Financial Freedom with Myga.Money
David Macchia believes that the various segments of the financial services industry must join together to launch a bold new era of annuity sales growth.
Macchia’s mission is to help those he calls “constrained investors” — those investors who get to retirement with money, but whose total amount of assets is not high relative to the income they need to fund a lifestyle they consider minimally acceptable.
Constrained investors share an absolute reliance upon their savings to produce a significant share of the income they need to fund their retirement lifestyle.
Macchia believes that annuities are the key to managing risk for those who have consistently saved for retirement but need those savings to last them a lifetime.
The founder and CEO of Wealth2K, Macchia created “Women & Income,” the first retirement income solution expressly developed for female investors. Macchia also led the team that developed the widely used retirement income planning solution called The Income for Life Model. It has enabled financial advisors to capture investment assets totaling $70 billion while helping thousands of retirees enjoy improved retirement security.
In this interview with Publisher Paul Feldman, Macchia discusses the concept of income for life and describes why the advisory community must get on board with that concept to help more Americans achieve a secure retirement.
PAUL FELDMAN: You’ve had an illustrious career. Tell us how you came into the industry.
DAVID MACCHIA: I started as a life insurance agent with what was then known as The Mutual Life Insurance Company of New York. That took me into product wholesaling of life insurance and eventually brought me to a company called EF Hutton Life, which was the pioneer of universal life.
By accident, I backed into a consulting career. When the Tax Reform Act of 1986 came about, I was a young guy. I had an idea that life insurance could be used as an alternative to what that act created, which was the nondeductible individual retirement account.
I said, “Wouldn’t it be better to use a life insurance policy that has no paperwork filing with the government, and you’re not limited to $2,000?” In addition, you can take money out of the life insurance policy tax-free. This kind of launched the way that life insurance is even today, using it to provide tax-free income through policy loans.
At that point, I had a parallel career consulting project with that life insurance idea, and I was a wholesaler. And that went on for a long time, up until about 2007, when I sold the agency and my independent marketing organization, and moved almost full time into the business of retirement income distribution planning.
In 2004, I was introduced to the notion of the baby boomer phenomenon — the 76 million people approaching retirement who must take their trillions of dollars in collective savings and turn it into income that lasts for their entire lives. I was very much intrigued by that challenge. I realized early on that people did not know how to turn accumulated assets into income. I also realized that most financial advisors weren’t particularly skilled at helping clients do that.
I saw an opportunity to build a solution for retirement income planning. In 2005, we launched that first solution, the income-for-life model, which is still going strong. That’s what my focus has been day and night ever since — focused on the business of retirement income planning.
FELDMAN: Income for life is an interesting concept. Tell me more about it.
MACCHIA: We have learned a lot in the years that I’ve been working in this field. One of the things we started out with was the idea of bucketing, or time segmentation, as the academics might refer to it.
This bucketing approach has a lot of advantages over a total return approach, where you’re simply taking a withdrawal of a certain amount every year — what often is called the 4% rule.
The bucketing approach had some real advantages, and it had a glaring weakness. The glaring weakness was that you certainly eliminated risk early in the strategy. But you potentially put risk later in the strategy, because, in those later buckets, which are more aggressively invested, you don’t know what the performance will be when the person is older.
About seven or eight years ago, we put a layer of lifetime guaranteed income via an annuity inside that strategy. We created a hybrid strategy — and that hybrid strategy, in my estimation, is the best thing I’ve seen thus far. I don’t know how to design a better strategy than that. It protects the client against longevity risks; it protects the client against timing risks.
It provides the best mechanism for the client to stay fully invested throughout retirement so that they can protect against inflation risk. It provides investment discipline, it’s transparent, and it’s understandable. It just works, and there are thousands of financial advisors who use it.
They find it delivers a high level of satisfaction to their clients. And they routinely win 100% of the client’s assets when they bring that process to them.
FELDMAN: You work with a lot of registered investment advisors. How do you get them to see that annuities are a good part of a client’s portfolio?
MACCHIA: I’ve been writing articles trying to get the RIA community to understand that their approach to retirement income planning is suboptimal. And for a large segment of the investors in the United States, it’s doing them a disservice by not giving them a strategy that mitigates the risks that can reduce or even eliminate their retirement incomes entirely. So I’m a huge advocate for RIAs’ embracing annuities.
I think it’s important, and I think if that happens, it will bring a lot of benefits to the entire annuity industry because if RIAs embrace annuities in a widespread manner, it will bring the consumer press along. And that will create consumer demand. And annuities will attain the vision that I have for them, which is to become mainline products — no different than index funds or exchange-traded funds.
Thee should be tremendous consumer demand for annuities. But we don’t have it, and I think that needs to change.
It starts with getting the people who are enemies of annuities to not be enemies.
There is no rational objection, from an RIA, for example, to using an annuity today, because they can access an annuity that perfectly harmonizes with the RIA’s business model, culture, or philosophy.
Those annuities have been created, and they appear in their portfolio management system like any other position. There’s no reason to forsake annuities at all. To the extent that people are working with constrained investors — which are the majority of people who get to retirement and who have saved consistently — those folks must have protection against longevity risk.
They also need protection against timing risk, which I think is the scariest thing of all in the short run.
I’m aggressive in my assertion here because it comes out of an absolute conviction. When an RIA is working with that type of client and doesn’t at least address longevity risk, they are not meeting their fiduciary duty to the client.
FELDMAN: What about discussing other types of insurance that address longevity, such as long-term care or something like that? Isn’t that also addressing your fiduciary responsibility?
MACCHIA: I think it absolutely is. And it’s similar in the sense that it addresses an event that can happen to a retiree that causes their assets to be reduced rather quickly, along with a reduction in their standard of living. So it must be raised. The idea that you address a complicated need, like retirement income planning, without a toolkit is yesterday’s news. I don’t think it’s viable going forward.
FELDMAN: You use the term “constrained investor.” Can you tell us more about it?
MACCHIA: Here is the way I think about retirees. There are three categories of investors: overfunded investors, underfunded investors, and constrained investors.
Overfunded investors are the lucky minority of people who have a surplus of cash relative to the amount of money they need to produce the income that they require. They have a cushion — sometimes a really big cushion. They can use any kind of strategy; they can use a total return strategy, no problem.
Underfunded investors are those people who have saved very little or nothing at retirement — they’re going to rely on Social Security.
But in the middle, there are millions of people I call constrained investors. They control trillions of dollars, and they may have a modest amount of money, or they could have millions of dollars.
It’s not about how much they have. It’s about how what they have relates to the income that they need to create to meet a minimally acceptable lifestyle.
For constrained investors, there is very little margin of error. There is a fair amount of pressure put on their savings to produce income. They can’t make mistakes. They can’t run in and out of the market. They have no luxury of being able to make investing mistakes.
Therefore, they need a strategy that puts the priority on risk mitigation. They must mitigate timing risks. If they’re good at mitigating inflation, if they mitigate longevity risk in their strategy, then they have the best possible chance of being successful.
Having a lack of understanding about how to do this properly is not an excuse. The knowledge is out there. If you’re working with a client, and they are a constrained investor, here’s the problem. A lot of advisors do not understand the idea of a constrained investor. The industry hasn’t looked at people this way.
For decades, the insurance industry has tried to change the way RIAs think about annuities. That way doesn’t work — it isn’t working and it will never work, in my view.
What we must do is change the way advisors think about the client. When they look at the client differently, and when they understand that there’s a large segment of clients who need a specific type of income planning with risk management at its core, then they’re forced to do things differently. That’s the change I’m trying to help foster — to get people to do things differently because there’s so much at stake for these retirees.
We have had a 14-year bull market that’s unprecedented. Do we think it’s going to go on for another 14 years? If so, everything that I’m saying goes right out the window, because anything works. But if it does not go on for another 14 years, if we begin to have a correction, I personally think that we’re at the threshold of a new era that will be notable for risk management and sensitivity toward mitigating risks.
Stocks have turned down while interest rates have turned up, inflation is surging, and the Federal Reserve is signaling it will reverse course and start to shrink the money supply. All these factors do not argue well for appreciating stock prices. That means there’s a big scary monster of a risk lurking in these retirees’ lives that they’re not aware of. And that’s timing risk.
FELDMAN: This should be our call to action in the industry because people are seeing their wealth depleted. They think the market is coming back, but I don’t see it coming back — at least not this year.
MACCHIA: There’s this phenomenon called recency bias, you know, where our memories are prejudiced. They focus on what has happened in recent times, more than in faraway times. I remember in February 2009, I hosted a chair at a conference for advisors sponsored by the Retirement Income Industry Association. An advisor came up to me after one session, and he was visibly emotional. He was welling up. He said, “Several of my clients who are my closest friends, I could not prevent them from selling out at the worst possible moment at the height of the 2008 downturn.” He recognized the result of that was that those clients would have a permanently lower standard of living.
told him, “Don’t beat yourself up. What made you decide to come to the conference?” He said, “I want to learn how to do it better.”
I believe that’s the position a lot of people will be in if we have a substantial downturn because it’s very difficult. If you’re a constrained investor, no one ever told you in those terms that you were. But you know, if you’re reliant upon your savings to produce income, you are a constrained investor. If the stock market starts to go against you, and you see losses — day to day, week to week, month to month — the reaction often is for people to say, “I’m out,” even though it’s the wrong thing to do.
I’ll give you one more example. Later in 2009, one of my clients was a company called Securities America, which is now part of Advisor Group. It’s a company that was the first mover in retirement income for an independent broker-dealer. They had a conference online, and in one of the sessions, there were financial advisors who had used their bucketing strategy.
They put those people onstage and they were able to talk with other advisors about how they were able to get their clients through the disaster of 2008. The contrast between their experience and the advisors who were using, say, a systematic withdrawal was remarkable. People sometimes ask me: “What is the best retirement income strategy?” And my answer is always the same. It’s the one you can live with.
FELDMAN: What are your thoughts about those who never would consider annuities?
MACCHIA: They’re missing the boat. I’ll put it this way: The most important financial retirement security tool ever created is an annuity. There is nothing else that can provide an income for as long as the client lives. How can anyone reasonably say, “You should not have an annuity”?
I like to tell the story about timing risk. With stocks reversing right now, I worry about timing risk more than anything else. So let me explain: Timing risk is what the industry refers to as a sequence-of-returns risk. It’s yet another example of overcomplicating something.
The way I explain it is like this: Imagine you had 10 people in a room, and they were financially identical. They all had the same amount of money — $500,000. They all had the same investment portfolio. They all were going to take out exactly the same amount of income in retirement. So what’s different? Just timing.
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Bitcoin bounce
Bitcoin rebounded from a swoon below $30,000 as a selloff in stocks eased and about of calm washed across global markets.
The world’s largest digital token snapped a five-day slide that had cut its price by more than 20%. Bitcoin added as much as 5.4% on Tuesday before giving up some gains and trading at around $31,623 as of 2:35 p.m in New York. Ether at one point climbed 7.2%, while coins like Solana and Avalanche were also in the green.
The crypto recovery came as equities mostly advanced across the U.S. and Europe, highlighting how the two asset classes are trading in tandem.
The TerraUSD algorithmic stablecoin continued to trade below $1 after de-pegging from the dollar over the weekend, adding to the market volatility.
“The main reasons as to why Bitcoin would continue to struggle are rooted in both the equities market as well as the LUNA foundation,” said Nick Mancini, director of research at crypto sentiment analytics platform Trade The Chain.
Bitcoin’s recent plunge has taken it to levels last seen in the middle of 2021, reversing a bull market that peaked in November. Whether the calm will last is an open question. Tightening monetary policy to combat runaway inflation is curbing liquidity, creating a formidable obstacle for speculative assets like cryptocurrencies.
Michael Novogratz, the billionaire cryptocurrency investor who leads Galaxy Digital Holdings Ltd., warned that he expects things to get worse before they get better. Among challenges facing digital assets is that they’re increasingly trading in line with technology stocks, which are getting hammered by rising interest rates.
“Crypto probably trades correlated to the Nasdaq until we hit a new equilibrium,” Novogratz said on Galaxy’s first-quarter earnings call on Monday, adding that investors may see “a very choppy, volatile and difficult market for at least the next few quarters before people are getting some sense that we’re at an equilibrium.”
Issuers of conventional stable coins like Tether’s USDT or Circle’s USDC maintain that their tokens are backed by “real” assets like cash or highly rated bonds on a 1-to-1 basis.
These coins hold their peg because the theory goes, that they can be readily exchanged for cash or highly liquid cash equivalents. By contrast, algorithmic stablecoins attempt to hold their value through a combination of instructions encoded in software programs and active treasury management. UST — which functions in tandem with a related token, Luna — is the most popular and controversial of these kinds of tokens.
In the case of Terra’s stablecoin, if its price falls below $1, traders are incentivized to swap units of UST for Luna, which removes the former from circulation. Similarly, software programs are triggered to do the same.
If the price rallies above $1, the mechanism applies in reverse — remove Luna tokens from circulation to create an equivalent, new units of UST. But over the weekend, all of those mechanisms stopped working and UST lost its dollar peg, while Luna also slid in value.
Do Kwon, the founder of Terraform Labs, which powers the Terra blockchain, is moving to shore up the stablecoin. Luna Foundation Guard, the association created to support the decentralized token and Terra blockchain, said it will issue loans worth about $1.5 billion in Bitcoin and TerraUSD to help strengthen TerraUSD’s peg.
Bitcoin is down more than 50% since hitting a record of almost $69,000 in November and has underperformed both global stocks and gold so far in 2022. The recent rout also broke it out of the narrow trading range where the token has spent most of this year, prompting some technical analysts to predict more pain ahead. Short bets against Bitcoin have climbed to a record, according to data compiled by CoinShares going back to January 2020.
Jeffrey Halley, a senior market analyst at Oanda, said in a note that technical patterns suggest Bitcoin could slump to the $17,000 area.
“That is a big call, and it does seem to be making a stand ahead of $30,000.00,” Halley wrote. “Realistically, it needs to reclaim $37,000.00 to change the technical outlook and give the HODLers hope of a good night’s sleep.”
Over a 24-hour period, 254,956 traders were liquidated, with the total liquidations equaling about $987 million, data from Coinglass show.
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