Hutto Retirement

‘Good Investments for Tough Times’ series – an Investment ‘Do-Over’

By: GREG HUTTO

August 30- September 5, 2010

In my last article we talked about the opportunities available in multifamily real estate. I borrowed this article’s topic phrase from my daughters, who sometimes want a ‘do-over’ when we’re playing a game that’s not going their way. If you get right down to it, we’d all like a do-over with the money we had in stocks over the past ten years, wouldn’t we?

The problem with stock investments, especially as we get close to or well into retirement, is that a prolonged downturn in the market can just take too long for us to overcome, and can cause us to make major lifestyle adjustments in retirement. Investors taking a modest 4% income from a 50-50% stock/bond portfolio over the past ten years have likely experienced a big downturn in their portfolio, and may face making major decisions soon.

Annuity companies have a solution to this dilemma, and it involves using a benefit rider called a guaranteed minimum income benefit. GMIB’s, as they’re known as, allow an investor to receive 5% or 6% income from a portfolio, and receive additional payments for life (a ‘do-over’) if their money runs out over time. Let’s say an investor is age 60, has $100,000, and wants to invest in an annuity with a 6% GMIB rider. If this money runs out in 12 years because of poor stock returns, for example, then an investor can take advantage of the GMIB rider, and receive lifetime income that is calculated on their original investment amount and life expectancy. In this scenario, a 72 year old could have spent down their original $100,000 investment, and still receive around $6,600 to $7,000 per year for the rest of their life, no matter how long they live. This benefit is based upon the claims-paying ability of the insurance company providing the guarantee.

A common phrase I hear when I describe GMIB’s is that ‘they’re too good to be true’. Actually, they’re not too good to be true – they’re just too good to be free. No investment company is going to offer any guarantee of this type unless they’re able to protect against the risk of making huge payments to annuity owners down the road. The way annuity companies protect themselves is by charging an asset based fee for this benefit. The annual cost of GMIB riders are typically in the 1.00% range, and the annuity companies use this money to protect their portfolios. That way they can have the money on hand to pay you lifetime income if in fact your worst financial nightmare occurs – being age 72, and out of money. (My worst nightmare is my clients being age 72, out of money and knowing where I live!)

You typically won’t make as much with your money invested in an S&P 500 fund in an annuity of this type as you would with an S&P 500 index mutual fund, because of the costs of the rider and the extra costs involved with an annuity. However, you won’t have the guarantees with a mutual fund that you can have with an annuity with a GMIB, either. The word ‘guarantee’ is used here in connection with guarantees offered by insurance companies. Variable annuities do not carry FDIC insurance, and as mentioned earlier are instead backed by the claims paying ability of the annuity provider. Obviously, strength of company is important here. It’s probably not a good idea to put all or even most of your money with one provider, and you need to make sure the company has very high ratings before investing in an annuity contract.

Does an annuity with these types of benefits make sense for part of your portfolio? It all depends on your situation! Take some time to learn whether having some of your money in this type of investment makes sense for you.

Greg Hutto is the founder of Hutto Retirement Advisors LLC. He can be reached at 817-503-0100 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Hutto is a representative with BFT Financial LLC, member FINRA, SIPC, MSRB, through which all securities are offered.

‘Good Investments for Tough Times’ series – Multifamily Real Estate

By: GREG HUTTO

May 10, 2010

My favorite alternative asset class for the next few years is equipment leasing. A close second would be the current opportunities with multifamily real estate. A common perception about real estate is that it is sensitive to economic downturns, and that’s usually the case with most classes of real estate. Multifamily real estate, consisting of townhomes, condominiums and luxury apartment complexes, has historically been the exception to the rule. Everyone has to have a place to live, and in good times young people who lived at their parent’s home or in less expensive housing will want to ‘trade up’ to a better lifestyle. During tougher times (like now), a lot of folks who would like to have their own home can’t afford it (or can’t get financing), and thus will usually settle for a nice apartment or townhome. It’s been said that multifamily ‘gets ‘em coming or going’, and it’s for this reason that we like this investment category.

This classification of real estate has had a rare combination of high returns with lower risk. The following table of information was obtained from the National Council of Real Estate Investment Fiduciaries (NCREIF), and shows the compound annual growth rate of various types of real estate over the past twenty years, from the 4^th quarter of 2007. Past performance doesn’t guarantee future results.

A normal assumption with a higher returning asset is that it has more risk. Multi-family real estate is one of the rare investment categories, in that it has had less risk, as measured by standard deviation, than most other real estate sectors. The following table was also obtained from NCREIF, depicting the standard deviation across real estate asset classes, from the 4^th quarter of 2007.

The economic downturn and residential real estate crisis in our country over the past two years has resulted in millions of people being forced to sell their homes at a loss, or worse, to face foreclosure. These people are actively searching for nice rental property, because in many cases they can’t afford a new home or can’t obtain a mortgage due to much stricter lending requirements now in place. I believe that multifamily is likely to outperform other real estate sectors for several years, until the economy gets moving again and consumers can ‘trade up’ again.

Multifamily real estate can be obtained through publically traded REIT’s, or in my favorite structure, as privately offered investments. You need to do some homework on this investment, and I would like to help! Take some time to learn whether having 5 to 10% of your portfolio in multifamily real estate makes sense for you.

Greg Hutto is the founder of Hutto Retirement Advisors LLC. He can be reached at 817-503-0100 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Hutto is a representative with BFT Financial LLC, member FINRA, SIPC, MSRB, through which all securities are offered.