Annuities: Are They Bad? Are They Good?

Is an annuity good or bad?


First and foremost, know that an annuity is an insurance product. As soon as you see the word insurance, you should ask what am I insuring? With an annuity you are insuring income that you can’t outlive, future income, or your principal.

According to Investopedia, an annuity is defined as a contract between you and an insurance company in which you make a lump sum payment or a series of payments and, in return, obtain regular disbursements beginning either immediately or at some point in the future. Definition of an Annuity

Single Premium Immediate Annuity

A single premium immediate annuity is also known as a SPIA. This is an annuity contract where you pay a lump sum of money to an insurer and in return you receive an income stream. The income stream can be for your life, multiple lives, or for a period certain. Let’s discuss each.

Single Life Annuity

With a single life annuity you will receive income for the rest of your life. This is an income that you can’t outlive whether you live one year or thirty years. When you die, the income stops. Many companies will also sell you a life annuity with refund. Some people find this attractive because no one knows how long they will live and if they die early, their heirs get the remaining money rather than the insurance company.

Multiple Lives

Most married couples want to insure that their spouse is taken care of in the event of their death. When you purchase a SPIA for multiple lives it means the income will continue until both of you have passed away. The income will be lower for multiple lives than it will be for one life.

Period Certain

Rather than insuring income for life, a SPIA for a period certain does exactly that. An example would be for a 10 year period certain. The annuity will pay income for 10 years to someone whether you live or die. You can also buy one with a period certain and life. That simply means that the income will be paid to someone for a minimum period of years, but if you live beyond that, they income will continue for the rest of your life.

Fixed Annuity

Think of a CD. The advantage of a fixed annuity over a CD is that the interest accrues tax deferred. With a CD, you will pay taxes on the interest every year whereas the growth inside of the annuity will not be taxable until it is withdrawn.

The fixed annuity can also be known as a fixed deferred annuity. It provides principal protection with some interest deferring the income until you need or want it.

Most fixed annuities will come with a surrender period. Pay close attention to this detail because this is how long you must stay in the product before you can withdraw the entire amount without paying a penalty.

Fixed Index Annuity

A fixed index annuity works similar to the fixed annuity to protect your principal, but does not usually come with a guaranteed interest rate. Often they are tied to an equity index such as the S&P 500. These products can be extremely complex and understanding them is a must if you consider buying one. You might want to seek the advice of someone that understands these products and isn’t getting paid to sell the product to you. Paying a couple hundred dollars could save you from making a big mistake.

Is there a place for a fixed index annuity. Yes, but understanding how they work is a must. Your expectations should be reasonable. Such as anywhere from 0-6%. Above that is unusual. As with the fixed annuity the growth is tax deferred.

Variable Annuity

Variable annuity contracts can be extremely complicated and can come with a multitude of different riders. The gist of a variable annuity is that your rate of return will vary depending on the performance of the sub-accounts that you choose. Think of a sub-account as a mutual fund. The growth in a variable annuity is also tax deferred.

Most variable annuities will come with a mortality and expense ratio. These typically range from 1-2% each year based on the value of your account. In the event of your death, your beneficiaries can expect a return of principal or your account value minus any withdrawals as a death benefit.

There are a multitude of funds available within a variable annuity and they will vary depending on the company your contract is with. Each of those funds will come with an additional layer of costs. What I’ve seen is somewhere between .5% to just over 1%. The prospectus provided will show you exactly what those charges are for each fund. Just as with the fixed index annuity, seeking help from someone that understands these products and isn’t getting paid to sell it is probably a good idea.


There may be other riders that you can add to your variable annuity. Some are available on a fixed index annuity. Each of these comes with a cost

  • Guaranteed Income Benefit or Withdrawal Benefit – These vary from company to company, but they are designed to give you income despite the performance of the sub-accounts. They can be a benefit, but they also come with a price. Usually at least 1% of the benefit base. Repeat that. Of the benefit base not the account value. Know what this means!
  • Guaranteed Death Benefit – For an additional cost, many variable annuities will guarantee a growing death benefit. In certain cases, this can be a very good idea.
  • Nursing Home or Assisted Living Benefit – Again for an additional cost, but in the right circumstances, the benefit may be worth the cost.


Are annuities good or bad? Based on your individual needs, they can serve a valuable purpose in your life. If properly aligned with your goals and needs, they are good. When they are not properly aligned with your goals and needs, they are bad.

The difficulty comes when you don’t understand the annuity you’ve been shown. Or, if you are seeking higher returns and volatility is something you can handle, the annuity is probably not the right investment vehicle for you.

Before you sign, stop, and reach out to someone with experience for advice who isn’t being paid to sell the annuity. This is not an indictment on the person selling the annuity but it can weed out the salesmen who aren’t aligning their suggestion with your goals and needs.

When used correctly, an annuity can be great. When an annuity doesn’t match your needs, the annuity can become an extremely expensive mistake.

Mickey Ellison



Where Should We Start: Part 2


In the first post of this series, Part 1, I wrote generically. In this post, I will write more specifically to young people, but most of it will apply to everyone.

The most valuable asset that you own is yourself. Avoiding debt is number 1. When you take on debt, you sell your most valuable asset to someone else.

Start to accumulate cash as quickly as possible. Doing this will do multiple things. First, it will insulate you when unexpected costs arise, and they will. Second, having cash available when opportunity arises will allow you to be able to take advantage of those opportunities.

Think of yourself as a business rather than an employee at every job. Throughout your life, look for opportunities to create multiple sources of income. If my friend from the previous post had done this, losing his job would not have cost him so dearly.

When someone does hire you, you will be introduced to retirement accounts for the first time. Some of you will be offered a 401(k), others such as teachers will be offered a 403(b). Assuming that you are saving as we talked before, when you decide to participate in your company’s retirement account, be very conscious of fees. Take a look at an example of how much a small fee can cost you over time here.  Learn this now! 

You will be inundated throughout your life about how important it is to save for retirement. Educate yourself on this. You might find more freedom investing outside of a retirement account in things that will create  multiple sources of income without the restrictions. Income is what creates freedom not how much money you have in a 401(k), IRA, etc.

Look around you when you are in cities. Notice the names on the largest buildings  and stadiums in most towns.You will see the names of banks, insurance companies, and investment companies on many of these buildings. Remember this when you are deciding who to work with and think about whose money built these buildings.

If you are going to invest in the stock market, learn to do it yourself or when using an investment adviser, know exactly how much you are paying for said advice.  Take a look again at just how much 1-2% can cost you.

Take control now.

I am looking for opportunities to teach these topics to schools, churches,  to employees, and as many people as possible. You can do this yourself, but you don’t have to do it alone.


Where Should We Start?

Save for the future, but be ready for now

Part 1

This will be the first post in a multi-part series. In this post, we will be more generic, and the rest will be targeted to more specific ages.

Let’s start with a true story. One of my friends was a successful businessman. During the early to middle 2000s he made a substantial income. He was married with two daughters. With plenty of income and substantial retirement savings. His future looked great.

Around late 2007, the industry he worked in took a big hit and the company he worked for filed for bankruptcy. His oldest daughter was in college and his youngest daughter was about to start. He lost his job, and quickly found another, but at his new job, his income decreased by almost 80%.

He had done a great job saving for retirement, but a miserable job saving outside of it. With his cashflow from his previous job, it never occurred to him how vulnerable he was.

Fast forward a couple of years and this successful businessman had no more retirement savings because real life hit. He needed money. To make matters worse, he had to pay almost half of the money he withdrew to the IRS. Now, in his late 50s, he and his wife find themselves in a situation that they never dreamed. Dependent on their income to live with very little cushion for life, and almost nothing saved for retirement. Their daughters did graduate from college.

Where did they go wrong? Almost all of their money, other than their income, was in his retirement accounts. He had done exactly what he was told. What millions of Americans continue to do. When real life hit, having most of his money in retirement accounts became very expensive.

So, where should you start? You and your family! With so much stress put on saving for retirement, too many people focus on an event that they may never live to see. I am not saying that saving for retirement is not important.

Begin to accumulate as much cash as you can. Not only does this insulate you from emergencies, it opens up a world of opportunities. Not to mention it can save you thousands in interest that you will never need to borrow.

If you’re young, start now. If you are in your 30s or 40s, start now. Those of you in your 50s or older, start now. This is the beginning of financial freedom and insulation from life.

Youngsters, Part II will be directed at you but is applicable to all of us no matter what age.

Educated Decisions

Without understanding, you may never know how expensive that advice was.

Billions are spent every year on education. Technological developments have been made that would have been considered science fiction 25 years ago. Cars that can practically drive themselves and information at our fingertips, yet very little is taught about how to make wise decisions financially.

We graduate from high school or college, find a job, and in passing HR mentions this thing called a 401(k) to save for retirement. Most will ignore this early on, even though many companies will give you money when you participate. That’s for another blog.

Eventually, many will choose to participate in their company offered 401(k). With no idea how to pick funds, they will often ask a co-worker, “what did you pick?” And, that is what they choose, and many will never change. Not exactly a scientific method, and they wouldn’t know what they were looking at anyway. There is a better way, and it’s quite simple.

Next comes marriage, then kids, and before long you are pulling your hair out simply trying to keep up. What do you do? You need to save for retirement but how are you going to pay for college. What do you prioritize?! It can be overwhelming.

And, where can you find unbiased advice? Advice from someone that isn’t getting paid to sell you something or taking a piece of your savings every year whether you make money or not? Where can you find the education you need to make educated decisions?

How do I save for my kid’s college education in the most efficient way? How much am I paying for those mutual funds and is there a better choice? A one percent charge sounds small, but how much will that cost you over the next thirty years? (possibly hundreds of thousands) Am I missing something?

I spent 18 years in the belly of the financial planning beast, and I know there is a better way. My goal is to teach as many people as possible with classes through churches, schools, and businesses. Then, individually help families do it on their own but not alone!

The Shift and Confusion

My future, financially, is dependent on this decision, and I’m so confused!

In the late 1970s a benefits consultant named Ted Benna noticed an obscure provision in the tax code, Section 401(k). He recognized it as a way to save for retirement that was tax advantaged.

At the time, if you were fortunate enough to have a retirement plan, it was probably a pension provided by your employer. Today, the 401(k) is common and has taken the place of most employer provided pensions.

With the popularity of the 401(k), the risk of being able to retire has been shifted to the employee and away from the employer. This shift brought an entirely new group of people to Wall Street, main street. As of September 2018 there was over $5.6 trillion in 401(k)s and $29.2 trillion in total retirement assets.

What sprung up from this was a new industry, financial planning. Along with 401(k)s, we now have IRAs, Roth IRAs, 403(b)s and millions of people with very little understanding about investing or the products offered.

There’s stocks, bonds, fixed annuities, variable annuities, mutual funds, exchange traded funds, real estate investment trusts, and a whole host of investments that can be bought. Yet, the average person understands very little about any of them.

To add to the confusion, there is a unique vocabulary used in the industry that makes investing even more confusing. Rather than using the word debt, the word debt is replaced with leverage. Is that because, debt is bad but leverage sounds good? Then there’s the word diversification, which in layman’s terms means, “I have no idea what to put you in, so if I use ten different investments, one is bound to go up.”

Another word is rebalance. The gist of this word is, “I don’t know when to tell you to sell something, so every once in a while, we will sell something and buy something else.” Then they use words that sound like fraternities such as alpha and beta. Plus, there are basis points, standard deviation, etc.

“I’m so confused. You just do it.” These are the exact words that I heard countless times from clients, and they are dangerous.

In 1999 when I started in the business, I was naïve and ignorant, yet well meaning. Then came 2008, and people lost significant amounts of money. In 2009, the markets began to rebound, yet my clients did not. Why?

I began to break down many of the investments that I had sold, and it became very clear why these accounts were not rebounding. All had fees in excess of 2%, and I saw some that were higher than 5%. These are not one time fees! They are annual! There was even a fee in some accounts that was guaranteed to increase in the dollars paid regardless performance.

Miserable, I began to do research, and gathering 22 years worth of data on the S&P 500. My belief was that if I was going to charge clients a percent of money under management, then the least I should do is get them a better return than what they could get from low cost from a Vanguard S&P 500 Index Fund.

In 2013, I introduced a strategy based on that research. And, when I presented it, this is what I said, “We have 22 years of data. Literally the opening and closing price of every day for those 22 years. If I come to the conclusion that you would be better off buying an index fund, I will tell you and find another way to make a living.” September of 2017 was when I walked away.

Today, millions of people walk into financial planning firms and wealth management firms because they are confused and scared, and looking for help. What they need is education and guidance and the cost of that education and guidance should not be dependent on how much money they have.

There is a better way!

Buckets, Water, and Savings

What does a bucket and water have to do with savings?

Imagine that your job or business is a faucet. Water from that faucet is used for two things. One is your lifestyle and the other is savings. The bucket represents your savings.

As you live your life, much of the water is used for food, housing, clothing, and a multitude of miscellaneous expenses. Some of the water is diverted to the bucket.

Water accumulates into the bucket in two ways. The first is you pouring water into it. That’s from the faucet. The other way the bucket is filled is via rain. Rain is the return or interest that you earn on that money. Sometimes while carrying the bucket, some of the water spills out and other times you take some out for personal use.

Now, imagine at the bottom of the bucket is a small leak. Maybe one or two percent of the water is leaking out. As you are filling the bucket, the leak is so small, it isn’t noticed. The unnoticed drops are going into another bucket.

The owner of the second bucket sold you your bucket along with hundreds of buckets to others. Some will leak 1%, while others can leak 2% or more. With hundreds of small buckets, he can catch the leaking water from all of the buckets along with the water he received when he sold the buckets.

When you retire, the faucet will be turned off, and you may need to tap your bucket. Hopefully it will rain enough that your bucket never becomes empty.

In some cases, it rains enough that you never notice the leaks. In other cases, you become concerned because it’s obvious that your bucket has less water. You think, “maybe there’s something wrong with my bucket”, so you return the bucket for a new bucket. Or, you decide to try another bucket store.

In 1989, a guy had 100,000 gallons of water in his bucket. His bucket had no leaks. At the end of 2018, he had 1,673,787 gallons of water. Another guy had a bucket with only a 1% leak. At the end of 2018, his bucket had 1,278,270 gallons. Their friend had a shinier bucket with a 2% leak. His bucket at the end of 2018 had 963,758 gallons.

One or two percent sounds small, but over time the drops of water add up. Just 1% cost one guy 395 thousand gallons of water while 2% cost the other guy 710 thousand gallons.

For only a couple gallons of water a year, you can learn about the buckets with no leaks, where to find them, along with help on how to use your faucet more efficiently.

We can’t control the rain or the water that spills out, but we can plug the leak that is filling someone else’s bucket.

Danger in Success

Success can be dangerous. For the athlete, it can be achieving that long awaited scholarship. For the businessman, finally making more money than he ever imagined. The investor, receiving a high return. Or, for the person who was overweight that reaches their ideal weight.

It’s in success that we let our guard down. We often forget what got us there. An athlete that receives the coveted scholarship must realize that to succeed at the next level requires the same effort or more to succeed at the new level. Don’t become complacent. Continue to do what got you there!

In business, always look for ways to improve. What got you there is what will keep you there. Learn, observe, and just as an athlete, don’t become complacent.

If you were expecting at 10% return, and instead, you got 20%. Be willing to take some chips off the table. The man who continues to double down will at some point lose it all. Markets go up and markets go down. The best opportunities come when they are down. If you have no cash available, you miss the opportunities.

What about weight loss? Once you’ve made it, stick to what got you there. You will stumble, but catch yourself before you fall. When you slip, set a limit to how much you can slip and get back on the horse. You’ve worked too hard and going back to where you were isn’t an option.

Success can be dangerous or with the right mindset, it can lead to more success. Just keep moving!

Tragic Story of Johnny

Johnny was the All-American boy. He was smart, good looking, athletic, and seemed to be well-liked by everyone. When he graduated from high school, he was accepted into an Ivy League school. His teachers and parents were proud of Johnny, and he didn’t want to let them down.

After four years, he graduated and was told by many people that his future was bright because he had an education from such a prestigious school. As luck would have it, he was hired by a company, not because of what he knew, but because of the name of the school on his diploma.

Within a short time,  Johnny realized that he didn’t like the career path that he was on. The people that he worked with were good to him, and Johnny liked them, but he knew he would be miserable if he stayed.

One night, by chance, Johnny was introduced to a great opportunity. It was his chance to start his own business, but he didn’t have the money and no one would loan him money outside of the few credit cards he had. He had to find a way. Johnny didn’t want to be rich, he just wanted to be free.

Johnny presented his idea to people he knew, and finally someone was willing to co-sign on a loan to help Johnny. With great excitement, he went with his friend to the bank, and walked away with a check for $30,000 to start the business.

He knew the business would take time to start turning a profit, so he was frugal, and only used $20,000 of the $30,000. He planned to use the other $10,000 to make the payments on the loan and pay the rent for the retail space he had rented. This, he thought, would buy him a few months until the cash flow from the business started paying the loan back.

The space was leased. The location was good, but he needed inventory to sell, so he used the credit cards to buy the inventory. What he didn’t know was that this excitement would turn into 20 years of hell.

Within 6 months, he was out of money, but he knew he could be successful. Heck, he had to be successful because his friend’s name was on the first loan.

A year later, it was obvious. The business was going to fail. His original debt of $30,000 had ballooned to almost $100,000 and he couldn’t file bankruptcy for two reasons. Johnny’s friend was on the hook for $30k and he had always been taught to do what’s right. He borrowed the money, so he had to pay it back.

Dead broke and probably clinically depressed, Johnny was approached by a business man. The business man didn’t know how broke Johnny was, but he knew that Johnny had a great personality and a degree from a prestigious university. This man asked Johnny join his company. Heck, no one knew the misery Johnny was in because he was always smiling in public.

Johnny accepted the opportunity from the business man. Within a few years, Johnny was finally experiencing some success. He didn’t really like the business, and there were some things that he questioned, but he was finally making money.

Soon, Johnny was paying off his debts. One year, he had almost all of the debt paid off, then he got his tax bill. Almost debt free, Johnny had no money left to pay taxes and was forced to borrow again to pay dear old Uncle Sam. The sum was large enough that he was right back where he started, and the cycle would continue for several years.

Then, something happened. Johnny became extremely leery of the business. He saw things that he just couldn’t be a part of. He had to walk away or become something or someone that he didn’t want to be. Johnny tried telling people what was going on, but no one would listen, and finally, he walked away, but Uncle Sam did not!

For the next several years, Johnny scraped by. He still smiled in public, but inside, he was dying. By this time he had a wife and kids. Johnny was scared. He wanted to talk to someone about the debt but he didn’t because he felt like a failure and a loser. Publicly, no one knew.

Johnny would wake up in the middle of the night. His heart was pounding because he loved his wife and kids, and his worst nightmare was that they would have to suffer because of him. They didn’t deserve that.

Again, he wanted to talk to someone but he felt like no one cared. Whenever he talked about debt to some of them, they would say things like, “they did it to themselves” or “they made their bed, they can sleep in it.” He smiled, and wondered if they knew they were talking about him.

Finally, one night when he was all alone. He was crying as he walked through the house looking at the kids and wife that he loved so much, and thought, “they would be so much better off without me.” He thought, “with the money from my life insurance policy, they can start over, and have no debt.” He was tired and didn’t feel like he could fight any more. So, he pulled the trigger!

People didn’t understand. Johnny was always smiling. He would do anything he could to help other people. Johnny had so much to live for.

Some were more critical. They called him selfish. Maybe he was. What they didn’t see was that he had become hopeless and alone. Alone, yet surrounded by people.

If you made it this far, thank you. The story of Johnny is fiction. Unfortunately there are millions of Johnnys around us. Johnny could be you. Johnny could be me.

Today, we have millions of kids falling into this trap through student loans. They are making decisions at 18 that will haunt many of them for the rest of their lives. They saw a great opportunity through education, yet college was too expensive for them or their parents to pay for out of pocket. So, they borrowed!

Forty Four million Americans share $1.5 trillion in student loan debt. It’s almost impossible to discharge in bankruptcy, and many of their parents are on the hook if they can’t pay. Sadly, some have become Johnny.

My hope and prayer is that through this mission, millions of these people will be reached. They already know the hell that the debt is putting them through. What they may not know is that as long as debt is used to go to college and it’s easy to get, the cost will continue to rise. Government is not their friend either. In fact, they made the problem worse!

Then, we join forces to start eliminating as much student loan debt as possible, and through education, we will learn to stop borrowing money for college, and if enough people do this, the schools will be forced to lower tuition or go out of business.


Cut the Crap: Debt Especially Student Loans

Debt sucks! If you are interested in preaching to us about how bad our choices were, shut up and go away. We already know! If you are interested in being a part of the solution, stay!

What we have lived through is hell, and I wouldn’t wish it on anyone. I may smile when you see me, but the turmoil inside is killing me.

Debt has been a part of my life since I was 24 years old. I’m 47 now. Who would have ever thought that a decision I made 23 years ago would still be haunting me today?

I’m not looking for sympathy. At least I was 24 when I shackled myself. That being said, this isn’t about me. It’s about our kids and this corrupt financial system that is enslaving them. Heck, it’s enslaved all of us, but we’re too blind to see it.

By the time they reach the age that my debt hell started, millions of them are significantly more indebted than I was. What the hell is wrong with us? They have been told since they were in elementary school that their education is priceless and to be successful they must go to college.

The rest of this is written to those that want to solve this problem and just maybe through education, this next generation will save more than themselves. Here are a few stats to try and wrap your head around. These will be the only stats I show because they don’t tell the story of the individuals behind the numbers.

  • This year, 2018, total student loan debt grew to over $1.5 trillion. In 2012, student loan debt was $870 billion. That’s a $630 billion increase in less than 6 years.
  • In 2012, the average balance on student loans was $22,000 per college graduate. In 2017, the average student loan debt was $39,400
  • 44.2 million Americans have student loan debt. Some are over 60 years old.

This is beyond stupid. You think the government should do something about this? Wrong, they did by making the loans easier to get and making it almost impossible to dismiss in bankruptcy. Thanks!

If we are going to do something about this, it’s going to be us that solves it. We can create a community of people to fight this. Together we can fight for our freedom.

In doing so, we can educate ourselves on this corrupt financial system that is enslaving all of us through debt. Heck, it should be criminal. Don’t expect many in my generation or the generations before me to help. Unplugging the matrix cable from their heads will be difficult because they don’t even know they’re in the financial matrix.

First though, we need to build the community. Please pass this blog on, and let’s connect.





Youth Will Have to Lead

If we are to be free, the young will have to stand. With youth comes an open mind. As we age, we tend to become closed minded and stubborn. Stubborn is another word for arrogant and uncoachable.

Let me give you an example. The media and adults will fret over the ticking time bomb that is the national debt. Very few have ever asked the question, “How can we be in debt if we create our money? And, who are we in debt to? The government that can responsibly create its own money should never be in debt.”

As a young person, you are taught from early childhood that you must have a college education to be successful. For most, it’s not a question of whether you’re going to college, it is assumed. Just this year, total student loans reached over 1.5 trillion dollars with the average student loan balance being over $34,000. (Forbes Student Loan Statistics)

Welcome to the 21st century version of indentured servitude. You can’t write student loans off in bankruptcy, but you can work for “qualified employers” to receive student loan forgiveness. Usually for 10 years, and the government decides what is qualified.

At 18 years old, you did what you were told to do by going to college. It cost too much, so you borrowed money because you were told that you could pay it off later, and many of you will have to work for 10 years at a qualified employer to be forgiven. You are going to pay this back one way or another!

You can default on a home loan, and you lose your home. Default on a car, and you lose your car. Default on a student loan, and you lose you! Deep in your soul, you know something is wrong!

Money is the lifeblood of an economy, and there are very few that understand money. Whoever has the power to control the supply of money has complete control of a country.

Common sense moment: If your government is trillions in debt, then they can’t be the ones controlling the supply of money. Political fights are nothing more than a sideshow.

The supply of money now is controlled by those that loan us money and charge interest on the money that they loan. Think of the things we buy that we commonly use debt to purchase: house, car, land, business, and college tuition.

When interest rates are low, people tend to buy more houses, cars, land, etc. This drives the price up. When interest rates are high, people tend to buy fewer houses, cars, land, etc. The result is lower prices. Having the power to lower or raise interest rates would possibly give you the power to control the prices of housing, cars, land, and businesses.

Common Sense Moment: If you default on these loans, the person that loaned you the money gets your house, car, land, or business. You’ll notice that I left off student loans in those two scenarios because you are the collateral on a student loan.

Too often we assume that how it is now is how it’s always been without asking questions. We’ve heard it said that the borrower is slave to the lender. Our economy is built on the ability to borrow money for houses, cars, businesses, and education. What should be your next question?