to happen and they basically say like their record throughout the year. Can we keep track of that?

Brooke Fay:

Sure.

Christian Cyr, CPA, CFP®:

Okay, start right now. Yep, chris, one Go ahead.

Andrea Brannon, CFA®-IF:

So the reason I bring that up is just because it's showing why there is more popular, you know, using fixed index annuities as their income, because these people are looking for these guaranteed income.

Christian Cyr, CPA, CFP®:

There's a reason why they're developed. Yes Comments on YouTube. What is mailbox money? It's an annuity. Why are we talking about it? Because it's valuable for people who are retiring.

Andrea Brannon, CFA®-IF:

Yes, and retirees see the value in them.

Christian Cyr, CPA, CFP®:

All right, what's the next one?

Brooke Fay:

All right, we got Emma.

Emma Bean, CFA®:

Okay, so we kind of covered quite a few of the reasons that we think people dislike annuities so much. In your words, we hate annuities.

Christian Cyr, CPA, CFP®:

Variable annuities. We hate variable annuities, exactly.

Emma Bean, CFA®:

So there are quite a few reasons that we've looked at and we've rebutted most of those, but one of the things that I think we didn't really talk about is surrender fees. You know we're not looking to take our money out of the income annuities once we put them in, but a huge reason people dislike annuities is the fees. So I just want to ask you guys what you think the average surrender fee on an annuity is. This is all annuities and one of the biggest reasons I think people hate annuities.

Christian Cyr, CPA, CFP®:

Okay, average surrender fee.

Andrea Brannon, CFA®-IF:

Well, it depends on how long the annuity is for.

Christian Cyr, CPA, CFP®:

But I'm just going to say I'm going to say Did you write your answer down?

Andrea Brannon, CFA®-IF:

I did Okay.

Christian Cyr, CPA, CFP®:

I'm just going to say it's going to be really low because nobody ever surrenders their annuity. For example, if I put $100,000 into mailbox money, it will pay me and my wife $10,000 a year for the rest of my life. And if I live for 30 more years then that means I'm going to get $300,000. Out of my annuity, right. So why would I want to? I got something that's basically guaranteed to turn $100,000 into $300,000.

Andrea Brannon, CFA®-IF:

Right, we don't have people surrendering. We definitely don't surrender.

Emma Bean, CFA®:

You're asking if they did, if you had to surrender.

Christian Cyr, CPA, CFP®:

Okay, but if you had to, okay, so it's not. The question is not how many people surrender. What's the average surrender charge?

Emma Bean, CFA®:

It's the average surrender fee.

Christian Cyr, CPA, CFP®:

Okay, all right, all right, all right. Fee or percentage.

Andrea Brannon, CFA®-IF:

I did percent. Is that not Percent fee? Okay?

Christian Cyr, CPA, CFP®:

Good, I'm ready.

Emma Bean, CFA®:

Okay, let's see. Oh, it's 7%.

Christian Cyr, CPA, CFP®:

Dang, write it down the winner again. Two for O here. This is a great competition. I love this game, yeah, so the average surrender fee is 8%. What does that mean?

Emma Bean, CFA®:

It's 7%. So that means if you have a $100,000 annuity, if you wanted to take your money out and use it for anything, you would have to pay 7% on the principal in a surrender fee. Which is why again a huge reason people don't like annuities. They feel like it's locked up. They can't access it.

Andrea Brannon, CFA®-IF:

But, like you said, we're only putting in there what we know they're not going to need to access, and that's a huge point.

Christian Cyr, CPA, CFP®:

Okay, Back to the person with the million dollar portfolio. 250,000 is sitting in a mailbox money. It's going to generate income for the rest of your life and your spouse's wife. You still have $750,000. That's liquid. That's designed for you to take money out when you need it. That's designed to help you replace your roof. That's to help you give your kids a gift one day. Right, it's not like you're taking everything and wrapping up and you can never touch anything.

Emma Bean, CFA®:

Yeah, okay. Every single one of these points on here, I think, is kind of where our YouTube viewers and commenters come from of, like, yeah, there are downsides, but in our, the way that we're using the income annuities, we don't care about liquidity, we don't care about returns, because we're using it for guaranteed income.

Christian Cyr, CPA, CFP®:

Okay, all right. So next is my guess the number game. Okay, so this is in-depth, but I'll just read it to you guys. We'll talk about it. We have two people. So this is in depth, but I'll just read it to you guys. We'll talk about it. We have two people. Fred his name starts with the letter F has bought a fixed index annuity with an income rider. The reason I call it mailbox money besides the fact that it's just intuitive mailbox money I get it is that every time I'm talking about it I don't want to say fixed index annuity with an income rider, it's just mailbox money rolls off the tongue.

Christian Cyr, CPA, CFP®:

But Fred here has purchased basically mailbox money. So too has Angie. She has purchased a variable annuity. Now remember my file that I save to show people that I don't like variable annuities is called Variable Annuities Suck. This question is designed to help you understand why I think that and why we don't use them. They both purchased their annuity for $100,000 back in the day. Both of their annuities are now worth $200,000. Now, it just so happens, this is a fictitious question.

Christian Cyr, CPA, CFP®:

And let's say that Donald Trump goes crazy and he just scares the crap out of America and the world. And between now and the rest of the year, the stock market goes down. What did I say? 30%, okay, you've got Fred with a $200,000 annuity mailbox money annuity. You've got Angie with a variable annuity Okay, they both have $200,000. What happens to? What's the potential? What's exactly? I it say, what is the most likely percentage that Angie's annuity will lose and what's the most likely percentage that Fred's will lose? Now, keep in mind, they are both tied to. What are these annuities usually tied to?

Emma Bean, CFA®:

Depends on the index.

Christian Cyr, CPA, CFP®:

Yeah, the S&P Both tied to the stock market. Usually these annuities are indexed or linked to or some way associated with the stock market. So stock market goes down by 30%. What percentage does Frank's Fred's annuity go down? He's got the mailbox money. And what percentage does Angie's go down? She's got the variable annuity, all right, ready.

Brooke Fay:

Yep.

Christian Cyr, CPA, CFP®:

All right, what do you got?

Emma Bean, CFA®:

Oh wow, we said the same thing.

Christian Cyr, CPA, CFP®:

Okay. So this is the point about mailbox money. It is fixed indexed annuity If the gains are locked in with mailbox money. If the gains are locked in with mailbox money, fred Frank, whatever your name is the $100,000 annuity does grow by the way it grows, and he has now $200,000, right, he doesn't care if get out of this thing. We said can we take a picture of your statement? And it shows that this value just was crashing and crashing. Keep in mind there is the lost decade where stocks did nothing for a year. That means your variable annuity did nothing for a year. There was the 17-month period where the stock market went down 55%. What happened to those variable annuities? They went down too. They went down, they crashed. What happened to mailbox money? Good old mailbox money.

Emma Bean, CFA®:

They did not lose money.

Christian Cyr, CPA, CFP®:

Stay the course, mailbox money locks in gains. Okay, so now, as far as keeping track, the score is two for Chris, 0.5 for Andrea and 0.5 for Emma. All right, we're going to put that up and we're going to start a lifetime. Okay, I love it.

Andrea Brannon, CFA®-IF:

We got to beat them yeah.

Christian Cyr, CPA, CFP®:

I mean, maybe if we put your scores together we can. Did we do a good job today describing what mailbox money is?

Brooke Fay:

for those.

Christian Cyr, CPA, CFP®:

YouTube comment naysayers I hope so. Okay, great, I can't wait to do this again. This is so much fun.

Brooke Fay:

Any more comments like that. I'll just tag this video, this podcast, right in there. That's perfect. There you go.

Christian Cyr, CPA, CFP®:

So you can just be like hashtag what's his name? What was his name? Justin? Hashtag, mailbox money explanation Justin yeah.

Andrea Brannon, CFA®-IF:

Love it.

Christian Cyr, CPA, CFP®:

Okay, great episode.

Brooke Fay:

Do you guys have anything on what's on our minds?

Christian Cyr, CPA, CFP®:

Not really, because I feel like we're supposed to keep this short. I have a lot of comments about tariffs, a lot of things about what's Trump going to do to the economy. Essentially, it's a robust economy right now. I don't think he can screw it up. It's a robust economy right now. I don't think he can screw it up. I think the underlying fears about tariffs are to be determined, but I do think that the big question, the thing that people should worry about, is not what comes out of Donald Trump's mouth, but what our Federal Reserve does with interest rates. I think that is the biggest thing to watch Inflation and interest rates. Inflation and interest rates. I think that is the biggest thing to watch. Inflation and interest rates. Inflation and interest rates, tariffs or whatever. Inflation and interest rates. That's all I have to say. Keep your eyes on that. Those two things.

Brooke Fay:

Okay, great. Well, thanks, guys, and thank you to our listeners and if you haven't already, please subscribe to our channel, like this video and review the podcast.

Christian Cyr, CPA, CFP®:

And go to aimassessmentcom to see if the AIM retirement system is good for you, because we've been getting inundated with people calling us and we're going through call by call, visit by visit, and it's a great way to see if our trademarked system for retirement is good for you.

Brooke Fay:

Perfect, see you guys.

Christian Cyr, CPA, CFP®:

Thanks everyone. Investment advisory services provided by guys. Thanks everyone.

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Christian J. Cyr, CPA, CFP®

Host
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Andrea Brannon

Co-host
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Emma Bean, CFA

Co-host