Transcript: Income Investor Podcast Ep. 18 – Dennis Miller

Stan: Welcome, everybody. This is Stan, The Annuity Man, with my cofounder of Annuities.Direct, Jimmy.Direct is what he goes by, and we want to welcome you to the Income Investor Newsletter, IncomeInvestor.Direct podcast. We’re very happy today to have a repeat visitor with us, just an absolute monster when it comes to retirement knowledge, etc.-it’s Dennis Miller.  Before we get into that, I want to throw it to Jimmy-Dot to have him update you on what’s new with Annuities.Direct and also give you the skinny on why we started the best newsletter on the planet IncomeInvestor.Direct. Jimmy, hit it.

 

Jim: I want to welcome everyone, as well. I welcome Tom and IncomeInvestor Newsletter is created so that we could actually talk about all things income. Doesn’t mean it’s about annuities. It means it’s about anything that has to do with income. That could be rates, it could be bonds, it could be dividend stocks-anything from A to Z. We have recruited people to help write on the site and will publish on there on a regular basis. You can sign up for free. Just type in IncomeInvestor.Direct and on the right-hand side of the website, you’ll see a place you can sign up. Every time it’s updated, you’ll get our email. Going to let you know what’s going on. All our podcasts are posted there each week. We invite you to join us each and every time and obviously, Annuities.Direct for any quotes that you need for any annuities are available for SPIAs, MYGAs, DIAS, anything that’s an annuity. We even have our new launch which is the IncomeRider.com, which was just launched a couple weeks ago, where you can get that as well. [crosstalk 00:01:42] Dot direct.

 

Stan: It’s Dot-Direct, actually
Jim: Hey, don’t argue with me, Stan.

 

Stan: Sorry, I’m just being detailed about the Dot-Direct … By the way, for everyone out there, it’s Dot-Direct, not Dot-Com, so the period, the little period thing that’s a punctuation, Direct. D-I-R-E-C-T. That’s what that’s all about.

 

Let’s talk a little bit about Dennis Miller, who he is. He’s a monster, as I said, in the retirement world. Writes for MarketWatch, has written books, wrote for [Casey 00:02:08] Research, has been a consultant to some of the Fortune 500 companies out there, like  AC Nielsen, Bloomberg, HP, IBM. He’s been an international, not just national … He gets on to the boat … International lecturer for over 40 years. In 1990, he became a masochist and tried to start studying investing. I’m kind of glad he did that because his take on investing comes from a non-sales standpoint. He is not a person that is going to sell you anything. He is going to inform you and educate you and there’s not enough of Dennis Millers out there for people to read. He has a site that’s called milleronthemoney.com. Miller on the Money Dot Com, just like it sounds. I encourage you to go there.

 

What we’re going to talk about today is very unique. Dennis, because again … Once again, he’s a futuristic masochist, which means he loves pain, but he looks into the future. He wrote an annuity guide. Can you believe that? Yes, I did help a tad bit, but he really did his own research and we talked a lot about it. He starts the basics of what is annuity, etc., how not to get ripped off, what is income certainty, etc. One of the things I think we’re going to talk about today and how I want to start this off is Dennis came up with a phrase that I think he needs to start us off with, which is we have reached a day of re-reckoning in this country. Re-reckoning. Dennis Miller, welcome to the podcast. Tell us what that means.

 

Dennis: Thank you, Stan, I appreciate you’re inviting me. Stan, I think the easiest way I can explain re-reckoning is to just tell you my story because it’s a story of millions of people. About 10-12 years ago, I joined a club called the Romeo Club, retired old mean eating out. All of us were … We would just get together for breakfast and we could solve the problems of the world. These were successful people that had been successful in all kinds of businesses.

 

Somewhere in their 50s, they probably all sat down with a certified financial planner or some sort of a financial expert and had what I call a day of reckoning. I can remember like it’s still with me the day I sat down with my wife and we sat down and we ran the numbers and we realized we’d better get serious about saving money if we wanted to retired.

 

You change your lifestyle, you downgrade your standard of living. You put more in [sales 00:05:01]. You try to invest wisely. Like my Romeo brothers, we followed all the rules … So much in CDs and bonds and stocks and whatever, so that when we retired, our 401K had the money just like we planned on it, and we could retire.

 

I retired the first time in 2005 and it worked like a charm. I was living off the interest. The money I had invested in the stock market, I didn’t have to touch, and had no problems. In 2008, when they bailed out the banks, basically, they cut these interest rates so low that retirees and baby boomers that are trying to save for retirement pretty much got screwed.

 

What we’re finding now is I’m getting a lot of my friends coming back to me, saying, “You know, we used all those income projections to build our nest egg, but we used those same projections to show this is the income it would provide us through retirement, and it’s not happening.” They’re going through what I call a re-reckoning that because the government changed the rules, even though they had a nice 401K and thought they were set for life, they’re not anymore.

 

A lot of them now are worried about running out of money before they retire. I saw two recent surveys by excellent research companies. One showed 67 percent and the other showed 70 percent of the people that they interviewed, baby boomers and retirees, planned on continuing to work because what they thought was enough money for retirement isn’t getting the job done today. We’re pretty well screwed. We’ve got to change plans.

 

Stan: What sets your annuity guide apart from the standpoint of … When I write, and I’ve written six books, and it’s just me writing without the cuss words. It’s me just getting down and dirty and yelling at people and saying, “Don’t be a rube.” What made you write this? What was the impetus other than you getting questions like we do all the time of what’s an annuity, etc.? What made you sit down and- [crosstalk 00:07:31]

 

Dennis: That’s a good question, Stan. Actually, I had several reasons for writing it. One is, you mentioned Miller on the Money. That was probably the most common thing that I got from my readers was what about annuities? For the last eight years, I’ve been absolutely frustrated. I thought that was interesting when you were talking about some of your new newsletters regarding income. Where do we go outside the box to find income to replace that income floor that was taken away?

 

Retirees, Stan, want income certainty. Regardless of what happens in the world, they know they can count on that money coming in. That was what our investment in bonds and CDs and fixed income that was paying good interest was providing for us. That’s been taken away. Then you’ve got to go outside the box and you have to look for alternative ways to find yield. The stock market has been bit up up through the roof. It’s on terribly shaky ground right now because the stock valuations have nothing to do with the economy or the company, it has to do with literally trillions of dollars moving out of fixed income into the stock market to get any kind of dividend.

 

Now we have risk. We don’t have that income certainty, but then people talk about, “Well, aren’t bonds and CDs safe?” I just looked this thing up yesterday. A 20-year CD today earns a little over 2 percent. A 30-year treasury earns 2.5 percent. Can you tell me that those are safe, that in the next 20 or 30 years, your money’s going to have any kind of buying power, because inflation’s going to eat you alive.

 

That became part of the problem. Part of the difference is if you understand diversification, the technical term is you want to have inversely correlated assets, meaning if … Let’s say, for example, the price of oil goes up. Your oil stock might go up, but your airline stock might go down, or interest rates. Bank stocks go up, builders go down. I was looking at it and I realized instead of looking at annuities as a do-it-yourself retirement plan, some people should look at annuities as part of their portfolio. These are properly structured, guaranteed-the kind of stuff that you hammer-as part of their portfolio, but they then also ought to be looking to Jimmy and other people and saying, “However, we need some inversely correlated assets,” because annuities really don’t account for inflation properly.

 

My real purpose is that I look at my Romeo brothers. If they want to buy an annuity, they’d better damned sure make sure they buy the right one and then fill out their portfolio with some inversely correlated assets so that they don’t wake up at 80 years old and all of a sudden, their annuity check and their Social Security doesn’t pay the bills. Then they’re back where they are today.

 

I looked at it from an overall investment portfolio perspective and how an annuity fits in. Stan, I appreciated what you said because I’ve probably written the only annuity guide that wasn’t written by somebody who sells them for a living.

 

Stan: I agree, even though I’m a wonderful person, and some people think of me as a god. Right, Jimmy-Dot?

 

Jim: You are a god, there’s no doubt about that. [crosstalk 00:11:29]

 

Stan: I know you have a question, Jimmy. Jump in.

 

Dennis: Well, I don’t know if I’m a god-

 

Stan: No, I’m the god! You’re not the god, I’m the god. No, no, you’re-[crosstalk 00:11:40]

 

Dennis: -what can I say?

 

Stan: No, I’m the god. Go ahead, Jimmy. Sorry. [crosstalk 00:11:48]

 

Jim: Dennis, you’re so objected to kryptonite. Stan can withstand anything. [crosstalk 00:11:55]

 

Stan: Exactly. All right, Jimmy, what do you got?

 

Jim: My question is obviously annuities can’t solve all the problems when you look at this. When you wrote this guide, how do you fill in the blanks there for people that are looking for alternatives to inflation? What are your suggestions there?

 

Dennis: It’s interesting, because the first thing I did was I gave them a quiz and said, “Is an annuity right for you?” Annuities aren’t right for everybody. That’s going to call some of the readers out, but then I’m telling them that they’re going to have to sit down with a good financial planner or somebody that understands a heck of a lot more than annuities. I’m probably the only annuity guy that says, “You probably should own some gold.” I have people that are in the gold business that are trying to get me to say, “Well, you should have 25 or 30 percent in gold.” [crosstalk 00:12:52] Not if you’re 80 years old, you shouldn’t!

 

What you really need to do is you need to be looking at that individual and looking at their portfolio and maybe … I’m not saying you shouldn’t buy some treasuries or you shouldn’t buy some CDs, but the reality is even with annuities, as solid as that insurance company is, there is no annuity that’s going to totally compensate for inflation. It might be a combination of income-introducing properties, productive farmland … Gold is the best inflation protecting asset on the planet. The financial advisor has to sit down and say, “How much does he have or she have in inflation risk-”

 

Stan: Wait a minute, stop. You just said productive farmland. Stop! Don’t do farmland? That’s pretty good. I have never heard that as a portfolio alternative.

 

Dennis: Say that again?

 

Stan: Productive farmland. That’s what you said. [crosstalk 00:13:59]

 

Dennis: -why I said it? My wife has a piece of the family farm that’s been in our family for 100 years. [crosstalk 00:14:08]

 

Stan: I had to step in. I’m sorry …

 

Dennis: Well, yeah, the reason I said gold was better is because productive farmland isn’t nearly as liquid, but the idea being, to answer your question … Every person is different. You have to look at how much exposure they have to potential inflation. I’m not talking 40-50 percent, I’m talking … Yesterday, Janet [Yellen 00:14:37], or the day before, was in Boston, and she says, “Well, the Fed is targeting 2 percent,” but then she said some things about aggressive behavior which basically said, “However, if it goes higher, we might leave it there for a while.” We can’t trust the Fed. We have to trust our financial planner, ourselves, to take that thing that’s going to give us the income floor, but offset it with some, as I said, inversely correlated assets. I can tell you the categories, but the reality is, Jimmy, it all depends on the individual. How old are they? What other assets do they have?

 

Stan: You had one point in here on your guide is how do you find a reputable agent. Isn’t that a contradiction? Reputable agent?

 

Dennis: Is a reputable agent an oxymoron? I don’t think so. [crosstalk 00:15:35] I do give them a quiz because- [crosstalk 00:15:43]

 

Stan: A quiz?

 

Dennis: This goes back to the idea that you’ve got to find an agent that puts your interests ahead of theirs and they are [crosstalk 00:15:54] out there. Yeah, but they’re out there. It’s just a matter of finding them. You don’t want to get ripped off. You’ve got to find somebody who … if an agent sits there and says, “Buy this thing and you don’t have to worry about inflation,” I’m going to tell you to go find another agent.

 

Stan: I agree with that. From the standpoint of tailoring … One of the things you cover in your guide is tailoring the annuity to meet your needs. I know that we have had conversations about this where the person says, “Well, you know what? I need $1,297 a month for me and Margaret, and then you reverse engineer the quote to solve exactly for that using as little amount of money as possible. Is that what you’re talking about or are you digging deeper for determining the real needs there?

 

Dennis: That’s a good question, Stan, because I know you have customers coming at you from all directions. I wrote an entire chapter about how you engineer this thing and I think people start at it, and they need to do … Rather than come to Stan and say, “I got $100,000, how much monthly income will it buy?” I think what they should really be doing is sitting down and running the numbers. Don’t screw around, don’t guess. Run the real numbers and figure out what your shortfall is between your investment income and your monthly bills and then say, “Okay, I need $500 a month. I need $600 a month. I need $1,000 a month.” Whatever it is, and then go to your annuity specialist and say, “Here’s what our shortfall is today. If you project 2 or 3 percent inflation down the road, here’s where I need to be in 10 years, but in 10 years, I’ll be 80. Therefore, let’s figure out how I can make up that shortfall today and at the same time, affect my portfolio so that 10 years from now, even though prices have gone up, I’m still making up that shortfall.”

 

You have to start with what’s my shortfall today and project it out. Then, if the annuity costs you-I’m making up a number-$132,000, so be it. The idea that a round number of an annuity is going to solve all your problems is reverse engineering. That’s not the right way to approach the discussion.

 

Stan: Let me interject right here. For our listeners, if an agent shows you one or two of his favorite annuities or if he or she says something like, “This is the best one for you,” get up and leave. Annuities are commodity products. You don’t fall in love with a company, you fall in love with a number. Yes you do look at [claims span-ability 00:18:43], but these are contracts. These are not investments. You do not buy them for the hypothetical, theoretical, projected, back-tested, hopeful agent, return scenario, unicorn chasing the butterflies, as Jimmy.Direct likes to say … You don’t do that. You buy them for the contractual guarantee. What’s that, Jimmy-Dot? I throw that ball to you.

 

Jim: You already took it away. [crosstalk 00:19:07] My question is- [crosstalk 00:19:10]

 

Dennis: I want to add on Stan, if it’s okay, guys? [crosstalk 00:19:15] I’m going to say this, because Stan, you probably can’t. If a guy only showed you two annuities, ask him what contest he’s in the running for, because there’s probably a good chance he wants to win a trip to Hawaii. [crosstalk 00:19:31]

 

Stan: He’s going to take his mistress and not his wife, and that’s a problem. [crosstalk 00:19:36]

 

Dennis: Then he’s going to go into politics if he does that, but that’s another discussion.

 

Stan: All right, Jimmy, with that softball, it’s all yours.

 

Jim: I don’t even know where to go now. [crosstalk 00:19:51] Address this issue of laddering for income and inflation. We’ve talked about this in our past podcasts, but I think it’s important that people understand the importance of laddering.

 

Dennis: I’m going to take laddering where you’re probably not going to expect it, but then I am going to come back and hit your question directly. This is where I think people miss the boat because back in 2005, you could ladder five-year CDs. If you had $100,000, you’d buy five 20s, but it was all very short-term. The point was that even if you had high inflation, it was fairly quickly reversible. You could get your money out and reinvest it at a higher interest rate.

 

Now, people seeking higher yields … Come on. 2.5 percent? You got to go out 30 years. Now it’s no longer quickly reversible. That’s why the inflation factor has taken all the governments and the treasuries and everything … That’s why the inflation risk is so much higher. On the other side of the coin, I think there is an advantage and again, you’re going to have to sit down with the client and their needs, rather than buying one annuity, of laddering the annuities because the point being that by doing that, as you get older, your monthly check will be more and your inflation risk is less because let’s face it, you have less longevity. I think that’s probably a pretty good approach as long as it’s factored into the big picture.

 

Jim: I don’t disagree. From a laddering standpoint, I think the opportunity that people have is to just keep adding to their income stream as they go along. It’s important when you’re planning, as you’ve said repeatedly, Dennis, is that it’s a planning process. I think people forget that. Everybody wants to do it one time and be like the Ronco Master on the gift channel there, where they can buy, set it, and forget it. They just want to do it one time. They don’t want to keep planning as they go along.

 

Stan: That’s Ron Popeil, by the way, for people keeping score out there. [crosstalk 00:22:16] I know this worthless trivia, Jimmy-Dot. I just want you to- [crosstalk 00:22:21] -get any of that stuff past me. Ron Popeil- [crosstalk 00:22:24]

 

Dennis: Jimmy, I think this goes back, though to the question that was asked earlier, and let’s put a serious face on for a moment. That is I don’t know how many annuity agents would ever recommend ladder because they want to make that sale now and to me, if an annuity sales representative’s looking at that client’s needs, laddering makes a lot of sense, but a lot of them are going to want that big commission today, rather than doing what’s right for the client.

 

At the very least, I would recommend anybody even thinking about an annuity, sitting down with an agent, broach that subject, because if the agent tries to sell them off the concept, I would tell you that sends up a big red flag with me.

 

Stan: Absolutely. I totally agree with that. When people call you and your readers call you, Dennis, and they talk about interest rates … A lot of people are so uninformed and uneducated about the annuity products. They group annuities into one category where there are so many different types of products. How do you address interest rates, or do you shift to where the value is, where it’s with life expectancy when it comes to annuities? How do you address the interest rate question?

 

Dennis: I address it probably backwards, Stan, because I tell them that we’ve been searching for good, safe yield for the last eight years, every since the government pulled the rug out from under us. The annuity companies are investing into the same market that we have. Those folks are having the same problem we are. You have to understand the one advantage that I see of the annuity is that even though the quote that they’re giving you for your monthly income is in line with current interest rates, it does remove the risk because it’s a transfer of risk.

 

That way, at least you’re not having to deal with the interest rate game. In other words, if you’re saying, “Well, I’ll wait six months or a year, because interest rates might go up,” well, if you can afford to wait six months, wait six months and buy it anyway, because you’ll probably get a little bit more because you’re older. To me, the properly structured annuity isn’t an investment, as you said earlier, it’s a transfer of risk and takes away that volatility of interest rates. Think of somebody 65 years old and buys a 20-year CD or better yet, let’s make it a 20-year bond and interest rates just go up 1 or 2 percent. When they try to resell that asset, they’re going to take a huge hit because of the duration. The value of that bond’s going to go down. You’re transferring risk and you’re not worrying about the interest rate anymore, at least on the amount of money you’ve invested in the annuity. I hope that makes sense.

 

Stan: It does. Hey, Jimmy-Dot, you know a long time ago, and we always have these brainstorming sessions, and we trademarked and copyrighted the word “vomatility,” which is a combination of vomit and volatility. You don’t want to vomit your portfolio. I just think that’s genius. When he was talking about that, it reminded me of some of our creative days. Jimmy, I’ll give you the last question because we’re running out of time, and then I will close us up and give the listeners a way to get this annuity guide. Go ahead, Mr. Jimmy-Dot.

 

Jim: Yeah, Dennis, one of the things that you address in your book is how to keep from getting ripped off. I think that’s a phrase that we all kind of throw around, but it’s interesting to me … Define that in a condensed version, how we go about that process, as a consumer, to keep from getting ripped off.

 

Dennis: Let’s start at the premise. An annuity, for the most part, is like buying a 30-year treasury. It’s pretty much an irreversible decision or if you do reverse it, it could become very, very expensive. [crosstalk 00:26:49]

 

Stan: Hold on … With income annuities … There are other types of annuities that do not tie up your principal like that. Go forward, Dennis. I had to just step in there.

 

Dennis: No, thank you, Stan. I appreciate it. [crosstalk 00:27:04] My point is, from the consumer perspective, if you buy an annuity, you’ve bought it for the rest of your life. You got to get it right the first time. What I had to do was start with how do we really determine what our needs are? Then I had to sit down and take apart some of these high-commission … I’m not using the right term, but they promise you the moon but it doesn’t happen type annuities as investment products and get it down to the fact … What you’re really doing is you’re transferring risk. If you’re 65 years old, and this is from memory, 25 percent of you are going to live past 90. If you’re one of those 25 percent, you’re going to be doggone glad you bought an annuity. The fact is, that’s what you’re really trying to do.

 

Once you determine your needs, what I’ve tried to do is educate the reader so that some commission-hungry agent can’t sell them the wrong product to meet those needs. You first have to know what you want, then have to understand the lingo, so that you don’t get pushed in the wrong direction for somebody wanting a high commission or a trip to Hawaii.

 

Stan: I agree with that. The bell’s starting to ring in my head, Jimmy-Dot, which means that our allotted time is about over. I wanted to first of all thank Dennis for being here and he’ll certainly be back with us. We’re going to put a gun to his head and make him write for IncomeInvestor.Direct, but let’s talk about if you want this annuity guide, which I highly recommend, we will put a link on our site, on both sites: Annuities.Direct and IncomeInvestor.Direct, to where you can click the link, type in four letters, the best four letters ever, Jimmy. Get that out of your head. Those letters are STAN, S-T-A-N, and you will get a discount for buying the book. We were going to do Jimmy-Dot, but there would be too many misspellings, Jimmy, so I just wanted to let you know that.

 

In closing with Dennis, he has written a lot of stuff. He has a great book out there called Retirement Reboot that I highly recommend that was published a few years back. He also has a very interesting guide to Social Security. He calls it An Honest Person’s Guide to Social Security. Once again, kind of a contradiction, but I like it. We need An Honest Person’s Guide to Social Security, and he has done that. He is constantly writing. This is what Dennis does for a living. He is a commentator. He’s a truthful retirement commentator. That’s hard to find out there.

 

Once again, Dennis, we really appreciate you being with us on the IncomeInvestor podcast and hope you join us very, very soon. Thank you so much.

 

Dennis: Thank you. Stan, I want one more plug. Please be sure to tell your listeners my website is free, so take a look at it. It is free- [crosstalk 00:30:05]

 

Stan: MillerontheMoney.com. It’s milleronthemoney.com and I do recommend people going there. Dennis, thank you so much. Have a great day. We’ll see you next time.

 

Dennis: Thank you very much.

 

Stan: All right, bye-bye.

 

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