ICYMI: Listen to Blueprint Income’s Lauren Minches Discuss the Personal Pension on the Stacking Benjamins’ Podcast
On March 9, Stacking Benjamins hosted Blueprint Income’s Lauren Minches on its podcast to discuss the Personal Pension and the importance of having a guaranteed, stable income stream in retirement. Since companies don’t offer a defined benefit plan and Social Security doesn’t provide enough income to meet expenses in retirement, modern workers need a new way to save for retirement. The Personal Pension provides retirement security in the 21st Century by allowing you to purchase guaranteed annuity retirement income in working years, providing everyone with the opportunity to retire with security.
Listen to the discussion at Stacking Benjamins and/or read the transcript of the conversation below.
Joe: When I first heard about Blueprint I heard about them from a friend of the show Michelle Dash and a few days later Paula Pant, by this woman named Jean Chatzky, I don’t know if you’re familiar with her.
Bobbi: I have heard of her.
Joe: Yeah, once or twice.
Bobbi: She may or may not have been on my show.
Joe: May or may not have, of course. The amazing Afford Anything Show. Jean is of course the Today Show Money editor. Michelle mentioned they were doing things in the annuity business that were truly disruptive and today Blueprint doesn’t even talk annuities which I think is awesome. They’re talking about what everybody really wants from an annuity: a pension of their own. So I’m super happy today that Lauren Minches is joining us from Blueprint. Listen to Lauren’s background. She graduated, Bobbi, from this little school called Columbia University. I don’t know if you’ve ever heard of that.
Bobbi: I have heard of it.
Joe: With a B.S. in Financial Engineering. You and I know a bunch of people…
Bobbi: I feel very impressed.
Joe: A bunch of B.S. in Financial Engineering. A lot of people in this industry with a B.S. Financial Engineering and Operations Research and she’s an actuary by training, having worked in both life insurance and annuity product lines in a tiny little known company called New York Life Insurance Company. She became a Fellow of the Society of Actuaries in 2013. Please help us welcome someone who knows way more about both annuities and pensions than most people, Lauren Minches. Lauren Minches is coming down the stairs, how are you? Have a seat.
Lauren: Hi, I’m good, thanks for having me.
Joe: I’m so glad that you had stopped by Texarkana to talk pensions with us because that world it seems, Lauren, is changing isn’t it?
Lauren: It is changing. I mean today the word pension feels archaic just in and of itself. Nobody has them; they’re for old people. But I’m excited to talk to you about why that’s not true.
Joe: I want to use, and we’ll link to this in our show now, I want to use a piece that you wrote on your website blueprintincome.com about this back at the end of January. The piece is called Private Pension Plans to Replace Defined Benefit Pensions Let’s look back because a lot of people don’t understand what the issue really is here. Starting off with pensions, where did pensions go off the rails originally?
Lauren: Well pensions were really the bedrock of the American retirement up until about the 1980s, and that’s when we saw the introduction of the 401(k) which gave employers another option to provide for their employees for retirement. That along with some other factors caused the decline of pensions, and so today when you think about retirement all you really think about is the 401(k) or an IRA or some type of savings plan.
Joe: But why did companies go with the 401(k) versus a pension? Was it because it was easier to administer, it kind of took the onus off of them? Why did they go away?
Lauren: The pension, if you think about what it’s providing, it’s a steady paycheck for somebody for the rest of their life. And that means the employer was taking on all these big risks for the employee. So: the risk that somebody lives until 100, and that’s very expensive because it costs money to live every year. Or the risk that the stock market doesn’t do well and your investments therefore perform poorly. Those risks were all on the employer in the old system with the pension. But with the 401(k) they’ve actually passed on those risks to the employee, so now the employee just receives money from the employer and it’s on them to figure out how to invest it, and it’s on them to make sure it lasts the rest of their life.
Joe: Based on these numbers that I have here from you in front of me, the 401(k) hasn’t quite done what we’d hoped it would have done.
Lauren: No, the 401(k), I like to say, it makes you pre-retirement rich but retirement poor because while you’re preparing for the retirement the 401(k) feels great. You’re saving money, you’re watching it accumulate especially when the market is doing well but once you get to retirement it is really hard to manage your lifestyle off of this account balance that moves around and that you don’t know how to spread over your retirement when your retirement could be 10 years, 20 years or 30 years. And to be honest it’s a problem that most people haven’t really seen quite yet because the 401(k) is only a couple decades old which means we don’t have many people retiring with just 401(k) today.
Joe: Yes, it seems like we’re just starting to get to that, right? With a lot of baby-boomers retiring who finally are a group of people, a bunch of them who have only had a 401(k). I look at those numbers too, Lauren, and maybe part of the reason people are rich is also because we’re not really saving into them like we should.
Lauren: That’s right and I think that’s partially because you don’t know what you’re getting when you save into a 401(k). When you accumulated a pension it was very clear: I worked this number of years and as a result my employer is going to give me this benefit. But with a 401(k) or any sort of savings plan it’s very abstract because there’s such a big gap between “I save money and it sits here” and “I’m going to use the money and here’s how I’m going to use it and here’s how much I need.” And that’s why if you look at any retirement calculator today, nobody can actually tell you how much to save.
Lauren: There is no specific goal and without a specific goal it’s really hard to do it, to get going.
Joe: The interesting thing that you talk about next is that original pensions are based on this idea that really at Blueprint you guys and other people at the forefront of this are kind of riffing on this idea, these insurance backed private pensions. Tell me more about these.
Lauren: In the early days of the pension system employers were just paying insurance companies to offer pensions to their employees. So the insurance company took on all the risk and made it easy. It was just the employer giving the insurance company money and saying “hey, for all these people provide them with a paycheck starting at age 65 continuing for life.” Over time the employers decided to manage it themselves for a variety of reasons which eventually caused the decline in pensions. But, the reality is that insurance companies behind the scenes have always been involved with managing risk whether that’s the risk of passing away prematurely or a car accident or a health issue. And one type of risk they continue to manage is this pension/retirement/longevity/market risk where I need a set amount of money to live for an unknown period of time. What we do at Blueprint Income is take these insurance products which are known as annuities and turn them into an account that allows you to put money in, save just like you’re saving in your 401(k) but instead of just putting money in the market and hoping for the best you actually are creating for yourself a pension that’s steady that’s guaranteed that’s backed by the insurance companies.
Joe: But here’s what’s so exciting about what you guys are doing is you know we waited on purpose I think for about six minutes to say the word “annuity” because you and I both know the people are allergic to that word but that’s why this is so explosive is that annuity isn’t the problem. The problem is the way a lot of these insurance companies have treated the annuity.
Lauren: That’s right, annuity—the pure word annuity—is a fabulous thing. It’s an exchange of money from me to the insurance company where in return they’re going to give me a fixed amount of paycheck for the rest of my life which is a huge concept they’re taking on. It’s sort of the opposite risk of life insurance. With life insurance, the insurance company covers you so that if you pass away prematurely your family has money to keep living. This is the opposite situation where I could be one of those people that live ‘til 99, and boy is that going to be expensive. I am not prepared for that, let me pay an insurance company to deal with that for me. That is what an annuity is. Unfortunately because of the way products get sold and who is selling them, over time some of the products have evolved to be more complicated and some of the sales practices are not the best out there. What we’re trying to do is bring the annuity back to what it was and what it really should be which is this pure transfer of risk between an individual who doesn’t know how to handle the reality of maybe living ‘til 99 and an insurance company who is fully equipped to handle that.
Joe: This is what’s exciting to me. Tell me about the modern annuity. The modern annuity that you are talking about in this piece is way, way, way different than people have seen if they went to X insurance company and just looked at their variable annuity. This is a whole different beast you’re talking about.
Lauren: Yes, so the annuity market as it exists today is really for pretty wealthy people with a lot saved who are just about to retire and that’s partially because the products have had high minimums. So if you wanted to buy an annuity you’re typically doing it with $100,000 at a time, and you have to work with an agent or a broker to do so. And not everyone has an agent or a broker. Of course the first thing we’re doing is making this accessible online. You don’t need to have any type of personal relationships to have access you can just come to our website and sign up for an account. And we’re making it more accessible because instead of doing it with $100,000 why not start when you’re 35 years old with a few thousand dollars and contribute a little bit over time. The other thing that we’re doing is allowing you to have access to multiple insurance companies’ annuities all at once.
Joe: I think this, for a guy that used to work in the industry, this might not be exciting to people listening but this is where I nerd out and I’m like “this is the coolest thing ever.”
Lauren: Everyone loves Amazon, right? It’s because you can see all these products one after the other, and you have your choice, and you can compare quality, and you can compare price, and it’s very easy to check out. It takes you two minutes versus what it used to be like to shop for things. It’s the same concept here. If you can see all of the different annuities from all the different insurance companies, their price, their rating, it’s much easier to make a decision. You certainly feel well-informed and like you’re getting a good deal because you have everything in front of you. When we set people up with these accounts, these Personal Pensions, it’s often optimized so that every time they put in money they’re getting the best price that’s out there whether that’s with this insurance company or another insurance company.
Joe: When you were upstairs talking to mom we were talking about your background a little bit and you as an actuary, which by the way sounds like the funnest thing ever. I’m kind of joking but I’m sure actuaries must have some awesome jokes and you guys probably have some great parties. But seriously, this idea Lauren of longevity is a huge issue in financial planning right now. You look at some of the top CFPs in the world, they’re talking about what if you outlive your money, and this is an income stream you can’t outlive.
Lauren: That’s exactly the point. You know we work with a lot of clients, and some of them are well off. And what’s ironic is that even the people that have a really decent amount of money to live off of in retirement are scared to spend it because every dollar that they spend in their 70s is a dollar less for them in their 80s, and so how do you decide how much to spend? It is a real risk and knowing that no matter how long you live you’re going to have this source of income makes a really big difference for how you feel in retirement on a day to day basis, and what you’re willing to spend money on. Can you or can you not take that vacation? Well, it depends if taking that vacation is going to cost you something in the future. It doesn’t if you’re taking that vacation because of some income you’re getting from an insurance company every single month.
Joe: Powerful like you said, it’s something, now we can budget in retirement. We don’t have to worry about what if the market conditions change. Well you kind of do, people have this one question which is your annuity company goes under, right, the life insurance company that you hand over this risk to goes under, in practice what happens if that happens?
Lauren: It’s extremely rare that would happen to one of the companies that we work with, we have a cutoff at ratings so we only work with insurance companies who have a rating of A or higher. But if something were to happen to any of these insurance companies there are guaranty funds at the state level. Basically, all of the insurance companies contribute altogether so that if something happens to any one of them the others chip in to make the annuity policyholders whole, or whole up to a certain level.
Joe: I was also going to point to the fact that I’ve seen other insurance companies step in and buy the book of business. You see companies broker that out to maybe a stronger company if something happens in the future.
Lauren: That’s true, that’s absolutely right. And also, there’s nothing in life that’s fully guaranteed. I like to say this “as guaranteed as it gets,” because if you think about it — if you’re comparing this to putting money in the stock market, the chance that your stock performs poorly is far higher than the chance that something bad happens to one of these insurance companies. Some of our (providers) are rated at the same level as the U.S. Government.
Joe: I think that’s a great place to leave it. Can people find out more at blueprintincome.com?
Lauren: Yes, and we actually have a guide that we’re providing to all of your listeners for free if they’re interested in getting it. They can find that at blueprintincome.com/ben.
Joe: Slash Ben, as in Ben.
Lauren: Ben, as in Ben, Blueprint is already a mouthful so figured might as well keep what follows as short as possible.
Joe: That’s awesome, and if you’re walking the dog or if you’re out on your morning run or going to or from work we’ll have that on our show notes page at stackingbenjamins.com. Lauren, it’s always great to catch up with you guys, I’m so excited about what you’re doing. Congratulations on all the work so far.
Lauren: Thanks Joe, great to speak with you.
More About the Personal Pension
Interested in learning more about the Personal Pension that Lauren talked about? Here you can see what annual contributions into a Personal Pension will guarantee you in retirement income. After just a few years in retirement, you’ll have recouped your initial investment, and the rest will be profit. A $5,000 contribution is necessary to start an account.
This was just an estimate. If you’re interested in seeing what a specific plan looks like for you, head to the Personal Pension Builder. You’ll be able to set a specific goal for your retirement income and customize a plan to get you there. Note that all future contributions are optional, but it’s always great to have a goal.