MARK CORTAZZO: We do--
CONSUELO MACK: --on a regular basis.
MARK CORTAZZO: In this low interest rate environment, I'll just give you two examples. I got a quote for an immediate annuity for a 60-year-old couple. They needed to retire early for whatever reason, got displaced. They needed to generate income on a million dollars. And it's the same for 100,000. It's, you know, proportionate. But on a million dollars, they give an insurance company a million dollars, they will pay them about $50,000 a year for the rest of both of their lives. And one of them could live 35 years. So, could be a very significant amount of income you'd get.
If you look at some of the variable annuities, where you're invested in the stock market, that have a guaranteed lifetime check, you can get a five percent for life guarantee. So, I go into the immediate annuity. My money's gone. I'm not going to leave anything to my beneficiaries. My wife and I get $50,000 a year for the rest of our life, and the check ends when we die. I can go to a variable annuity, where I get $50,000 a year for life. I have a great opportunity for the value to go up, because I'm in the market. I have a great opportunity to get a raise, because if the value goes up on these, your million goes to a million-two or a million-three, now you get five percent of that value for the rest of your life. I have the great opportunity to leave money to my beneficiaries. And it's something that, at some point in the future, I can take my money back if it's done well, cash out, and go do something else with.
So, if I'm looking at risk and reward, I've got the same floor, and a tremendous amount of upside. So, I don't like variable annuities or dislike them, but if I'm given the choice of same check with upside, without upside, I don't care what the fees are, to some degree, here, because any upside's better than no upside.
CONSUELO MACK: So, this is interesting. So, variable annuities have gotten, you know, a bad rap. Basically in the past.
MARY BETH FRANKLIN: When they were expensive, compared to alternatives at the time.
MARK CORTAZZO: And I still think that a lot of that bad rap is justified.
CONSUELO MACK: Because of the fees and--
MARK CORTAZZO: And how the guarantees work. I would say--
MARY BETH FRANKLIN: And how long they lock up the money.
MARK CORTAZZO: I would say 85 to 90% of the annuities that we looked at, we wouldn't recommend to a client. So, you know, this isn't a wholesale endorsement. I think that there's unique programs and great situations where these work really well. Understanding how the guarantee works if your account fails. So, if I'm taking five percent a year out for life, and my account runs out, are they going to continue giving me that five percent? Are they going to give me a reduced amount if my account goes to zero? So, how does the protection work? Just like, when I go to this homeowner's example. I want to know if I'm covered for a flood. I want to know if I'm covered in these different scenarios, because I want protection. I want to make sure it protects me when I need the help. You know, the 90% of the time I won't need the help, I don't care what the provisions are. But I want to make sure that I understand that I'm getting what I'm paying for.
CONSUELO MACK: Right. And you're getting what you're paying for. So you want to make sure that you get that five percent, or whatever the amount of the investment is after it's appreciated, right?
MARK CORTAZZO: Correct.
CONSUELO MACK: And so, for life. But, there are variable annuities that don't give you that protection?
MARK CORTAZZO: Well, this lifetime guarantee is a rider that you add to the annuity. Most annuities don't have this as a component.
MARY BETH FRANKLIN: It's an extra benefit.
MARK CORTAZZO: It's a feature that you're putting onto this. So a lot of the bad rap that annuities get is, they were very expensive, and they didn't have any of these protections. They didn't have these income guarantees. So, this is a relatively new, within the past 10 years or so they've started to become popular, and now the past 10 years have been a good time to have protection.
CONSUELO MACK: Right. So, let me ask you each about pre-retirees, for instance. And I know that, Mary Beth, in Kiplinger's, recently, you had some suggestions of small changes you can make to double your nest egg. So, what are some of the small changes that pre-retirees, and even retirees, can make to double their nest egg?
MARY BETH FRANKLIN: There are basically three levers that people have, and I encourage them, five to 10 years before retirement, to take a serious look at, if I keep saving at my current rate, what is it going to be worth when I retire, and is it enough? And if not, what can I do about it? There are several things. Plan to work a few years longer. That actually is the most valuable thing you can do for several reasons. One, you're saving longer. There are fewer years you'll be tapping it. And, you're probably delaying your social security benefits, so those are going to be worth more. That's one thing. Work a little bit longer.
