The Terry Savage Truth with Stan the Annuity Man and Jimmy Dot Direct

Dick Tracy was ahead of his time with his techno watch. Tech is now disrupting many industries, including the financial front.
Dick Tracy was ahead of his time with his techno watch. Tech is now disrupting many industries, including the financial front. Photo By Albert L. Ortega / Getty Images

Summary of ​the podcast with Terry Savage on Annuities.Direct

Stan:  We are talking with Terry Savage Financial Royalty direct from Chicago. She is a sought after financial speaker, a syndicated columnist, and an author. Her most recent book, The Savage Truth on Money can be found on Amazon. She's been on Oprah, the Huffington Post, and she's on the board of the parent company of the Chicago Mercantile Exchange.

Jimmy and I know Terry well, respect her writings, and her websites. No joke, she knows Warren Buffett. She has a picture of Warren with his arm around her. She's been doing this a long time people. Go to terrysavage.com to sign up for a newsletter and to ask her questions on her live blog. She's the original consumer advocate for All Things Financial. We're very pleased to have Terry Savage with us.

Jimmy:  My welcome to you as well, Terry, I appreciate you spending time talking with us.

Terry: Thank you for the introduction. Let me make one thing clear. I have a free newsletter. You know free advice is worth exactly what you pay for it, but realize I've been subsidized all these years by appearances on television and writing my communicative columns. I can afford to talk to people without any sponsorship or any endorsement. I've never endorsed a product and I don't manage any money. You get only the savage truth from me.

Jimmy:  That's hard to find in this day and age. You recently wrote an article on longevity. This seems to be a popular buzz word in the financial arena. I'm curious as your take on longevity.

What is the impact of longevity on America as a whole, and our approach to money on an individual level?

Terry:  Longevity impacts America because promises have been made that will have to be kept for a long time for a lot of people.

People generally retired at 65 back when Social Security started. Probably you lived another three or four years, then you were paid up and that was the end of it. That was the life expectancy, but now you're living a lot longer. When talking about Social Security or how to manage your IRA and your retirement withdrawals, you really need to be thinking about how long you might possibly live. A column on terrysavage.com talks about two fabulous calculators that can help you think about this longevity issue.

One calculator is based on living to 100, livingto100.com. It covers things like, "How old are you now? How old are your siblings? How old are your parents now, or how old were they when they passed on?" You also answer a lot of questions about your personal habits; "Do you exercise every day? Do you eat vegetables every day? Do you drink eight glasses of water? Do you floss your teeth?" That last question made me laugh, but I guess gum disease causes heart disease. You answer the questions, click submit and it tells you how long you're likely to live.

The first time I did it, I clicked and I got 104. I’ve got news for you. That was not good news. None of my financial plans had me living to 104.

I went back and was a little more honest about the exercise and vegetables, and I got a very respectable 96. I'll tell you, my dad's going to turn 95 next month. The first step to doing financial planning is figuring out your approximate life expectancy. You'll never get a guaranteed life expectancy. Life doesn't come with a guarantee, but it is good to have some idea when planning your financial future.

If someone takes the quiz resulting in a life expectancy of 74, or has a serious illness and knows early death runs in the family, don't tie all the money up in a life only annuity with no refund at the end for beneficiaries.

Jimmy:  You know you can structure it so that you can build in that death benefit.

Terry:  That's exactly what you would want to do. If signs show there is a possibility you may pass before the original principal is paid out, take a death benefit. You don't want to just give the insurance company all your money.

Jimmy:  It's interesting that a plethora of articles are written about this longevity issue. When you talk to people in their seventies, eighties, and even early nineties, they're seeing themselves as 15 to 20 years younger than they really are. This is a big psychological transition in the United States, I think.

Terry:  Right, originally you knew you were only likely to live another four years, you could divide your money in quarters and probably take most of it out the first two years in case you didn't beat the averages. The fact is now you may retire at 67, and the average life expectancy of someone who lives to be 65 or 66 is another 20-21 years. The truth is, now you have to plan for 20 years and a lot could happen in those 20 years. The cost of health care is a big thing for retirees, and so is inflation. Nobody's thinking about inflation these days. Essential banks around the world are desperately trying to jump-start inflation. They're printing a lot of money and they're going to get their way one day.

When you make investments for retirement, you need growth of your money in some portions of it, with exposure to stock. You need protection against inflation, and stocks have always beat inflation over long periods. You also need some safety because you don't want to risk all your money on a possible stock market collapse. If that happened early in your retirement, you’d be without time to recoup your losses. These are all big issues for people approaching retirement to be aware of.

Stan:  Terry, give us your insight on the Department of Labor fiduciary rule that came out. 

Terry:  There is a celebration by consumer advocates based on the concept that fiduciary standards should rule that all advisors be forced to disclose any conflict of interest, avoid them, disclose them, and put the consumer's best interest first.

Nobody can argue with that concept. There are too many people going after retirement money especially as the boomers start rolling  trillions of dollars out of 401k plans into IRA rollovers.There's a whole world of people out there trying to sell you what they call no lose deals, with pitches like: "Here's an annuity where you can get stock market returns!”, or “You get safety, but you get lots of gains and you can grow! It's still tax-free!" There are so many “deals” out there, that consumers need to be protected.

The ruling isn't going into effect until the end of 2017.. Until then you're going to see a lot of people rushing to sell before they have to be registered and fully disclosed.

There's no free lunch and consumers are going to pay in ways that they haven't thought about. With all these rules and regulations, it's possible that those investors with smaller accounts won’t find advisors that are willing to take them on as clients. There's just too much liability potentially.

There's going to be some benefits for consumers as well as drawbacks. I think on balance it’s a great idea that anybody who deals with retirement funds is going to be required to disclose the cost of fees and put the customer's best interest first.

Stan:  I'm just not sure why it took a thousand pages to synopsis it. Then again, once anything goes to Washington, it comes out like that. It’s not a simplified system.

Terry's site, terrysavage.com, has what's called a personal financial organizer that you can download.

I would recommend everybody go in there and download it, in addition to signing up for a newsletter. It's a really helpful tool. If you are thinking, "Well, I have been doing that." no you're not, okay? She has laid it out really well. I downloaded myself. In the spirit of Steve Jobs, the best ideas are the simplest ideas. Terry Savage nailed it, so I would encourage people to download this tool.

Terry:  It covers things like: Where's your will? Where's your estate plan? What are all your credit card numbers and your account numbers to your brokerage firm? Have you really thought about that lately? You fill it out, then put it some place. Not in your safe deposit box, because no one may know where the key is or even if you have one. Put it some place in your house where your trusted adult child could find the information, just in case something happens to you.

Stan:  Not to be morbid, but The Artist Formerly Known as Price should've downloaded that, right?

Terry:  I think if you don't get organized, you're tempting fate. I want to make a point to everybody thinking, "Oh, Price had a lot of money." They're having a real treasure hunt in his estate, and he didn't have an estate plan. Of course, the government's going to be the big beneficiary.

Stan:  He didn't download your personal organizer.

Terry:  I'm really a stickler about things like insurance and financial planning. I really think it's easy to do all the basic right things. Make an estate plan. Get a healthcare Power of Attorney. Have your assets set up in your own revocable living trust, which creates an environment where you make all the decisions until something happens like you have a stroke, then your successor trustee can take over. For peace of mind if nothing else, it's about time you re-do all your estate plans, take a look and make sure you've got everything organized just in case.

Stan:  It's a valid point. We all procrastinate. I'd rather everyone out there procrastinate on exercising and go download the organizer. You'd be better off in my opinion.

Jimmy:  I have to ask about your book on Amazon. One of your chapters is The Savage Truth on Annuities, and Stan and I are involved in that world.

What is the Savage truth regarding annuities?

Terry:  I know there are many scared people out there. People go to terrysavage.com and post questions on my blog. I wish I had a dollar for everyone that said, "Well, I'm 77 years old and this guy's taking care of me. He says I should have an annuity because that way I'll get benefits from the stock market, and I'll also get income and this and that." You can't have everything, folks. Too many of these equity indexed, equity-linked annuities are filled with fees and restrictions. Most of these deals have restrictions like: "You get earnings only from the beginning of the year or purchase date to a certain date, but you don't get the dividends." Then you don't get the whole benefit of the stock market. Forty percent of the long-term stock market return comes from dividends. The big average returns come from reinvesting dividends.

How do you think the insurance companies get so rich? If you've got somebody selling you an annuity, starting in 2018, they're going to have to reveal all. Beware for the next 18 months because they're going to be out there in force trying to sell as much as they can without revealing what a bad deal most of those products are. Not Annuities Dot Direct. Your site is different.

Stan:  We follow the terrysavage.com website model of providing information, information, and more information. We give the customer and the consumer as much information as they need to make a good decision. In addition to that, we've developed a way to get a live quote without giving away your first born, or even having to give all your information away. We're excited about it.

Terry:  Exactly and that's excellent. We can divide annuities into two worlds. People are trying to sell you something to make your money grow cash deferred, or you may need the security an annuity that pays you over your life can provide. You may want that guaranteed payment to extend over your life and your spouse’s life, or to cover your life with something to leave to your beneficiary. The guarantee is that you won't outlive this income.

Whether it's an immediate annuity or deferred annuity, you are providing the information needed to make an informed decision at Annuities Dot Direct.

Someone could say, "You know, I'm pretty sure I'm going to be okay until I'm 83, but starting at 83 or 84, maybe I will run out of money. I'd like to have an annuity that starts later and goes on for the rest of my life." They can investigate the options. If money is set aside for that scenario in a deferred annuity, you get a much larger payout when you wait until your eighties or late seventies to start the payout.

You guys are talking about those kind of annuities without using a broker.

You don't need someone taking a commission from you to find a good deal. That's why I like what you're putting up, a way to get quotes and a way to buy annuities that pay you over your lifetime starting now or starting later, with nothing hidden in the small print. That's a valid part of a financial plan.

Stan:  That was the savage truth.

Terry:  You couldn't pay me to do commercials. I don't endorse.

Stan:  You are right. You either will need income now or you will need an income later. It's really that simple. People ask Jimmy and me, "Hey, what's my return on investment on a lifetime income SPIA?" Nobody knows that until you die, but we can tell your beneficiaries at the funeral. We tell people the value proposition unique to annuities is this: You can't outlive the contractually guaranteed money. 

Terry:  You wouldn't put ALL your money in one of these annuities, because you know inflation can come back. Imagine a great income stream now; "Three thousand dollars a month. That will take care of it." The rule of 72 indicates that at only five percent inflation, in about 15 years that spending power will be cut in half.

The art form here is determining what portion of your money you want to allocate. "How much-guaranteed income do I need now or starting later? How much invested in a diversified stock portfolio do I want, so I can have some growth that'll offset inflation?"

That's the challenge of facing retirement, balancing those needs out, while not paying too much for it.

Stan:  Agreed.

Jimmy:  Stan and I encourage people to send us questions, so we get bombarded with questions. Some of them are humorous, some of them are very good, and some of them are alien. One of the most popular features on your site is the ability to ask you a question.

What is the number one financial aspect you find people are least informed about?

Terry:  I think the number one thing people ask is who they can trust. They like me because they know I'm not making any money off them. They want somebody who they can trust. I always say, "You want to deal with a certified financial planner, a fiduciary, someone who is committed to putting your interest first and will fully reveal all the costs.

There's a new website on the horizon called campaignforinvestors.org. It has the Investor’s Bill of Rights and will provide the advantage for you to be able to check your brokerage, your financial representatives, and their history. It is going to be a great resource going forward.

Jimmy:  Interesting. I like it. I've been a registered investment advisor for 31 years, so when the DOL law came out I thought, "Well, what's new? We've acted under this premise since I got in the business." I like it because it is very difficult for people, especially as we age, to find people that we can trust.

Terry:  People have questions about products, about licenses, about the stock market or annuities, but the biggest issue is, "Who do I trust?" More and more people are suddenly going to be responsible for so much more money. It's the big issue.

Stan:  Hey Terry, what is your take on the rise in financial technology? We’re at the infancy stage. Too many people are just dismissing it like they dismissed Uber and Amazon.

What is your take on robo-advisors and what they're now calling the financial technology boom?

Terry:  Well, I think change is inevitable with disruptive tech. Technology is making information accessible, democratized, and available. People can make informed choices, but that doesn't alleviate the need for someone to help you make those initial choices.

I watched TV in March of 2009 morning, noon and night for a few days saying, "Don't sell out now! Don't sell out now! That's what makes markets bottom out.” People panicked, and of course, I didn't stop the market from falling. A lot of people sold out and the DOW was 6700. Here we're back over 17,000.

Financial advisors actually do two jobs. They help you organize your life when talking about investments, planning for estate taxes, your estate plan, how to deal with your children, inheritances and more. They also help you stick to your plan.

Stan:  As a follow up to the technology question, I'd like to know if you think the ability or willingness to embrace this new financial technology and the old school way of being or needing an advisor will coexist, or is there a generational shift?

As the people familiar with sitting with their advisor age, will the younger generation care if they see someone face to face?

Terry:  I think what's happened is the generation that went into financial planning is aging. There are going to be new costs associated with this Department of Labor rule for brokers. Not so much for advisors, but they will have additional costs to document their procedures. Financial or retirement planning is a very attractive career, but a lot of the original people have aged out of it.

I think it is absolutely a generational thing. The generation of millennials and gen X are going to be comfortable having a car drive them around. I've been reading about it. It doesn't make me feel comfortable at all. I can understand algorithms for investing a lot easier than believing that my car is going to perform well without my foot on the break.

Stan:  That's a great correlation. We're all sitting here going, "Wait a minute, a car that I don't have to drive?"  It sounds completely foreign. I guarantee in ten years it will be commonplace. Ten years from now when we get an Uber car in New York, there won't be anyone behind the wheel. It sounds crazy, but all three of us witnessed the beginning of the internet. I mean the Beginning of the Internet.

Terry:  Yeah, right. terrysavage.com was registered in 1997 I think it was. I wanted to be there at the beginning. Who thought you could ever get your stock quotes on a website. I said that was Dick Tracy material. When I got my Apple Watch, a young guy was helping me set it up and my eyes teared up. He said with concern, "What?" I replied, “When I was a little girl, there was a cartoon called Dick Track and he talked into a watch and now I'm talking into my watch."

Stan:  I'm glad you told everybody who Dick Tracy was. Most young people don't even know who that is.

Jimmy and I told our wives of decades, "Hey, we're going to take all this money and plop it into Annuities Dot Direct, because we're trying to get ahead of the curve like Uber, Amazon or Apple Watch. The do-it-yourself people will have a choice to do-it-themselves in the world of annuities. We're just trying to make it simplistic.

Now they're trying to copy our website. They're not letting us have the monopoly that we deserve. No, I'm kidding.

The Federal Reserve has insisted on keeping interest rates effectively at zero percent for the last five plus years, how much punishment has this been on the savers in America?

They are talking about hiking rates maybe another quarter of a point, maybe a few times by the end of the year.  Even if rates go back to two or two and a half percent, what is this doing to the savers and the retirement generation who controls the wealth? They have really received a depressed rate of return on investment and are forced to take a higher risk of assets as a result.

Terry:  It's a big problem. I've called it "The war on savers." Who benefits most from a low-interest rate? The biggest borrower. Who's the biggest borrower? The United States government. We have a national debt of now 19 trillion dollars. When interest rates go back to "normal," that's going to eat up a huge amount of our tax dollars just to pay interest on the national debt. Ironically, the biggest beneficiary of low rates has been the federal government. I'm not a conspiracy theorist, but they keep running up the debt. It's caused savers to take risks that I think will harm them.

I've been cautioning about guarding your chicken money. I see people being offered scary deals. They write to me "Oh, there's a pool of commercial mortgages that's guaranteed." "Guaranteed by whom?" "Well no, it's a pool and it spreads the risk and I could get seven percent." Oh my goodness no, please don't do those kinds of things, folks. That's exactly what comes home to bite you when things change.

Stan:  Chicken money, did you just say chicken money?

Terry:  Chicken money is money you cannot afford to lose. You want to put it all either in the market or in bonds or even in an annuity.

You need a cash reserve that lets you sleep at night, even if it pays you zero.

If you take a hunk of money and say, "I'm going to dedicate this to get a stream of income starting next year when I retire, or starting in 12 years after I've been retired for 10 years," it’s not something you need consultation with somebody who's going to charge you commission. Those numbers can be looked up on your website. Nobody else has done this that I know of.

If the Fed raised rates just maybe an eighth or a quarter or more just to let the world know they mean business, it would draw money from all around the world. Europe and Japan have been printing money in an attempt to get their economies going, yet they still have negative interest rates. They know the risks, but they want the banks back into the business of lending. Why lend if you can't make a profit? Hence banks aren't lending. Money that's been pumped in over the years has been sitting on the sideline. They'd like to get America well and to strengthen the banks too, despite all the new regulations. If the Fed raises rates here, it would suck money over to America. Anything above zero is a bonus for foreign money and a lot of that would go into stock markets too, I think. High-interest rates are not necessarily going to kill the stock market. They're going to make the dollar stronger. That won't be good for companies that export, and that money could go right into the stock market.

Stan:  That's common sense and Savage truth. Unfortunately, I doubt the Fed's listening.

Terry, we really appreciate you being with us today and hope you will join us in the future. We can dig further into the world of financial advice and how you view the future. I encourage everyone to go to terrysavage.com, sign up for her newsletter, which then will get you her personal organizer. She is the original consumer advocate for All Things Financial.  Thank you so much, Terry.

Terry:  Stan, Jim, thank you so much. You're a lot of fun and I enjoy being with you because you're doing the right thing.

Stan:  Thanks so much, and we'll see you next time on the Annuities Dot Direct podcast.

Jimmy:  Thank you, Terry.

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