Do you have questions about annuities? Or maybe you’re just curious as to how Ty J. Young Inc. operates? We’ve created this Ty J. Young FAQ page to answer some of the questions you may have and to provide insight into our retirement investing philosophy.
Click a link below to hear Ty J. Young answer some of our most frequently asked questions.I don’t like annuities, but I want my money protected. What are my options?
There are three ways to have your money completely protected against losses. The first is FDIC insurance. In a one-year CD right now, at the time I’m taping this DVD, the rate of return is going be about 1%, which is not acceptable to most people. The second way is treasury bonds. If you buy a 10-year treasury right now, you will get about a 2% rate of return. The third way to have your money completely protected against losses is with a guaranteed insurance contract. The best guaranteed insurance contracts historically average about a 6 to 8% rate of return. A good guaranteed insurance contract allows you to go up with the market, lock in your gains, and when the market goes down, you don’t lose anything. You do receive compound interest, and there are no fees. If you want that, you’re going to have to get over the word annuity because that is the only way to get it.
Here is the reason you put an annuity inside an IRA account: the benefits it provides you. You choose the investment for your IRA based on the benefits it provides you. You can put any investments you want inside an IRA. For an index annuity, essentially, the benefits available to you would be for your IRA: safety of principle and growth. That’s what most people want.
What if the insurance company goes belly up? What a great question. These are guaranteed insurance contracts. To gain the status of a guaranteed insurance contract, the insurance company has to reserve 102% or more of what you put in. Those reserve are separated, they are segregated, and they are monitored on a regular basis. So, God forbid the insurance company does go belly up, there is enough money in reserve accounts to pay you back. Because of that track record, because of those reserving rules, in the history of our country, no one has ever lost one cent in a guaranteed insurance contract. And because of that track record, I feel very comfortable telling you your money is in a protected place. All of that being said, I highly recommend that you do business with a highly rated insurance company. At Ty J. Young Inc., we call them top tier financial ratings: A-, A, A+. Those are the best ratings out there. Look for insurance companies with those ratings.
We have relationships with hundreds of different investments companies and insurance companies. When it comes to index annuities specifically, there are 39 companies that offer them to the general public: to you and to me. At Ty J. Young Inc., we know these companies inside and out. As a matter of fact, there are four or five that are the very best in the industry. We call them top tier companies. I know the companies, I know the products, and I have relationships with their management. We know what is good about them, we know where they have struggled in the past, and we know where they are very, very good. That experience allows us to choose the very best products for our clients. That makes us unique.
You know, I hear that all the time. I hear people say, “I’ve got to wait for the market to come back before I move my money and get it protected.” Well, I’ve got good news for you: when you put your money into a good index annuity, it is not a departure from the stock market. It is not a departure from the gains of the stock market. It is a departure from the losses, so you will still participate and come back as the market comes back, but when the market goes down, you don’t lose. So with a good index annuity, you put yourself in a position where you can make the money back, and you continue to go forward and never backwards. Remember, a good fixed index annuity allows you to go forward with your money, but never backwards, up and never down, and the driver of that is an index: the S&P 500. You can be in the same market you are in now, but you can get rid of the downside. That is huge to a lot of folks.
So, you think you want a hybrid annuity. What the marketers have done is use the word “hybrid” to combine two things—two things that already exist in almost every deferred annuity. It is nothing new. Essentially, every annuity is going to grow over time. You are going to get deferred growth, and you can take money out as you want to. When you hear the word “hybrid,” many times people get those annuities confused with guaranteed rates of return of about 6% per year or whatever the market does—whichever is better—but you can never actually have the money. You can only base your income on it. When you hear the word “hybrid,” I would steer clear. Usually it is smoke and mirrors.
The crediting method is the method by which the interest is credited to your account. You make interest based upon what a stock market index does—the S&P 500, for example. So the crediting method would determine what percentage of the S&P 500 gains for the year you actually receive. Again, the crediting method is the method by which your interest is credited to your account.
Possibly. It depends on the crediting method. Essentially, the stock market historically has averaged, going back 100 years, about 10% (not counting fees or inflation). A good index annuity is going to average, historically, about 6 to 8%. You are not going to get all the gains of the market, but you are not going to get any of the losses. With a good index annuity, you don’t have to go up as much when the market goes up if you never go backwards when the market goes down. Your rate of return is going to be roughly, (again, historically speaking) 6 to 8% of what the overall market does, depending on your anniversary date.
Moving your money from your current IRA to a fixed index annuity that is an IRA is easy, and you can do it without taxation. At Ty J. Young Inc., what we’ll do for you is set your annuity up as an IRA. Then, we can transfer your current IRA into your index annuity that is an IRA. We can do it without taxation and with no fees on our end. You could also roll a 401(k) over to your index annuity that is an IRA: again, without taxation. So absolutely you can.
Many people ask me that question. When can I get my money out? How long do I have to wait to get my money out? The truth is, you are in control. You choose the number of years that you want, whether you choose five years, or seven years, or 10, or 15—whatever you choose, that’s up to you. After one year, you can take out 10% per year, every year, for any reason, with no penalty at all from the insurance company. Let’s say you chose an eight year account. After those eight years are complete, you can take all of your money out with no penalty whatsoever. To review, you can take out 10% per year after the first year without penalty. Then, when the time commitment is complete, you can take all of your money with no penalty whatsoever from the insurance company.
Should you make a time commitment of eight, 10 or 12 years? It depends on your own individual situation. If you’re going to need the money a year from now, then obviously no. However, if you’re not going to use the money, or if you’re not going to use more than 10% per year, many people like to go a little bit longer. A longer time period is often accompanied with a bonus the very first day. If you will go eight years right now, you can get a 5% bonus. If you opt for 14, 15, or 16 years, some of those are paying 10% bonuses right now. So if you’re not going to use the money, a longer time commitment may not be a bad idea. Let’s say you put in $100,000, and you get a 10% bonus the first day. Now your account value is $110,000. If you die six months later, your beneficiary gets $110,000 paid to him or her in a lump sum with no waiting. That 16 years is for you while you’re living—not for your beneficiary once you’re gone. Your beneficiary can get the money and do anything he or she wants to with it without penalty. It is not a life insurance policy, but it is kind of like having one if you die prematurely.
At Ty J Young Inc., we never charge you a fee. Here’s how it works. The insurance company makes money by using your money over time. The insurance company shares what it is making, using your money over time, with us. So we never charge you a fee. I don’t want to send you a bill, and I bet you don’t want to get one. Fair enough?
It comes down to a number of different factors. Your rate of return is determined not only by the crediting method, but also by the anniversary date. There are 365 different anniversary dates in a year, so the returns are going to vary based on those anniversary dates and the crediting method. Historically, the very best accounts are averaging between 6 and 8%.
Well, sometimes people misunderstand. The 6 to 8% is a historical average rate of return. Some years when the stock market goes down, it might be zero. Some years when the stock market goes up big, you could make as much as 25%, depending upon the account that you choose. But the historical average rate of return is about 6 to 8%. That’s an average, not a guarantee.
Certainly you can get an index annuity from your local guy or your local broker. But be aware: there are some 39 companies that offer you and I—the investing public—index annuities. That represents hundreds and hundreds of different products. Four or five of those insurance companies do it well. At Ty J. Young Inc., we call them top tier insurance companies. Essentially, the very best companies and the very best products encompass about 15 products. So, if you get it from a local guy, it is very likely, based upon the numbers and averages that you will get a bad product. The reason it is so very important to work with specialists – and we are specialists in this area – is you can rest assured that you will get one of the top products for your situation – financially – and in your particular state. Always work with an expert.
You have to take your required minimum distributions. As you know, when you get to age 70.5, the IRS starts requiring you to take money out of your IRA account. If you don’t take it out, they penalize you. You can always take your required minimum distributions out of your index annuity without penalty. It’s against the rules to penalize you if the IRS requires you to take it out. So you don’t have to worry about that.
How do you know we’re not Bernie Madoff? Well, I think Bernie Madoff is actually in jail. But the way that you can rest assured that you’ll never be in a situation like Bernie Madoff is that I set up my companies in such a way that you are never actually writing a check to Ty J. Young Inc. You are actually writing checks, or transferring your money, to one of the biggest custodians—the biggest insurance companies—in the world. And as soon as you do that, you get an insurance policy in your hands guaranteeing you are protected against losses. So you don’t have to worry about Bernie Madoff any more, not if you work with us.
Is there a prospectus for a good index annuity? The answer to that is no. A prospectus is a document that is required to be given to you if you are about to buy an investment where you can lose money. A security, for example, requires a prospectus. Now, a good index annuity is not a security – it is a guaranteed insurance contract. Your principal is guaranteed against losses. So there is not a prospectus. The way it actually works is, you receive a contract. Once the money transfers, you receive a contract. All the terms are in the contract, you know the terms up front, and then you actually see them in writing in the contract. You have something called a free look period. The times vary depending on the state, but it is at least 10 days usually. During this time, you can look at your contract to make sure it is exactly what you thought, and if it’s not, you can give it back—get your money back—without penalty and without fees. Folks take a lot of comfort and solace in knowing they have the free look period working to their advantage.
So you don’t want to pay taxes when you move your IRA? Good news – you don’t have to pay taxes. At Ty J. Young Inc., essentially what we’ll do is set your index annuity up as an IRA. Then, we can take your current IRA and transfer the money from your current IRA to your index annuity that is an IRA without taxation and without fees. You don’t have to pay taxes when you move your IRA.
So you want to check with your children? That’s great, but I want you to understand something. In my experience, the best financial advice that you will ever receive comes from you. It comes from you. You know exactly what you want for your money. If you want your money protected, you ought to have your money protected against losses. If you want your money in a place where it can grow and have it protected at the same time, I believe you should have that. When you ask other people – including your children – many times they look at your money through their eyes. I’m not saying they want to get their grubby hands on it. What I’m saying is, they look at your money through their eyes, meaning they may recommend to you a mutual fund, for example, with a huge rate of return. And that’s great, except that there is risk in the mutual fund. If you don’t want risk, and your child recommends a mutual fund to you, then that is a bad recommendation. That is bad advice. Again – the best financial advice you’ll ever receive comes from you. If you want it protected, and you want it growing, you should have it protected, and you should have it growing, regardless of what others tell you.