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.
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Well welcome to Finishing Well with Certified Financial Planner Tom Griffith and today's very fun show, Multi-Year Guaranteed Annuity, which is an alternative to retirement as far as investments are concerned. And so think about this biblically that a lot of folks when they go into retirement, including me, you know, the the stock market's going up and down and crazy and whatever, you have a tendency to say, well, I'll leave my money in my checking account, but then I don't feel like a good steward.
So in Proverbs 21, 20, it says, the wise store up choice food and olive oil, but fools gulp those down. And so it's interesting that that even could be applied to investments. Like are you going crazy with risk or are you using wisdom? And so to me, I think so much what that proverb is saying is what matters is the motive. Are you preparing from wisdom or are you hoarding from fear?
And I think that's a critical point, Tom.
Okay. Yeah, I think it it's absolutely right. And and we see it play out all the time in our business where people come in and a lot of them have been great savers, right? And this might be you listening. It's like you've done a great job.
You've been a good steward all the way up through your working years. You were saving diligently, planning for the future, taking care of your family, doing all these wonderful things. And then you get to retirement and either it's fear or it's uncertainty. There's just things happen at retirement that just change your mindset around investments. And we see people just make really poor choices, right?
I mean, they might go to one extreme thinking like, oh, I've done great in the stock market.
So let me just risk it all because it's done great for me now, not really thinking anything about what the withdrawals look like, having to live off of it, and then thinking through what happens if the market's down, you know, 30% right as I'm leaving the money. And so they don't think that that's one extreme. And then the other extreme, which we see a lot of, is people get really scared, right? I mean, they're fearful of loss. And I would say a lot of them experience for them, the pain of loss.
Far outweighs any benefit of gain that they realize, right? They kind of view this as like, hey, I've got what I have.
Now I just want to hold on, don't want to lose it. And so they put it in cash. They might put it in their checking account or put it in something that's really not paying a whole lot. And that's not really being a good steward either, right? Because we're called to have it, you know, invest wisely, have it grow.
You can then use it to benefit people. Even that's given away, benefit your family. I mean, whatever you're called to do. Again, that's different for everybody. But you still want to be, we are all called to be good stewards of this money.
And so what we've done this show on today are called multi-year guaranteed annuities. You'll see the abbreviation M-Y-G-A, or you might hear us refer it to as a MIGA. It's just one type of annuity. I think a little, let's spend a little bit of time talking about annuities in general because some people hear that term and one, have never even heard of it, don't know what in the world I'm talking about, or two, have some maybe a negative thought about it. Or they've had a good experience with it.
I mean, people come in from all sorts of different areas. And I think it's helpful to understand that not all annuities are the same, right? It's a tool. At the base level, it's an insurance contract that has some tax benefits. There's some provisions in there.
But within that larger term, there are a lot of different things that it can do. And so the one we're talking about today, it's a fixed contract.
So there's no variable, there's no variations, and you know what you have from day one. And so, Robbie, why don't you talk a little bit about annuities and just sort of your background or lack thereof when we first met? Oh, yeah. I had no word. I heard the word like, what is that?
But as I came to understand what it is, it's such an exciting way to make sure that you don't run out of money. It's an amazing tool to be a good steward where you got a return. And at the same point in time, it will pay you in certain circumstances. Certain kinds of annuities will pay you on and on and on. But again, you know, that's why we're doing different shows on different kinds of annuities.
And today is the one that's got the guarantees as far as the interest rate and those things. Yeah, I mean we have other shows that we've done where we've talked about income annuities a lot and that's where you are producing an income that's guaranteed for the rest of your life. All annuity contracts can be annuitized and annuitized is just another word for turning it into a stream of income.
So you technically could do that with one of these migas. Although you're not going to get the best payout. It's really not designed for that. You probably shouldn't use it for that reason, but it, you know, technically it could be. That's why that's how it can be classified as an annuity.
But again, these fixed ones, you can think of it very much like a CD, like I said, is it pays a fixed rate. A fixed amount of time.
So, when we did the YouTube show, we put up on the board.
Now, these rates change somewhat frequently.
So, when you're listening to this, the rates might be slightly different. But just as an example, there was a contract that you could purchase from a company for a two-year term that was paying 5% guaranteed for those two years. No what-ifs, no variations. You know what you got from day one. It compounds every year on top of itself.
And then, at the end of the two years, you have a choice: you can renew it, you can take it out, you can do something else with it. But that's really all it is. And I'll give you some other examples: like a three-year was paying five and a half percent, four-year is five and a half percent, five-year is 5.75 percent.
So, and it goes on, we go all the way up to 10 years. But what's really nice about that is you can lock in these interest rates for that period of time and have no fear of loss, no risk of loss in the markets, as you're getting a guaranteed rate. Um, and it's, it's just you know that you know what you have, and so.
So, that's really helpful from a planning standpoint because we can plan on that. It's helpful from your standpoint, where maybe you're entering retirement, you want to take a little bit of the risk off the table. I mean, we've just been through 23 and 24 were great years in the stock market, both up over 20 percent. And so, you might be wanting taking some of those gains off the table, putting it over to the side. Let's just ensure that you could build it as part of a larger strategy.
I mean, there's a lot of different ways you could use it, but getting that high of interest rates is really useful. And if you have money just sitting in a checking account or a savings account at your local bank, that it's earning, you know, 1% maybe less. This is a great alternative to that to get that higher interest rate. Another sort of feature of this, different from a CD, is if you have a CD, when that CD is earning interest, so each month it's earning something, or when they look at it for the whole year, you'll get a 1099, a tax form that shows you how much interest you've earned for the year, and you have to pay taxes on it in that year.
Now, with a CD, you didn't get that money, it stayed inside the CD, but you're still paying taxes on it. With a MIGA, because it's in an annuity wrapper, that's the sort of the structure of it. If you purchase this with non-IRA money, I'll get back to that in a second. But if you purchase this with non-IRA money, that interest is deferred, meaning it's earning that five and a half, 5.75, you know, whatever you're getting every year. You're not paying taxes on it.
You get tax on it when you eventually pull it out of the contract. But what's nice about that is I like only paying taxes on income. That I'm receiving and I'm spending, not on stuff that I'm not getting and not using. And so let's defer the taxes out to the future. We'll have we'll need to come up with a strategy of how to wind those down eventually.
But it's a nice way to reduce your taxes now if you don't need it. Like I have an example of this widow who I'm helping up in Virginia. Her husband, unfortunately, left her with a farm, left her with some life insurance money. She's doing, you know, she's really comfortable, doing well, doesn't really want to take a lot of risk in the market, has lived through ups and downs and understands it. She's like, I just don't really want to have to go through that right now.
And so, what we're doing with her is she had a bunch of money just sitting in a checking account and savings accounts, earning very little. She knew it wasn't maybe the best place for it, but didn't really know what to do with it.
So, what we did with her is we looked at these migas because she was also paying a lot of interest on this money that she didn't even need, at least right now. And so, what we did is we set up a series of these migas. Let's put some of this money over there. Let's guarantee this higher interest rate much better than she's getting in the bank. She feels like she's now doing something.
She doesn't have to be worried about this, waking up in the middle of the night, knowing it's not doing as much as it could for her. And it removes the interest from her tax returns, so it reduces her. Taxes gets her a higher earning interest rate and really just simplified her life. She felt very, very good about it. Again, it's not for everybody, right?
I mean, I think it needs to fit within the larger context of a plan, but it can be a very useful tool to be used with a portion of your money. Right. To me, annuities are wonderful because it's not just the micas like we're talking about today, but all sorts of different types of annuities for different structures. And so that's kind of what makes today's show so important: understanding this one particular tool and its uses and as completely a fixed interest rate as an alternative to a CD. You know, I was sitting there actually thinking, you know, maybe my church ought to.
You know, look at something like this rather, you know, because. You know, they they're uh In the midst of all trying to get interest rates too, and CDs don't have that great of interest rates right now. Especially if you start going out longer term, right? You can get some decent CDs, but I'm talking about six month, maybe a year CDs. But the further out you go, they stop looking really that attractive.
Where what's nice about these MIGAs is you can lock in. We're in a pretty high interest rate environment right now, right? We came out of COVID. We know what happened there with inflation. The Fed raised the interest rates pretty high.
And as a result, these insurance policies, these annuities are paying out much higher interest than they were pre-COVID.
So from our standpoint, that's actually really beneficial.
Now, if they start cutting rates in the future, which again, we don't have a crystal ball. We don't know when or if they'll do that. But if they do, these companies will respond and start lowering their interest rates. And so one of the nice things about going out a little bit longer in term or getting some that are out at that five, six, seven year mark is you get to lock that interest rate in for that full time. And so will we still be getting 5.75% five years from now?
I mean, I don't know. But there's A scenario, a very likely scenario, where we won't. And so you've locked that in, you've preserved that higher rates for longer. And again, you are giving up some liquidity. We'll get a little bit to that more in the second part of the show.
So it needs to be thoughtful. You don't want to just take all your money and do something like this, but it can be very useful as part of a larger plan, as you assuming you've thought through some of the other downsides, which we'll talk a little bit about later.
So we want to take this moment to remind you that this show is brought to you by Cardinal Guide, CardinalGuide.com. And if you go to CardinalGuide.com, you're going to see a show with exactly the same name of the multi-year guaranteed annuity. And there you're going to see the show notes and they go into a lot more detail on different plans and examples of these multi-year annuities. And so you can find all that under the investments tab on the Seven Warriors tabs at cardinalguy.com. And of course, there you also find Hans's book.
The complete cardinal guide to planning for and living in retirement. And my favorite, if you're just like, man, I don't know about this. Call him, call Tom, call Hans at the Contact Hans or Tom page at cardinalguide.com. And so we'll be right back with a whole lot more my go or multi-year guaranteed annuities. Investment advisory services offered through Brookstone Capital Management LLC, abbreviated BCM.
a registered investment advisor. BCM and Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. Welcome back to Finishing Well with Certified Financial Planner Tom Griffith.
And today's show, the Multi-Year Guaranteed Annuity or MIGA, right? Alternative as far as investments in retirement. And so, Tom. We got a whole lot more to talk about. Yeah, I mean I think one of the things that I want to spend a little time on is you know we just went through all the benefits or a lot of the benefits of them on the first half of the show.
Let's talk a little bit about what are the trade-offs, what are the downsides of these and just sort of big picture. All investments are going to have trade-offs, right? You're getting something good, but what are the downside risks of that? Or what are the things you need to be mindful of? And just general guidance is if you don't know what those are in any investment you're doing, you probably want to pause and think through that.
Because if you don't understand that, that's going to lead to potentially being disappointed with some feature of it that you didn't understand going in. And that's going to lead to a bad outcome. And so I think it's smart, not just with this, but with all things, to really think through the upside, the downside, what are the benefits, what are the downsides? Because everything in life has that. And so with these mangas, the things that you need to be mindful of, the biggest one is liquidity.
And so liquidity is just a fancy word of saying, can I access my money easily without any cost?
So, if you think about a checking account, I could go down to the bank today, put my ATM card in, and pull out, you know, however much money, $20, no problem. I can get it immediately, essentially. Savings account, same kind of deal. Investments in stocks and bonds, it might take a day or two, but I could go sell them whatever price.
Now, that might be up, that might be down, but I could sell it and raise the cash that I need to go do something with that. With these. This annuity and most annuities, there are surrender charges to get out of them during their term.
So, I talked about a two-year, three-year, four-year, five-year contract in the early part of the show. Um, well, that's locked in for those two years, three years, four years, five years, right? Depending on the term you get. I'll talk a little bit. There's some wiggle room there, I'll get to in a second.
But fundamentally, that money is in there for that amount of time. And so, if you took an extreme example and you went down to the bank, took all the money you had, every last dollar, and you put it in these things thinking, Great, I'm getting over 5%. This is awesome. And then you wake up six months later and say, Hey, you know, my just got a flat tire, or I need to replace the roof of my house, whatever it is, I need some money. And then you go try to pull it out of these.
Well, now you're going to have pretty high surrender penalties to do so. And so, that's where, again, you need to be thoughtful with how much you're putting in something like this because it does lock it up for that amount of time. And you need to leave money outside of the Like this to offer that liquidity. But that is really the biggest downside of these.
So you're getting a pretty good return, you're getting safety, right? There's no really risk of loss from investment performance, but you're giving up liquidity, you're giving up access to the money easily.
Now, most of these policies have the option either. Built in just from day one, or you can add it as a rider where they will allow you to take out, say, 10% of the contract penalty-free.
So, they'll let you get some of it, just not all of it. And so, that can that can ease some of those concerns. Again, some of them don't have any of those provisions, but again, a lot of them have options to add that.
Sometimes you might have to decrease the interest rate. You might go from 5.75 down to, say, 5.65.
So, you're getting a little bit lower interest rate, but it allows that access to, say, that 10% withdrawal.
So, some people like that. And so, I think that can be pretty beneficial. The other piece is the death benefit component.
So, all of these, there's a contract value, you know, whatever it's grown to. If you were to die midterm, again, depending on the company, some of them will just pay the full benefit out at that point to the beneficiaries. It might be to your spouse or to your kid, whoever it is.
Some of them need to be held to the end of that term to get the full death benefit.
So again, when you start really looking and getting to these, yes, you want to pay attention to interest rates. That's the primary reason we're looking at them. But you want to look at some of these other benefits too and make sure it's aligning with what your goals are. And just I want you to know what sort of those risks, if you want to call them that, are as you're going into something like this. Yeah, absolutely.
'Cause like like you say, but it's nice to know you can get that ten percent and my mother in law had one of those and that's exactly how she accessed some of it without having to deal with the penalty.
So that's helpful. Yeah, I think that's helpful. And then another way we sort of can mitigate a little bit of the liquidity risk Is building out a ladder, and so if you think of a ladder like one you climb up, they have different rungs, right? You go up and you get higher on the ladder.
Well, you can do what's called a maiga ladder. You might have heard of a bond ladder, some people do CD ladders, they all fundamentally work the same way. But let me walk you through an example of what a maiga ladder looks like and how you would set one up, and then talk through why you might want to consider doing that.
So, in the YouTube video, we put an example on there and we took $50,000 times five, so $250,000 over, or no, that would be. Yeah, 250 over a five-year period of time.
So we bought a two-year, three-year, four-year, five-year, and six-year.
So there's five contracts. $50,000. And so, you know, on the board, and these rates likely have changed since then, but they were getting 5% on the two-year, 5.5% on the three-year, 5.5% on the four-year, 5.75% on the five-year, and 5.53% on the six-year.
So, again, rates can change based off where you live, time when you're doing this.
So, don't hold me to those ones, but fundamentally, it will work the same way. And so, then you set these all up right at the same time. You say, okay, now that's great. I'm getting over 5% on these. We're going on, we're rolling along.
The first one that comes due is the two-year one.
So we go two years from now, we're in 2027. It's maturing, meaning it's coming due. It's exiting the surrender penalty, meaning you could access the money, no penalties at that point. Then we'll make a decision. Do you need this money?
If yes, then we'll take it out and we'll pay the taxes on the growth and then we'll be good to go. A lot of times people are setting these up. They get to the end of the two years and say, I don't really need the money now. I want to reinvest this somewhere else. And so if you think about these, this ladder has just gone down two rungs.
So the two-year just matured. The six-year one now has four years till it's done and vice versa. It just goes on that way. And so now what we could do is take that two-year one, it just came due, and purchase another five-year one.
So that just has gone to the next rung of the ladder. And then the next year, if we have the three-year one that is now coming due, we could buy another five-year one. And so once this gets going, every year. You have access to 20% of the total money you invested in these things. And so, and plus, a lot of these will have 10% access to 10% of each individual one along the way, too.
So, that really helps. with that liquidity issue.
So really we only need to worry about a big liquidity event in the first two years because after that, as this gets rolling, you'll have access to quite a lot of money each year if you need it. And most people don't end up utilizing it, but it's a nice feature. Another thing that does is it doesn't lock all your money up in these longer terms, but it has some of the money in those longer terms. And like we talked in the earlier part of the show, you're locking in that higher guaranteed interest rate now because likely five years from now, they might be paying less. And therefore, we've locked that in, getting that higher rate for longer terms, I think, can also be beneficial.
Right, and so as you end up with the average of all those different ladder rungs, right? You take. You know, it's a great stewardship idea, and like you say, it it solves one of the challenges with MIGA's being the liquidity issue and uh you know, really is an opportunity for folks. Yeah, I think I think it can be very helpful.
Now, we have some people that come in, they're not worried about liquidity, they have plenty of other money, and they're just really trying to get a high interest rate.
So, I'm going to go through a couple examples of how we've used this in planning with some clients. And then, you know, if you're interested, you can give us a call. But we have this guy come in a couple of years ago, again, very successful, has done really well, and he saw a video we did on these micas, and he started looking at this. And at that point, they're similar rates as they are now. And he was looking here and said, you know what, I could take.
of this money um I have plenty of other money that's invested that's at risk, but I want to sort of take some of this other money, get it something safer, and lock in something north of 5% guaranteed. And what he did is he just bought a series of 10-year ones.
So, 10-year ones are pretty far out. Again, you need to make sure you have enough other money, which again, this client did. But he bought a bunch of these. The particular one he did allowed him to pull out the interest each year if he wanted it. And so he's like, I'll just put this here, guarantee it for the 10 years, let it ride.
I don't really need it, and get this high interest rate guaranteed for that amount of time. And he has since gone through and taken some interest out just as things have come up. But he has that option, right? It was built as part of that larger plan.
Furthermore, he actually purchased his with IRA money. And so you can buy these with IRA money with Roth money. Non-qualified money, meaning not retirement funds.
So, any of that type of money can be purchased here. But what he's doing with the IRAs is he purchased a series of these is he's converting them systematically into Roth IRAs over time, part of a tax planning strategy. But by when we get to the end of the 10th year, the ones that have been converted to a Roth are now all tax-free.
Now, when you convert something to a Roth, you have to pay taxes on the money at that time.
So, he's paying taxes to do that. But now, that money is sitting there, it's growing at that north of 5% guaranteed tax-free, and it will be there to be used in the future, you know, also tax-free.
So, you can incorporate these into a Roth conversion strategy. You can use again, IRA money, Roth money, other money. You can do a lot of different things with this. Um you know, if you start doing things like that, probably don't try to do it on your own. You come to us, we can help you help you figure that out.
But it again, it's a very, very helpful uh strategy for him. Yeah, that's another example. Yeah, but not on that example, I was just going to ask.
Well, I guess we only have about a minute left, and that question wasn't important. I'm going to let you get to the last thing you want to bring up. Yeah, I'll go through one more example. And again, sort of a similar story to a lot of these ones that we've talked through. But we had a widow, her husband just passed.
She had a pretty large life insurance policy, which was very, very thoughtful of him. It really helped set her up to be okay once he was gone. But once we sort of took care of all her income needs, everything was set up. She's got Social Security. She's got some annuities.
Everything's coming in. She's comfortable. She still had quite a bit of cash sitting there. It was from a life insurance, so taxes had already been, or she got it tax-free, right? Life insurance proceeds are tax-free.
And she, at this point, would just have it in her checking account. I want to remind you again that this show is brought to you by CardinalGuide, CardinalGuide.com. If you go to CardinalGuide.com, there is the Seven Worries tabs. And today's show is about tax, excuse me, about investments. And so if you go to that investments tab, and you'll see a show with the same multi-year guaranteed annuity title.
You can see a video with all the show notes and great details about this, as well as Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement. And of course, the contact Hans. Hans and Tom Page, because every situation, there's no cookie-cutter approaches. Yours could be a little bit different. And this is just one of many tools based on what your situation may be.
So, again, it's all there at cardinalguide.com. Welcome. I mean, welcome. Thank you, Tom. Fun show.
Yeah, thank you. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Investments involve risk and, unless otherwise stated, are not guaranteed.
Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation. Finishing Well is designed to provide accurate and authoritative information with regard to the subject covered.
Investment advisory services offered through Brookstrone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. 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 Han's 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 Han's 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.
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