First and foremost, thank you Pete for the opportunity to explain our services and solutions to the Mustachian community, I am glad we were able to resolve this to set the record straight. Before we go into what we do, I see the elephant in the room needs addressing, so without further ado lets dive right into some of the questions the users are asking. First, we did not “shut down” the LTR blog that was a choice made by the owner, not one we made nor asked for. It was never our intention or a goal of ours. Secondly, some of the questions and comments I have seen floating around pose questions like, “did you talk to LTR first? Why not ask for a dialogue first with them?” We did, we never heard back. We sent numerous emails and tweets to which no one ever replied, I would of much rather have worked with the owner(s) of LTR in a similar manner to what we are doing with the MMM community. I would much rather focus this thread on what we do and addressing the communities’ questions.
Our clients are probably a little bit different from most of the readers of this blog, our average client is someone who is a baby boomer and is looking to secure their retirement and reduce risk. "Risk" can be many different things to many different people; it can be longevity risk, interest rate risk, inflationary risks, and market risk. To many of our clients, it’s a mix of all of those. We use fixed annuities to help address some of these concerns and secure a portion of our client’s retirement income. Fixed annuities don’t have any fees, sales charges, or upfront loads. They offer clients protection from the risks mentioned above and do so in a unique way. If you are interested in learning more about the annuities, I would suggest you visit this link
https://www.youtube.com/watch?v=BS3B2Ins4GIKeep in mind that for most of the readers of this blog who are younger and trying to cut debt down and accumulate your nest egg, the annuity probably isn’t the best way to go. These solutions work best for pre retirees and retirees. There is a great white paper that was put out through a professor at Wharton, which I would encourage your readers to dive into who have an interest in learning more about these. The fascinating part about this paper is that they (Wharton) back date test the returns of these solutions and come up with some remarkable results. When you compare the fixed annuity to other "safe" solutions such as government bonds or CDs they typically outperform them, and by a lot. Even more fascination is during certain periods the annuity even outperformed the Vanguard low cost index fund(s). I have attached the white paper to this post for those of you interested in this.
Asides from being growth vehicles that offer downside protection, a lot of the fixed annuities now offer riders (at an additional cost typically under 1%) that will provide a steady rise in the value of the income base, as of this post, the rate is 8%. So what does this mean? It means that you can accurately forecast what the income base will be when you need income, weather that’s in 3 years or 10, and you are able to confidently withdraw 5% and have that income guaranteed by the insurance company for life. Now, unlike other annuities with high fees or that require you hand over the asset to the insurance company, the fixed annuity doesn’t. There is no requirement of annuitization and whatever is there upon death, is passed on probate free to the beneficiaries. These promises are made by insurance companies, not our firm.
There are many other bells and whistles that the fixed annuity offers, such as increasing income during retirement based on CPI, protected death benefits with some offering bonuses to beneficiaries of up to 25% to offset taxes, and tax deferred growth. No other investment vehicle in the world can do all of this, period.
We believe in using the market and obviously aren’t completely risk averse, but for a lot of our clients, they don’t want to have a second 2008 occur and they certainly don’t want to run out of money. There are only two scenarios that can occur in retirement, you will either out live your money, or your money will outlive you. The annuity ensures the latter.
Some of the other questions that readers have asked are how does the insurance company do this? Well that would be best answered by an actuary of the company, but the simple answer is hedging future contracts of the underlying index that determines the interest rate. Commissions that are paid vary, depending on the contract, the company, and the client’s age. I can tell you that many fee based advisors that charge in the 1%-2% fees actually earn more than we do.