Click the video above to see David Reyes, The Retirement Architect discussing bonds vs. annuities as a strategy for retirement income


Thanks for listening. Been talking about bonds vs. annuities. Bonds or annuities. And it’s actually a really big deal and I don’t want to minimize it. You know, there’s some rudimentary ways to these kind of rules of thumb. I don’t like rules of thumbs, what’s the problem with rules that they can always be broken.  I want to talk philosophically, not absolutely. So there is this old adage has been around for a long time. And it basically says that you take – this is for retirement, as you get older, it says take 120 minus your age, and that is how much you should have in stocks. So give you an example here: You’re 50-years-old. So 50 minus 120 would be 70% stocks. That’s the difference. And 30% bonds.


Now, if you have that kind of portfolio, you have probably a max loss in a fair market of about 30%. Actually, probably closer to 35%. So my question for you in this great rule of thumb, your age minus 120, is the amount of stocks you should own, is that okay with you to lose 30% at any one time in your portfolio? You have a million dollars, you lost $300,000. Is that okay? The answer is probably no. I ask that question.


We do a risk assessment for every client, and the first thing I ask them before I even do this in the first meeting, I say, “Well, how much do you want to lose in retirement?” Isn’t that a great question? How much do you want to lose in retirement? What do you think the answer is? Zero. And I say, “Well, I don’t think I can have you lose zero in retirement. But what if I can keep it in what I call the ‘Golden Rule of 5-10%.’ What if I could keep your losses in retirement around 5-10%?”


And so one of the ways we do this, we tragically use to do this to get those better outcomes is we would place the bonds that you own with annuities. If you own bonds right now, you’re losing money. You’re losing money. I close my eyes on your statement, if you own bonds, you’re losing money. How insane is that? Stock markets falling, your bonds are falling. Everything you own is falling. So what happened to diversification? That’s what I call the “Worsavacation.” I am going to write a book called The Worsavation.


Our next book is called Momma’s Secret Recipe On A Successful Retirement. It’s written with Jack Canfield. It’s brand new. I think we’re still working on the title. I’m excited to be in part of the book. There’s about 30 advisers across the country that are participating in this book. It’s actually going to focus on income planning, retirement planning, annuities. It comes out the first quarter of next year of 2019.


But the next book I write after that is going to be called The Worsavation. That’s the plan. What’s diversification? Meaning that typically we think we are diversified, like you own stocks and bonds. “David, I’m fine. I own 19 different stock funds and 25 different bond funds. I’m diversified.” Wrong. Diversification is suppose to help you to reduce your risk and increase your return, relative to your risk.


So why in the heck right now would you want a portfolio of stocks and bonds? What if we just replace the bonds with the annuities – with a good income annuity? We’re going to talk about what my favorite income annuity is in a minute. Just that one simple thing will increase your odds of retiring without running out of money by 90%. If you have a portfolio of 60% stocks and 40% bonds, you have about a 20% chance of running out of money. If you have 60% stocks and 40% annuities, you basically have about a 0% chance of running out of money. You’re about 95. So which one would you rather have? So the reason we own bonds is to collect interest payments, to reduce volatility. The problem is that bonds are volatile right now. We’re not collecting much interest payments. So it doesn’t make a lot of sense.


So let me talk to you about…CALL TO ACTION…website…I purchased it because I’m going to start educating you what are the perfect annuities. I felt very blessed to be able to get that site. I was amazed it was available. There was The Perfect Annuity, and I got So over the next few months you will be seeing that come up. It’s really going to be a site just devoted to annuities, really. Educating you about annuities, how to use annuities. It’s really more kind of a consumer-advocacy place to go to find the truth about annuities. So I’m excited about it. The reason I’m bringing it up is because a lot of the things I’m talking about today, about bonds vs. annuities, will be on the site. It is going to be very robust. We’re excited about it. Again, Don’t go there right now. Because there’s nothing there. Under construction.


So one of the things I want to talk to you about additionally, so we’re talking about bonds vs. annuities. So what is the perfect annuity? What is a perfect annuity? To me, the perfect annuity is an annuity that gives you lifetime income, but also gives you increases in cost of living adjustments.


I was meeting with a gentlemen just this week. He’s an older gentlemen. He’s in his 70s. And it was kind of funny, but he was really concerned about inflation. And I said, “That’s okay. I mean, I am too.” But he’s 70 and there’s certain annuities that would I give him more income when he is 77. I’d give him more income on then an increasing income annuity, which he would get more money over time. But I want you to have as much fun as you can today, right? And he’s a lot of things going on, and like we all do when we get up to those ages.


We were talking about increasing income annuity. So my favorite annuity – it’s increasing income – is by an A+ carrier. It’s 300-years-old, survived The Great Depression, World War II, whatever you want to say – World War I, actually. They’re a German company who started a US division over a 100 years ago. We only work with A or A+ rated, double + rated carriers. As fiduciaries, we have the duty to look out for your interests and make sure the companies we place you with are going to be around tomorrow.


So if I put you in a traditional annuity – let’s say a million dollars in an annuity, for you and your spouse – you would get out about – let’s say we deferred for five years – you would get out about $50-55,000 a year. So what if I put you in an annuity that not only gave us growth, but also gave us increasing income?


Let me explain how it works. This is an increasing income annuity, meaning your paycheck goes up. So with this particular client, it’s a real client – husband and wife – age 60. They put a million dollars into the annuity. They deferred it for five years, which is very common. People ask me all the time, “David, when should I put my money into an annuity? I’m retired for years.” Now. When? Now. Because the longer you defer, the more money you’re going to get in the end. Always buy an annuity. If you want to use an annuity, buy it today. I don’t care if you’re 50, 55. Buy it today.


So with this particular client, what I did, we put a million dollars into this annuity. It’s increasing income. So at 65, on their million dollars they’re going to get $69,000 a year. That’s awesome. Their account’s grown from – and this is an example, hypothetical. These are real numbers, but I have to say hypothetical because this is not guaranteed to happen. Results could be better, could be worse. So by the time we’re at 65, the portfolios worth 1.2 million. So we made $200,000 on the portfolio. But more importantly, quite honestly, they’re getting $69,000 a year. Income for life. For both you and your spouse.


Well, let’s go out 10 years. Ten years out, the income has increased to $81,000 a year. Let’s go out further. Let’s go out 20 years. So now you’re 80, your income has increased to $135,000 a year. Think about that. It’s almost doubled from 65 at $69,000 to $135,000. And here’s almost the best part, guess how much money is left in your account after 20 years? Zero. And why should you care? You are getting lifetime income. That is compounded based upon inflation and the ways they credited this particular portfolio.


Another part, even though you have no money left in the account, you’re income still rises, based upon the indices they used for inflation. So when you’re 22, and when you’re 20 you run out of money. Your income is $135,000 and you’re 21 you have no more assets, you’re income goes $149,000.


So when I was doing my new book, and titled the chapter The Perfect Annuity – and then created a website for that – this is what I had in mind. We get the highest amount of income. We also get the best cost of living adjustments out there buying A+ rated carrier. So I love this. This is a great way to replace your bond portfolio. Not only do you get more distribution, this is paying out 5.75% as opposed to 2% interest, on a bond you get lifetime income,130*.08 plus you get increased income.


If you want to learn more about this annuity, how to replace your bonds with a good annuity to increase your income, to reduce your risk, and reduce your stress…give me a call for a second opinion. I will go over all of this with you. I will look at your taxes, do a retire-income plan for you. Social Security. Anything and everything that you would like me to look at…CALL TO ACTION…


That’s all the time for today. I appreciate it. God bless. And I will see you next week.