Lifetime Income Plan

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This is the Truth Network. Welcome to Finishing Well, brought to you by CardinalGuide.com, with certified financial planner, Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in Finishing Well, including discussions on managing social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes.

Now, let's get started with Finishing Well. Finishing Well is a general discussion and education of the issues facing retirees. CardinalGuide.com, Cardinal Advisors, and Hans Scheil CFP sell insurance. This show does not offer investment products or investment advice. Welcome to Finishing Well with certified financial planner, Hans Scheil, and how fun today's episode sounds. Too good to be true to my book, but it's not. And the name of the episode is Lifetime Income Plan.

What? Lifetime Income Plan? That sounds too good to be true. Well, I have to tell you that Hans, I've been reading the Song of Solomon for the last few weeks, and I came across this thing.

It's made me smile all week because it just sounds too good to be true. So for those who are not that familiar with the book, Song of Solomon, essentially is the love story between Jesus and you, or the love story of Jesus and his people. And if you read an overall view of it, for the first four chapters, Jesus is coming after his church, telling us how beautiful we are, telling us all the gifts that we have, and essentially wooing us. But in those four chapters, if you read through those four chapters, you'll see he keeps asking us to get up, arise, my love, come away, let's go.

We're gonna go to Lebanon. And he keeps asking her to come up and get up and get up and get up. Well, when you get to the fifth chapter of Jesus coming after us, then he finally comes and knocks on the door in the night with his head dripping with drops like he did in the Garden of Gethsemane. And she says, literally, the bride says, I can't get up because I might get my feet dirty. You know, like, how could I be so ignorant? Well, that is me. I mean, I get that. But then it says that he stuck his hand through the hole in the door, which he was knocking on our hearts, folks. And so when he sticks his hand through there, essentially, he has got the key of our heart, the key to our hearts, and he unlocks it. And once he does, it says she is so moved for him, she finally, after four chapters, gets up and she begins to chase after him for the rest of the book. And I'm just saying that this transition was, as I realized what was going on, is, yeah, oh, yeah, yeah, Jesus does have the key to my heart.

And he did awaken, and I did. And what's even more wonderful and almost too good to be true, but I know it's true, he has the key to all my loved ones. He has the key to their heart.

And he loves them more than I do. And so when the time is right, right, in spite of how they may act and not want to get up because they might get their feet dirty, he's still coming to unlock their hearts. And Hans is still coming today to tell us about the lifetime income plan. But, you know, it's interesting that we just brought the story together. The clients that are behind this story that we're going over today and how we set this plan up for them are very similar to the bride in the tent that didn't want to get her feet dirty. So a close friend of mine worked with this lady years ago, and he is a bit of an advisor. He was her boss.

And he was just working on her and a few other people. So you really need to talk to this guy, Hans, that he can help you with your retirement and your retirement money. And the money that these people had accumulated was pretty substantial to them. I mean, these are just working folks that she worked in a hospital, he worked in a machine shop, and, you know, they had accumulated, she had accumulated $650,000 in her 401k, and he had accumulated $440,000, or that's the amount that they had by the time we finally rolled it over under our management.

There was actually more of it in there six months to a year ago because they've suffered some, like everybody, and they had too much of it in stocks, which a lot of people have their 401ks, and so they just kind of lost what they had previously made. But they were very hesitant, you know, all along just to deal with some slick-talking financial advisor and the salesperson and insurance salesperson, which is Hans Scheil, which they had never met. And this guy just kept telling them, I gave him my book. I don't think they really read it.

I mean, maybe she did. But I was down on vacation where they live a few years ago. It was during the pandemic, so it must have been two years ago.

And I drove over about 30 miles and met them out, and we just sat down and we had lunch together just to meet face to face. And I really advised them to start preparing their money then, back in 2020, just because of what did happen, which the market took a big correction, because they were telling me, you know, we're going to retire in the next few years. So I said, the time to start making your money safer and less at risk is now, not when you come to me in a couple of years and you say, now we're ready to retire. Well, and that's exactly what happened, is they didn't do anything. They actually did do a little something. They paid us to do a financial plan. So we dug in and we gave them all the recommendations, but yet they didn't implement any of it. One of those recommendations was to take some of the money out of the 401k and just roll it out and get it into a managed account where we can manage the risk of it a little bit. But they didn't do that until they were ready to retire.

And so then they came to us and it kind of sets up the whole video today of what we were able to do for them. Right. Because as you've talked about so many times, one of the biggest fears that you face for all of us, including me, I'm going to outlive my money. That's their biggest fear. I mean, so they have this money there with large numbers and the total between the two of them, she had 650, he had 440, so we got $1,090,000 of money they haven't paid tax on yet. And they were very clear on the fact that we got to pay taxes all along.

As soon as we take a dollar out of there, we got to give up so much of it in taxes. And they knew that. And they also, she was making like 80, 90 grand and 80-some thousand in salary.

And he was making more like 45 or 50. And they, you know, pretty much they'd been doing all this savings, but the way they looked at it is they still needed the same money because they're just looking at the net check that they get every two weeks and how they live and how they spend. And they were genuinely worried, but they still both wanted to leave their jobs and they wanted to stop while they were young enough to enjoy their grandkids and do some things that they want to do. And they didn't want to hang around at the place where they're working for several more years.

So, but I'm looking at this the whole time. And when I saw how much they spend, I said, this isn't going to be a problem. And they were both adamant and understood after they met with us, their Social Security, they were adamant about starting their Social Security, him at 64, 65, 64 when he was retiring. And she is not yet 62, but I think she's turning that like pretty soon. And when she's 62, she was going to start hers at 62, him at 64, where he already is, and take the lower amounts. And those lower amounts troubled them even though they got a million bucks over on the other side of the equation because they just, all this was very intimidating to them. And so, but after we got done with all this thing, it wasn't intimidating a bit.

So good. So I'm hoping my concern, my concern for them was the time past 80 for either one or both of them. I mean, you know, in other words, one or two of them, they might not even make it till 80. And if they were both going to be gone at 80 or by 80, then they really didn't need to do all this planning. They could have just gone on, started their Social Security, taken as much money out of the IRA as they needed. And then, you know, if they didn't have a plan, they could be out of money at 80 real easily or sooner. But so my real concern here is what if one of them or both of them live up into their 80s, maybe into their 90s, maybe beyond that. Now that takes on a whole different perspective of here we are at 64 and 61, we're going to stop our source of income and retire.

And we got over a million bucks to work with, but we got to pay tax on every dollar. So this is a bit of a problem to solve. Okay. Yeah. I'm ready for you to solve it.

Okay. So the first thing we did is we said, we're going to need to get the money rolled over and we're going to get your $1,090,000 at less risk than it currently is. So we want to stop the losses, or not stop them, but, you know, stick because you never know when the market's going to turn around. So you can't get completely out of the market. But, you know, so we made it more conservative.

That was fairly easy to do. So we got that and we got the money under our management. And then what we wanted to do is we wanted to get out of the bond market, or in other words, we wanted to get their money that is the safest money inside of their thing, we're going to move it to annuities where, you know, there's a guarantee we can't lose anything. And then, you know, in the good years, we're going to make something, or every year we're going to make something. And so, generally speaking, we wanted to delay their Social Security. And they didn't like that idea at first because, so now you're telling me we got to make this million dollars last, and then you're telling me that we're going to delay Social Security, so we got to start drawing out and living exclusively out of the IRA money so that we can wait for a bigger check later. And that's, you know, what I told him, I said, that's exactly what I'm telling you.

Because it's a guaranteed return on the delay of Social Security. Right. Well, this might be a good place to jump in here and tell you that, of course, all this information is there at cardinalguide.com, where there's a Seven Worries tab. And in that Seven Worries tab, which one are we on today, Hans? We are on the Income and Investment tab.

Okay. Retirement Income and Investment. So under that tab, you're going to find Resources, which will have show notes, the board, all this information on exactly details of how this plan worked, as well as the video and, you know, copies of podcasts on similar subjects are all there at cardinalguide.com, as well as Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement. And so we want you to have those resources. And of course, they're at cardinalguide.com. So when we come back, we'll get more details on how we ended up with this lifetime income plan, which is just really sounds too good to be true, but it's not.

It's true. We'll be right back. So Hans and I would love to take our show on the road to your church, Sunday School, Christian, or civic group. Here's a chance for you to advance the kingdom through financial resources by leveraging Hans's expertise in qualified charitable contributions, veterans aid and attendance, IRAs, Social Security, Medicare, and long-term care. Just go to cardinalguide.com and contact Hans to schedule a live recording of Finishing Well at your church, Sunday School, Christian, or civic group. Contact Hans at cardinalguide.com.

That's cardinalguide.com. Welcome back to Finishing Well with certified financial planner Hans Scheil. And today's episode, so excited to hear the rest of it, is a lifetime income plan. We're getting into details of how you guys helped this particular couple.

Okay, so here's what we did. We took their $1,090,000 and we put it into three different buckets. And bucket number one has $490,000 left in it.

And bucket number one is the same as the whole $1,090,000 was. It's invested in a managed account. It's invested in stocks. It's invested in bonds. You know, really ETFs, exchange traded funds. Very low fee, very low cost.

Pretty conservative. Still has some risks, so the market goes up. It's not going to make as much as the whole market as a whole, but it's going to do well. Market goes down. It's still going to lose money, but it's not going to lose as much as it otherwise would have. And so we've taken their money that's at risk down from essentially $1.1 million to about $500,000. And what have we done with the other $600,000 is we've put it in the other two buckets. So bucket number two is we took $200,000 and we put it in an accumulation annuity. So this is really kind of our hedge fund that it's money we probably are not intending to touch until we have to. So we're going to just grow the daylights out of this money. And so that when they get to be 80 or something at some point we can start making withdrawals.

We could also tap this thing like next year or the year after or five years from now. So this is our fund that we don't have an immediate plan or even a long-term plan for making withdrawals out of. We're just going to let money accumulate and yet it's still very safe money because it cannot go down in any given year. Okay. So on that, since it is an annuity at some point, can you turn an income on that if you want to?

Yes. So you could turn it into an income really at any point, but it's really not set up for that. Meaning that is the payouts are not as favorable on the income portion of that annuity as the payouts are favorable on the next one I'm going to talk about. What you normally think of as a baker is something that's going to sit there and grow and grow and grow, not unlike their other investments. Because there's no income association like the other one, it has a greater growth rate, right?

It does. It has a greater growth rate, but at the same time, it has a guarantee of principal and previously accumulated interest. So you can't lose anything. This is not going to go up and down.

It's either going to go up or it's going to remain flat. So there's a lot of security in this thing. It also, any given year, you can take 10% of the value out without penalty.

So that's a real nice attribute. If we ever have a place that we're going to go for for money to solve a problem, it's going to be to bucket number two. Okay?

Okay. And then bucket number three is we put $400,000 in bucket number three. And a real simplification of this is just to explain to you that this $400,000 is just going to sit there until we start the lifetime income.

Okay? And let me tell you what the lifetime income is. It's a monthly check that's going to start the minute you turn it on, and it's going to cover his life and her life. So it's not going to stop until both of them are gone. So if he dies at 78 and she lives to 94, there's no interruption of the checks from the time they start it until she's 94 and deceased.

Okay? If she lives to 103, she still gets checks all the way to 103. I mean, once you turn on the income from this thing, it never stops. And it's pretty sweet.

And it's based upon two lives. And in the example, this $400,000, if they leave it alone for 10 years and then start the income, the income is $50,000 a year. And that income, like I said, the $50,000, it's projected to start in 2032.

And it's just going to keep paying as long as either one of them is alive. Now, they don't have to wait 10 years to start the income. They could start the income in four years. They could start it in six years.

They could start it in, when you have to start it in 10 years, they could let it grow even further or they could never start it. I mean, so this thing is just loaded with options where the longer you wait to start it, the more it's going to pay out. And then once it starts paying out, it's guaranteed that it's going to pay out that monthly check until the second one of you dies. I mean, it's just a pure lifetime income plan, just like I promised you in the beginning of the thing.

And I know listeners probably think of the same thing. What happens if they both die when they're 72 to the rest of it? All the principal goes to their kids. Okay. So this is a different type of annuity than an immediate annuity, like you've heard of. So as an example, we're putting $400,000 in there now. We did this. We've already written this stuff. And so 10 years from now, that 400,000, let's just say that it's grown to $700,000.

Okay. I don't have the numbers in front, but let's just say that that's the number. And then it also says that you can start the income and you can start collecting $50,000 a year or $4,200 a month, whatever that number works out to. Well, every month, when you get a check for $4,200, that's just deducted out of your $700,000. Every month, every month, every month. And so by the time you get into your 80s or they get into their 80s, that $700,000 is going to be gone somewhere in their 80s. It's just because they've paid it all out to themselves.

But when the balance is zero and one of them or two of them are still alive, either one, the checks keep coming on a zero balance. Does that make sense? Oh yeah. And that's just spectacular. Almost like social security, right? That once you turn it on, it doesn't stop until you're gone.

Yeah. The only, the only thing about social security where it's different is, is if you die six months after you start your social security check, there's no cash payout to anybody. With this thing, if you meet an early death, after you turn on this income, there's pretty big cash payout going to go to your beneficiary.

So that's comforting to people. But these people are not even that worried about leaving money to their kids. They, they were just worried about having, you know, the income that we were solving for, for the two of them is, you know, about five grand a month. I mean, that's how much money. Now that's after taxes. So they need five grand a month to live. And then we had to put an inflation factor on that. So, you know, it gets a little complicated to just explain over radio, but, you know, if they need five grand after taxes or five grand net now, 10 years from now, they're probably going to need seven grand or something.

I mean, and so we've got all that factored into the plan, but we've got several hedges here. I mean, number one, we had a $490,000 account that we can start deducting the money out of. And we've got to deduct more than five grand, because they got to pay some taxes. And we've got to deduct more than taxes.

But when you're at these people's level, you don't pay much, they're not paying much income taxes going forward, very low. And we got all that factored in. And we're just going to draw down the 490 grand that's invested in the market. And we're going to draw it down, and we're not going to let it get to zero. But we're going to draw it down. And at some point about six, seven, eight years out, we're just projecting that we're going to flip from making withdrawals from that to that bucket number three, where we're going to turn on the income. And the longer we can wait, the better. And if we have bad performance in the market, then we'll just tap bucket number two.

That thing is just going to sit there and grow. If we had great performance in the market, or just acceptable performance in the market, well maybe we can just live off of the 490 grand a little longer and delay starting bucket number three. I mean, so we've got a lot of flexibility in here. And at some point in the next few years, we're turning on one Social Security check and then two, which will make less deductions out of, you know, the balance, the flexible balance. So these people are real happy with it. I mean, you know, in a worst case scenario, if they had to live off of their Social Security checks, plus what they get out of bucket number three, and completely bucket number one and bucket number two were completely depleted, they're still fine with that. They just have the security, then knowing that they got the checks coming in forever. But that's not going to happen. I mean, there's enough hedge in this thing that they're always going to have money and they do have about 150 grand of money separate from this that they've already paid taxes on and saving in various instruments.

So and we're going to work and they're going to work on building that a little bit. Or if they have some emergency or something they want to buy, they're going to tap that to go buy something then instead of messing with this plan. Right. And getting back to the idea of waiting on their Social Security, as you think about it, you know, just gives them that much more flexibility down the road, right?

Yeah. And, you know, people will say to me, you know, well, I couldn't I just do this managing the money myself? Well, you could, but you don't know how long you're going to live. And you don't know how long your spouse is going to live.

I mean, that's one problem. And right now, a lot of people, the only thing they have against that is Social Security is going to come in as long as you're alive for one of you or both of you. But as soon as the first one dies, then you're going to live up that survivor is going to live off of one Social Security check. And you don't know how long you're going to live. You can guess at it, but you don't know. The insurance company doesn't know how long you're going to live either, but they ensure a thousand people. They can tell you on average, who's going to live how long.

And that's how they can afford to sell a product like this. That's going to send out checks, no matter how long you live. Well, unfortunately, we've run out of time again, but wow, lifetime income plan.

How fun is that? And I'm sure you would like to know about that. Well, all you got to do is go to cardinalguide.com and there you can email Hans, get more information, their phone numbers there. It's all there at cardinalguide.com as well as Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement.

Great show, Hans. Thanks. Thank you and God bless you. Finishing Well is a general discussion and education of the issues facing retirees. Cardinalguide.com, Cardinal Advisors, and Hans Shile, CFP, sell insurance.

This show does not offer investment products or investment advice. We hope you enjoyed Finishing Well, brought to you by cardinalguide.com. Visit cardinalguide.com for free downloads of this show or previous shows on topics such as social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Hans' best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement and the workbook. Once again, for dozens of free resources, past shows, or to get Hans' book, go to cardinalguide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Well radio show on the website and send us a word. Once again, that's cardinalguide.com, cardinalguide.com. This is the Truth Network.