Inspired By The Depression, Stewart Miller Developed Safe Money Strategies To Weather Any And All Storms
For nearly 20 years, Stewart Miller, President of Estate Financial Group in Flint, Michigan, has protected over a quarter of a billion dollars’ worth of assets for hundreds of hardworking Americans using his Safe Money strategies. These strategies have allowed his clients to do what few investors have managed over the course of what financial industry insiders have called “the lost decade.” They have achieved above average returns, and experienced no losses.
Miller says when he started as a financial advisor in the 1990s, some second guessed him for his cautious recommendations. “People were making 12 percent returns and my clients were making 5 to 7 percent. But when those people lost their double digit percent, mine didn’t lose anything,” he says. He told his clients “you’ll like me when the market’s up, you’ll love me when it’s down,” and they did. Miller credits his first clients – retirees who had witnessed the Great Depression first-hand – with teaching him how quickly the market can change, and how easily fortunes can be lost.
“They had witnessed people losing everything, standing in lines for a loaf of bread. If you go to people like that and start talking to them about stocks, bonds and mutual funds, they’ll toss you right out the door,” Miller says. He noticed other characteristics of this generation too, namely their frugality and thrift. One client wore the same pair of wool pants every time he visited her home, and if he came during lunch hour, she’d invite him to share the can of beans heating on her stove. While younger generations might smile wryly at their habits, Miller saw how much wealth they’d accumulated, even though their working income had never topped more than $25,000 a year. He saw these same people leave million dollar estates to their children.
With such a grass roots education and life experience, Stewart Miller is the author of a book entitled Safe Money and the host of a radio show by the same name. He also co-authored a best-selling book with Tom Hopkins, Victory!, and he has been featured as a leading financial professional in Forbes, USA Today, the Wall Street Journal, and Newsweek, and has appeared on ABC, CBS, FOX, NBC, and CNBC.
Whereas his philosophy was not taken seriously in the booming market of the ‘90s, now after more than 10 years of market volatility, retirees are ready to hear it. In fact, keeping money safe in retirement is more challenging now than ever before, since few pension programs remain and the responsibility to ensure a lifetime worth of income has fallen directly on the shoulders of retirees with their 401Ks. Miller says a striking case in point occurred just a few months ago.
“General Motors, gave my client (a soon-to-be retiree) 7 weeks to make a decision that would affect the rest of their lives. He was asked to decide whether they would receive $32,000 every year for the rest of their lives (and upon death, his spouse would receive 65 percent of that amount), or receive $450,000 in a lump sum,” says Miller. Much of Miller’s current work involves helping these retirees understand the consequences of this difficult choice – payments for life that never change, or a lump sum. Normally, Miller has conservative leanings, but he did not automatically support the surety of a lifelong annual income. An unchanging amount may not provide as much security as aging couples need, particularly if long-term medical expenses arise. However, a wisely allocated lump sum pension has the flexibility to meet those kinds of unexpected needs, as long as the principal is never put at risk. While many General Motors employees opted to take the monthly stipend, Miller has been working with those who chose the lump sum to help them turn it into both an annual income they can rely on, and a fund with flexibility. He recalls one real-life scenario in which, one employee was offered a lump sum of $1,240,000 or $78,000 per year. But, if this employee took the annual stipend and died, his wife would only get 65 percent, about $50,000 – and she’d lose her social security. It was a double-edged sword. “What I was able to get for them is $70,000 per year minimum for both of them with the potential to go up as inflation increases. He’s getting a little less now, but with a brighter future. If all works out as projected, their heirs should get about a $1,300,000,” says Miller.
It’s not just General Motors employees being offered a lump sum in lieu of a pension – everyone with a 401K faces the same tough decisions. As Miller points out, “Even if your income doesn’t change, life changes, everything about it. Your needs change, interest rates change, stock markets change, inflation changes, but when someone takes their set amount of pension, how can you adjust for life’s changes? You can’t put your money in the market, and if you leave it in savings (or under your bed), you’ll lose money to inflation at best, and at worst, outlive it.” One of the key tools he uses to help his clients accommodate life changes is the hybrid index annuity. Annuities provide some of the best options for using retirement nest-eggs to retirees’ advantages, but with so many varieties, it’s easy to get confused.
Annuities have been around for a while and have ensured many a fortune. Babe Ruth, one of the greatest baseball players of all time, cashed in his stocks and put the money in annuities so he and his wife would have guaranteed incomes over their lifetimes. As a result, he thrived during the Great Depression. Joe Kennedy, father of future president John F. Kennedy and one of the shrewdest traders in the country, took his profits out of the stock market just before the crash – after getting a stock tip from a shoeshine boy. Kennedy and the Great Bambino both vastly increased their wealth at a time when so many lost theirs. The Babe’s secret was annuities; Joe Kennedy’s was knowing when to pull out of the stock market. Both lessons are as applicable today as they were then.
However, traditional annuities, including Variable, Immediate, and Fixed, all come with potential hazards. Variable annuities are not only laden with fees, which can substantially lower the rate of return, they’re vulnerable to market fluctuations. Immediate annuities, though they can promise upwards of 8 percent payout, can keep investors’ money if they should die prematurely. Fixed annuities act like CDs, with no fees, and competitive interest rates. The range of annuities makes it all too easy to mix up their features. Miller says, “A lot of people are misinformed and think they lose control with annuities and that there are a lot of fees in all annuities. Depending on the type of annuity that’s right for them, that’s usually not the case. There are four types of annuities, and we just described two – loss of control would be an immediate annuity, and the variable annuity is high in fees.”
Miller is one of the most frequently recommended insurance agents on the internet – in fact, it’s not uncommon for 40 to 80 year olds to find him online and ask for a second opinion on their annuity options. Often, when people can’t find the information on annuities they’re looking for through their banks, credit unions, or local representatives, they come to him. The annuity he most often recommends is the relatively new hybrid index annuity.
Whereas other annuities require losing flexibility, Hybrid index annuities give their holders far more control, while keeping principal safe. Even though they aren’t tied to the market, their payouts increase when interest rates rise, and when rates fall, the principal – with any gains made – remains untouched. These annuities can be used to guarantee an income, almost like a pension, which retirees can never outlive while maintaining potential for growth, and there are no annual fees for management. Multiple exit plans have been built in for those who need liquidity, one of which is an annual 10 percent penalty-free withdrawal. And, for unexpected expenses, there’s a “Long Term Care Annuity” which can provide extra income to take care of long term care costs. If the annuity holder dies, many hybrid annuities even wave surrender charges, allowing the heirs to inherit without paying for it. In short, it’s the ideal product for Miller’s Safe Money philosophy: “If all fails, it still guarantees them income they can never outlive.”
Today’s retirees have to plan to live a very long time, with increasing numbers of people reaching their late eighties and nineties, and Miller maintains that in the absence of pensions, nothing can cover that “longevity risk” like annuities.
But today’s retirees are a tough sell. The Baby Boomer generation has been marketed at and sold to for their entire lives; their consumer choices creating and directing the economy by the power of sheer numbers. Many lost money when the technology and housing bubbles burst, and they’re not willing to trust their retirement savings to just anyone. Miller says transitioning from Depression survivors to this new wave of retirees was a difficult one: “I had a tough time making the leap from ‘the Greatest Generation’ to the Baby Boomers. The Depression survivors welcomed everyone and everything – ‘come into my home and break bread.’ Baby Boomers don’t trust anyone. ‘Prove it, prove it, prove it,’ they say. I had an appointment with a man, and he met me on the front porch. He didn’t invite me in until I had proven myself to be someone he wanted to deal with. Then he invited me in for coffee and desserts, and they were the most wonderful people.” Miller understands why Boomers have built “walls” around themselves, “These people have watched their 401Ks disappear, promises made by their companies – gone. They don’t trust anyone. I understand it. I get it,” says Miller.
Like Miller, Baby Boomer retirees have learned to be cautious, and are embracing conservative investment strategies. A 2011 survey of men and women aged 44 to 75 asked if they would rather take a product at a 4 percent rate of return at no risk, or buy a product with an 8 percent return rate at some market risk. A full 80 percent of respondents chose the 4 percent guarantee. It’s a fundamental shift that’s taking place with how Baby Boomers treat their money. They don’t have time to make their money back from another crash; they have to handle their money differently.
Right now, optimism is on the rise with a slowly strengthening economy. Twenty-twelve was a good year and, Miller says, “People have a sense that the storm is over. Whereas in 2008 and 2009, people were making decisions to move their money, now they think everything is great because they’ve made some money this year. They think it’s gravy.” But, his advice on the market remains the same: “Take your money and run!”
Ultimately, he says “There’s no predicting where we’re going. What I try to do is find a place to park retirees’ money for the next five to ten years to weather the storm. Life changes. If interest rates go up, if the market starts performing again, whatever the case is, I want to be able to change with it. We’re not out of the woods yet. Hope for the best, and plan for the worst.” It’s wisdom that would have succeeded as well during the Great Depression as it does now.