Income Riders

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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, bestselling 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. Well, welcome to Finishing Well with certified financial planner, Hans Scheil. Today's show, really pretty exciting topic in the SBA, income that never runs out. And so you go, wow, what now?

And we're going to get into all of what that means with my certified financial advisor, Hans Scheil, here in a second. But I wanted to talk about, you know, the Jews teach this principle about income that never runs out. Like you may have heard that you can't outgive God. You know the story of when Abraham found out that his nephew had been kidnapped by Kertilomer and those kings that had come down and captured him out of Sodom and Gomorrah and taken him off. And Abraham, amazingly, just took his men and went and wiped out these kings, got all this stuff, and took it back into Sodom and Gomorrah. And Machizledek, the priest of God Most High, you know, came in and they broke bread and wine. And Abraham gave him 10 percent of all the goodies that he'd gotten from defeating all these kings.

So there must have been quite a haul because, you know, they called that booty in those days and there was a lot of booty. So, fascinatingly, that 10 percent, the Jews said that Abraham salted his wealth. In other words, they used salt to preserve things. And so they were there like the tithe is a way to salt your wealth because, number one, you can't outgive God and if you are sending that money away, God's going to bless it back. But the other really, really cool thing about it that they teach is if any money that you give to God, you know you made a good investment. It's because, you know, you may have put money in this and that was a bad idea or you may have bought a car that went bad or you, there's a lot of ways you can waste money.

But there's one that is a surefire way not to waste money and that's by salting your money and giving it to God. Which, you know, that whole concept doesn't always mean necessarily there's some churches that may not be giving money to, so it takes discernment to know when you're actually giving the money to God and how he's going to use that. So, and I know most churches obviously would be along those lines, but there's something really, Hans, that you say that the number one thing that when people come to you for financial counseling, what's their number one worry?

Yeah, and this is not scientific research, it's just my own experience of seeing hundreds of people in their 60s that are coming to me. They're getting ready to retire, they're already retired, and one of the one of the primary things we do is show them how they can distribute their money in their IRA or their other money if it's outside of an IRA to create an income. And the number one worry that they have coming in is, am I going to run out of money? Am I going to get old and start pulling money out of this? I mean, if you think about it, if you got $500,000 in an IRA 401k or you got $400,000, and then you got a social security check, and then you look at that and you say, well, yeah, I can just live off the earnings of that, and people are all confused, but when we get our spreadsheets out, and when you start withdrawing like, I don't know, $30,000, $40,000 out of that to live, $50,000, at some point in given scenarios, you're out of money when you're 80, 81, 82. So the real thing that we do in this financial plane is we first find out if people are really worried about that, and if they're not, then we got to get them to a point of like showing them how this could happen, and then confirm that that's what they want us to do. And so it's almost like the first five or 10 or 15 years of retirement is easy. I mean, you just spend the money and you try to grow what's left and project things, but it's the 80s and the 90s, and that may be just one person of a couple.

So a lot of times with a couple, somebody goes around 80 and the other person lives to 95 or 89. And so that's the number one worry is like, am I going to run out of money? If I start distributing these resources to myself, I start living off of this money, I start spending this money.

At what point am I at zero? All right. Like if you had 300,000 and you took out 30 for 10 years, you're done and it's gone. And so, but the cool thing is, man, and I'll never forget when you introduced this concept to me, I was like, really?

You can do that? How does that work? And that's just amazing, this concept of the annuity.

Well, it is. And where I find that a lot with clients is I've been offering these income riders, and this is what it really is, is an annuity with a guaranteed minimum withdrawal benefit. And just put that in English is the insurance company guaranteeing you at a point in the future, you can start pulling out a certain amount of money and then that certain amount of money, you can pull that out for the rest of your life. And even if the account runs out of money, we're still going to send you a check. The insurance company guarantees and people hear that when they're buying it, they know that I'm assuring them that this is safe and that kind of thing, but they don't completely understand that till they've had these things for a while.

Okay. And then we typically don't start withdrawing money in the first year. These things are best if you let them what I call bake for four, five, six, seven, eight, nine, 10 years. So in other words, we're only going to take part of your money and put it aside with an insurance company, and then we're not going to touch it for a minimum of four years, maybe five or six years, and we can show you all the numbers. But when we touch it, we're going to turn on the income. And we can tell you right from the beginning, your income will be this much when you're like 68 or 71 or just this point in the future. And once you start the income, if it's on two people, a husband and a wife, and the income comes to two people, but when the first one dies, it keeps going. So it's going to come to you no matter what, as long as one of you is alive. So it's going to be at the second death, then it's stopped. But then the beauty of that, if there's still money in the account after you die, like you both die in five years, then your beneficiary gets the rest of the money.

What will they do? And the people understand that because one of the first questions people have with this is, oh, let's say we wait till 69, and then we start this income, and then both of us are killed in a car accident three years later, and we've only received 36 months of $2,000 checks. What happens to my original 300,000? What the deal is, is they've just been deducting those $2,000 checks out of your account. When you both died in this example, whatever's left in the account, and it's earning interest all the time, it's going to go to your beneficiaries.

But that's not the amazing part. That's just math and simple stuff. What people learn after they've had these for a while and they're so amazed by, is what happens when the second one of you dies where there's nothing left in the account? Let's say you lived to 93, the second one of you does, and this thing ran out of money at age 83 or 84 just because you withdrew so much for so many years, and it's at zero? What people just can't believe, it's like a miracle, is the checks still come from the insurance company on a zero account. Yeah, like our Social Security though.

It's exactly the same thing. And so your Social Security starts when you retire, you've been baking that money for an hour long, you've been putting it in there, and then it ain't stopping until it's over. With the exception of Social Security, unfortunately, my beneficiaries don't get what the remaining hours might have been. Listen, I have these people from down in South Carolina. The lady met us because her neighbor has Medicare Supplement Insurance with us.

She sent her neighbor who is this new client, and the new client is 65 and she just bought a Medicare Supplement based on her neighbor's recommendation. And when my new young agent, finding them, just found that here you have some people in Chester, South Carolina that have, well I shouldn't be giving away their town, but I'm not going to give away their name. And they've got almost a million dollars in a 401k.

And then they really don't have much else to their name. I mean they've got a little bit of savings, they don't have a high income, and I think they own a farm that they inherited. It's a small farm, but I mean this whole thing is the deal.

I mean and so the first question that I want to know is how do you end up with almost a million dollars in a 401k? Anyhow, I got through the whole story and this lady is just afraid. I mean she got a little bit lucky. And I think God was looking after her where she invested this, or they did together, it's his account, but she did the stuff as aggressively as she possibly could about four or five years ago. Just the timing of that, I mean the thing was probably down around five or six hundred thousand like three or four years ago and it's almost a million now. But they are scared because it's been going down.

I mean there's been a little turbulent times in the market recently and they know what to do. And so they found us and they found me and I said well you know what we sure don't do is take the whole nine hundred thousand and throw it in an annuity. I mean we could do that, but that's not the right thing to do for a number of reasons.

I mean there's some reasons to do that. I mean I guess number one is you get a guarantee of principle. So once they put that money in the annuity it's never going to be less, okay. And then the interest that gets credited every year, that's guaranteed too.

So this thing isn't going to go backwards at any point in the future. So that makes it real attractive, but you've got no flexibility with this annuity. You pop it all in there, you just create an income and that's all you got.

You really effectively don't have the money anymore. So what we did is we took the 900 and some thousand and we divided it in three buckets of three hundred thousand. This is really Tom's idea. And so we put 300,000 in the middle bucket, sits there for five years, and then in the sixth year it guarantees him and her, both of them, 24,000 a year, 2,000 a month for life, okay. For both of them. For both of them.

For both their lives. In other words this is going to stay running at $2,000 a month as long as one of them is still alive. Then we projected their Social Security for him, which they had no idea of. And so we came up with that and they had an income requirement of 5,000 a month so that he could retire now at 60 something or maybe next year at 61.

That's before Social Security. So now we're into bucket number one because we put 300,000 in bucket number one that we have total flexibility and we're going to invest it conservatively, but it's still going to get a little increase. Before we get to bucket number two and bucket number three. We got to go to the break.

Vanna, we got to go. Yeah, we got to go to a break, but we want to remind you the show is brought to you by cardinalguide.com where you can experience Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement. We've got so much more bucket number two, bucket number three, but income for life today on Finishing Well. Hans and I would love to take our show on the road to your church, Sunday school, Christian or civic room. Here's a chance for you to advance the kingdom through financial resources by leveraging Hans' 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 and today's very exciting topic, income for life, like that's never going to run out. Oh my goodness. And when we left our hero, they had three buckets of money and we just finished with bucket number one, Vanna. Yeah, we've got these people that have almost a million dollars. It was 940 when we put all this together and I think it had gotten down to 916, you know, like three or four or five days later. So people just very worried, just finding somebody like us from their rural setting and then somebody they can trust, you know, it's almost like they're going to need to go into Charlotte or at least on into Monroe or somebody and, you know, and they may need to meet in the middle where they're going to get somebody that can communicate with them is that people like me or at least they have perceived like me are going to have a hard time communicating with these folks.

They were just scared to death a couple of weeks ago and so we got to this bucket principle. By the time we put everything together, we're going to have him start in social security at 62 which goes against my normal principles but she's 65 and by the time he's 62, she'll be 67. So and his is the big social security check. We're going to be making it smaller by starting at 62 but since she's four and a half years older, she's going to be able to collect more than half of his social security check. It's kind of complicated but anyhow, we showed all that to them and they were like, so you're going to have 38 grand a year starting in a year and a half and that 38 grand a year comes without touching this 900 and some odd thousand dollars and then that's not enough for them.

She had told me they need about five grand a month after taxes so they mean they need to take home five grand a month and if you have your social security and just some more but not a lot more, you could really get into almost a zero tax situation. So we got three buckets. So the answer to that was in any one of these three buckets, when you make withdrawals, it creates taxable income. So the first bucket has 300 grand in it right from the beginning and it's a totally flexible account, invested very conservatively and we can withdraw whatever we want by the month and obviously, we won't be able to get away with that very long because if you start drawing out five grand a month and then you'd pay some taxes but if you'd start doing that, you're going to run out of money pretty soon but that's why we have this in buckets. So that's bucket number one is for the short term the next five years. Bucket number two is the annuity where we put is 340 grand that we're sticking in there and that is going to produce starting in the sixth year a $24,000 guaranteed income, 2,000 a month as long as either one of them is alive and if one of them dies at 74 and the other one lives to 97, it doesn't matter. That check's coming in all the way to 97.

So she loved that. Then the third bucket is an annuity that doesn't have an income rider. It kind of has one but it doesn't have any charge for the income rider. So it's an accumulation annuity and it's really just designed to protect your principal. So it's not going to go backwards and then it has the potential for upside and it'll get some upside most every year but it's not as much as you'd make in the stock market because the insurance company is guaranteeing you won't lose any of your principal. So that's kind of an oversimplification but that thing is just going to sit out there in bucket number three and just grow and grow and grow and grow and then we can do all kinds of things with that money down the road and we may not have to. So with the summary that I showed them is if he retires now, well actually in about six months, that his bucket number one by the end of the five years is going to be down to about 160,000. So he's still got effectively a slush fund that's just sitting there that he can make withdrawals from or they can make withdrawals from when needed. If he waits till the start of social security a year and a half to retire then that original 300,000 is only going to be down to like 224,000. So bucket number one is just a managed account that has risk in it but it's over the short term and you can afford to lose a little bit of that because you got these guarantees in bucket number two and bucket number three. That was so simple once I explained a little complicated for Tom to put it together but just wow.

I mean it just. And then I love you know the bucket number three concept is like whoa we've done good now we're 75. We want to go on a year-long cruise right or they do something else where they can turn on income in that bucket number three. They can use it for any number of things. Well I mean inflation might get a hold of them. Another thing that could happen is one of them could die and one of the social security checks can go away. The 2,000 a month isn't going to go away from bucket number two but they could have a need for income and we can create that out of bucket number three. I mean it has an income benefit in there. It's not as sweet and there's risk because they're not charging for it but the simplest way to do that is going to be which is just making withdrawals from it according to a schedule but that's a good problem to have. So they've got a cushion in bucket number one because there's going to be a balance in there forever and then you know bucket number three is just all about having a balance and they may have to start to make some minimum withdrawals at 72.

I mean they weren't worried about that for nothing and they didn't need all the details because they knew that I'm on top of it. You know not to mention long-term care that that might be needed out of bucket number three you've got. Well actually bucket number two that 2,000 a month if they need long-term care doubles. That just comes along with the package yeah.

So if either one of them needs long-term care they can invoke the doubler and the 2,000 a month becomes 4,000 a month. Yeah I mean that's just I forget to mention some of those things. I didn't even tell them that because it was just once you start branching out too much. Yeah I mean I'll go over that by the time they're done they'll know they have it but when we were into the explaining part of this I was with hands in the air we didn't have any screen. I mean I'm on the phone I've still not met these folks face to face I'm gonna meet them.

You know I'm just talking just like I'm talking to you all I got my hands drawn buckets up in the air. So but it but just to go back to just a normal person right I mean not a normal yeah not that just these people are normal but they're not sophisticated people. They're sitting there with an IRA or whatever or 401k that's got $400,000 in it they're looking at ways to have long-term income that like man that income doubler deal is I hadn't heard I've never even heard of that. That's just well and actually we structure things like that when we have people with illnesses so they can't buy long-term care insurance we can use these type of products and we got them from a bunch of companies because there's no health underwriting for that. So if we have somebody that has MS or ALS or they have or they have cancer and it's too recent and you know but they want to get long-term care insurance we might write regular long-term care insurance on the healthy spouse and then we might take the assets and put them in one of these annuities not take the income and then we're gonna throw the assets at the at the person who's ill and then the assets just grow and we can turn on income and we can all kinds of options but if they do need long-term care we could wait to withdraw from that annuity until that person needs long-term care and then it's immediately doubled. It's a way to write long-term care insurance on somebody who couldn't qualify health-wise. Yeah that's such good news and it just makes me just kind of go man how neat is it for these folks that were sitting there worrying right they had almost a million dollars and yet they were thinking like like so many of us that you know I'm not gonna have enough you know what's enough what's you know and and God provided a way not only to secure what their needs were for the rest of their lives but also you know even their long-term care and whatever and and it's just it's got we're gonna do more with them than with the buckets because buckets can do all kinds of things but what I needed to do was simplify the explanation and then build some trust because these people just kind of feel like the system's against them the whole time I'm kind of gently pointing out well you're doing pretty good I mean you just wound it up with almost a million bucks I could get into the story of how they got there but whatever they're there and now I am the system okay and I'm gonna try to simplify and what they really realized is now they got an ally okay and what I was telling you coming in is that these are the people God wants me to help okay I mean it just he's doing back-breaking work you can just tell he's worn out I talked to him like three times yesterday trying to call the institution and on the phone and you just he he's ready he he's ready to just tend to his small farm she's ready for him to be home I mean look they got all this money they're you know even if they had half this much I would have been able to do the same thing you know or thirds but what they're going away with is they just don't have to worry about this anymore they're going to get their five thousand dollars a month after taxes they can retire when they want and they can just mix these things around and live happily ever after by this one token you know you you had a cpa and with his doctorate and all that stuff same kind of thing different situation but needed income for life he's who I made the video about and that was only part of his money and incidentally it was just the same amount of income it seems like two thousand dollars a month to a couple extra on top of their social security seems to be a popular number that people like to shoot for it it's also twenty four thousand dollars a year of taxable income to go along with your social security so it keeps you it keeps you it keeps you it keeps you pretty close to that no tax situation but he was the same thing but you know you watched my video on that I have a whole video series on youtube if you just look for cardinal advisors or hans shile on youtube you can find a whole lot of this stuff up there and I showed robbie preppin for the show that video and it was more logical than the buckets I mean it got into a little more detail is showing a little bit of a spreadsheet on the board but we were just talking about that is this this guy is a cpa he's a phd and he teaches managerial accounting and has for like 40 years at florida state and he watched my youtube and then I didn't make this video for him I made this video about him and about his situation and we're just taking part of his money and guaranteeing an income for life that starts in like four years so it's a much more logical deal so income for life of course you know it's one of the seven worries which is there in hans's book the complete cardinal guide to planning for and living in retirement finishing well is is really I like much better because you know that's just what we want to be able to to provide for our families and provide you know something to our grandchildren provide for god and you know it's a beautiful thing so thank you so much great show hans yeah thank you don't forget cardinalguide.com 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 this is the truth network