Money Ladder Strategies

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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. 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.

And we had a really, really fun show for you. I love the title of it, Money Ladder Strategies. So wow, I mean, who wouldn't want a money ladder? But along those lines, you know, it's not that it's not a biblical process, right? We got certified financial planner Hans Scheil with us today. And Hans, you know, the first place we find a ladder in the Bible's really in Genesis, right?

It is. And so everybody, I think, or most of us have heard of Jacob's ladder. And you may recall that Jesus even made reference that ladder that, you know, Nathaniel would see even greater things, the Son of Man going up and down this ladder. So, you know, the idea of the ladder is it's a beautiful thing when you know the Hebrew behind it. So when you look in the Hebrew alphabet, there's a letter, it's the vav is the is the name of that letter. And that letter looks like a ladder to an extent, it's just a straight line up and down. And so beautifully, it's illustrated for us in the 119 Psalm, there's eight verses on every letter, every Hebrew letter.

And so I don't know if you've ever looked at this. But if you if you like studying the Psalms, you know, check out the 41st through the 49th verse of the 119 Psalm, and they're all about this letter. And you will see the idea of the vav in all these verses. And the idea is to be a continuation or the word and and so every verse of that section starts out with and and continually forever and ever.

And you see this thing. And when you look at Jacob's life, you know, he's considered to be from the Hebrew standpoint, or the Jews, the way they teach this, their sages, that he was considered the greatest of the matriarchs, because his generations, you know, when you looked at Abraham, he batted 50-50 with his kids, you know, you got Isaac and Ishmael, right? And when you look at Jacob, I mean, when you look at Isaac, he had, you know, Esau and Jacob, again, a 50-50 thing as far as the people that followed God on in the generations. But when you got to Jacob, there were 12 boys, and they all stayed in God, even into Egypt, and eventually, obviously, into the Promised Land. And so, you know, as we are looking at investing our money, and doing money laddering, which we're going to get into, you know, I'm sure that's intriguing to you, it's intriguing to me. The idea is that, wow, a part of this strategy is for our family to continue on into God and, and for the kingdom to continue to continue to be built forever and ever, as King David explains in that Psalm. So, Hans, this ladder, it just keeps on giving and giving, doesn't it?

Well, it does. What we're talking about here is the ladder piece of it is purchasing five different $20,000 annuities, term annuities, and five different ones that adds up to a place to put $100,000 over five years, six years, seven years, and longer, and to earn an average rate of, what I'm looking here at the sheet, 2.68%, which isn't like yippee. And what I just know from the financial planning I do, and dealing with people that are turning 65, there are many people, clients, that have $50,000, $80,000, $120,000, and much more in just an interest-bearing account at the bank or at the stock brokerage inside, you know, the IRA or the 401k. People have significant money that's just sitting at an interest rate like I get at the credit union, and it's been there because interest rates are so low, it's like, why should I tie this money up in something if I'm only going to get a little bit more? So this is some sort of new phenomenon that we're talking about, and we've been using these things that are actually called MYGA, M-Y-G-A, a multi-year guaranteed annuity, and this is about the simplest financial product that we sell in the insurance business, and this is very much like a CD, and the most popular one that we sell is a five-year, and we sold lots of these millions, $100,000, $200,000 or more, and $50,000 at a time, it's paying 3.15%. You say, well that's not much, but when you compare it to the bank, because it is guaranteed, there's no fees on this, a lot of people have bought these, and a year ago, a year and a half ago at the beginning of the coronavirus, this was paying 4%, so it's down from there, and interest rates are just extremely low, so this type of product is a way for people to get more interest on money that they're not wanting to put at risk and get into the stock market. Based on what happened as corona crashed the market, a lot of folks took their money out of their investments within their IRA, and it's just sitting there in cash. People did that, then some people didn't do that, they just wrote it out, and now it's written to all-time highs, just announced the other day, and so there's a lot of people that are all in stocks that are very nervous, and what they want to do is kind of leverage their bet or get out of the market with some of their money. Some of them have already done it, like you spoke about, and if they have the money sitting in cash, they're getting like 0.1%.

I mean, just look on your statement and just see how much the cash is earning in your 401k or in your IRA or your checking account, like I did, and so if the money is already there, these things work for IRAs as well, and the deterrent for this is people say, oh, I don't want to tie my money up for five years, that's why I have it sitting in the checking account, I might need it, or the whole financial landscape may change, and I want to get back into the market. For this particular fella down in Alabama that I ran into, he's the one that I decided to make a show about this. I've been doing these things for years, and that was exactly him. He's got $165,000 in a couple, three banks, and he was really a bit embarrassed about it. I don't think he's told anybody that, other than me. He said, no, don't yell at me or something, and I said, well, I'm not going to yell at you. I got money myself sitting there, these nothing things, and I said, so are you going to need that money? And he says, well, I might, and it goes through, and then he starts listening, wants to buy a truck, he's anticipating retirement. I said, okay, how much is a truck going to cost? He said, well, if I trade my other one in, probably $20,000 more, okay, so there's $20,000. When are you going to buy the truck? He said, I don't know.

I don't really need to replace the older one, but I just thought I'd do that in retirement. I said, what else do you need the money for? And he was really having a hard time coming up with anything. And so then when I proposed this five-year deal at 3.15%, and I said, well, I can put all your money in there, but how about we put $100,000 in there? He said, oh, I don't want to tie my money up for five years. How much is your one-year deal? And I said, well, there is no one-year deal, so let me do some work and get back with you.

And so I worked up this thing that is on my video on YouTube that you can go look at, and I'm just looking at it. And so I took the $100,000 of his 165 and broke it into five parts, $20,000, each. And the first $20,000 comes due in two years, so it's like a two-year CD.

The second one is three years, third one's fourth year, fourth one's five year, fifth one's six year. So this guy is going to have a CD or a MIGA, Multi-Year Guaranteed Annuity, that resembles a CD, maturing every year starting in two years. So in November 2023, he's going to have $20,000 that's available to him, no penalty. Well, it's actually more than $20,000 because you get the interest on it too, right?

Yeah. Well, he's going to get the $20,000 plus he's going to get $869 in accumulated interest, and that's guaranteed. I mean, that's at 2.15%. Now, if he draws it out, he can just get a check for $20,869 and go do with it as he pleases, or he could reinvest it in the stock market, like his 401k, he could buy a truck with it, he could stick it back in the bank at 0.1% interest. I mean, do anything he wants, but what he's probably going to do is then buy a five year CD that'll mature in, well, he's going to do this in 2023 and that'll mature in 2028. So he's going to buy a MIGA. I hate to interrupt, but he's going to buy a five year MIGA, not a CD, right? He's going to buy a five year MIGA, that's correct. And he is going to, I mean, if he chooses, if he really doesn't need the money, because we're going to remember, we're going to have $65,000 off to the side, we're just doing this with the kind of source $100,000. So what most people do with these ladders I set up, when the two years comes around, they just roll it over and buy a five year deal, which he's going to get a higher interest rate. And interest rates may have rebounded in two years.

Who knows? He might get 4% on that. I mean, we'll just look at it at the time. But the important part of this concept is then in November 2024, the three year one is going to come due. And that's going to be 20,000 again, plus 1443 in interest. And that's happening every year 20 grand comes due, it's completely available to him. And what he's probably going to do is just buy another five year one. And so every year, out as long as he lasts, he's just going to have this rolling thing. And after a few years, he's going to have the benefit of the higher interest, because he's rolled the shorter period terms into the longer period terms.

All right. And I know we were at the point where we got to go to a break. But you can see this ladder thing, it goes on and on and on and on. It's an absolutely amazing strategy of maximizing the interest rate and still having complete liquidity. And so these are questions that a lot of people are concerned about risk versus liquidity. And that's all in Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement, which is there available at cardinalguide.com, as well as all these charts on risk and liquidity and all these things that we're talking about today when it comes to your retirement income. And when we come back, we're going to be talking more about this whole money ladder strategy.

Stay tuned. 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 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, certified financial planner, Hans Scheil. In today's show, we're talking about money ladder strategies.

There are so many ways that this idea can be applied and to offering that liquidity idea like you got money available, but at the same time, not just sitting there and not getting any interest at all in your money. Well, yeah, we all feel a responsibility to be good stewards of our money and of God's money. And he's got this 165 grand sitting there, which I'm guessing has been there for years.

And it's just built up a little bit of time. A guy's a good saver. And years ago, he used to make a pretty decent return. He probably had some of it in CDs with getting three or four percent, but he was ashamed of it and really wanted me to do something about it until I started doing something about it. And then he started pushing me back because he likes the fact that he can drive down to the bank and ask for any amount of that. And he can walk out of there with it and do something. But then we talked for a little while and he doesn't need 165 grand.

He just doesn't. So I just went with a simple figure of let's keep 65 grand right where it is and let's take 100 grand and let's get it something where you're going to have some liquidity where you can get it your money or part of it every year and then we can get a more reasonable interest rate. And so we looked at the five-year deal, which is a five-year MIGA, multi-year guaranteed annuity, the simplest product we sell. You just put the money there. It very much resembles a CD, the difference being that it's not FDIC insured, but it is backed up by, you know, a billion-dollar insurance company or a multi-billion-dollar insurance company and the state guarantee association. And they're just writing an agreement that very much resembles a CD paying 3.15 percent. You leave your money here for five years. At the end of the five years, you can have the 20,000 back plus the accumulated interest, no penalties, no fees, no nothing.

We don't charge fees to offer these. And so I showed him the five-year deal. He just didn't like tying up his money that much. So then we went to this whole ladder concept. And I'm showing this to him.

He's all over it. And so the two-year CD is paying 2.15, the three-year is paying 2.35, the four-year 2.6, the five-year 3.15, and the six-year 3.17. And like I said, if any of you want to make this simpler, you can just talk to us about a five-year deal and just plunk down some money. This thing, you're going to get a little less interest, but you're going to have 20,000 come and do every year. You're also going to be, you're not going to be paying taxes on the interest because as long as it's in an annuity and not cashed out, it's tax deferred. And when these things come due, you can just roll it into another five-year deal and you can keep 20,000 come and do 20,000 of the original 100,000 and the five parts come and do every year. You just keep rolling it over and that's what this guy's going to do. So that five or seven years from now, I guess it'd be seven years from now, he's going to have a whole series of five-year MIGAs renewing every year and he won't have paid any taxes on the accumulated interest. So it's just a strategy. And frankly, if interest rates rebound a bit, which they almost have to because they're just as low as I've ever seen them, but who knows?

If they do, then as you're buying these things, when they come due or rolling them over or doing whatever, then you're going to get a little higher interest on them. Now, I love the way that you originally came up with this ladder strategy, which fits perfectly with the whole idea of Jacob's ladder, but was actually helping your mom. Well, yeah. So my dad passed away in 1998. It was always my deal that when he dies, I'm the one in charge of her money and advising her.

So I mean, it was literally right after he died. I had no idea how much money they had, how much was left. And frankly, they didn't have as much left as I thought they did. And they spent a lot of money in his 10 years of retirement. And then my mom lived on 16 years after my dad died. And he had a $100,000 life insurance policy when he died at like 71 or two.

And so I helped get the claim filed and we got the $100,000. And then I looked, they didn't have about 130,000 left in their savings and IRA and investment account, which isn't a lot of money for a 73 year old widow in good health to go along with social security and half of his pension. And so I knew I needed to make this money last. And I knew I wasn't going to invest it in stocks, certainly right away. And so we came out with this laddering concept and I just bought five CDs, a one year, a two year, a three year, a four year and a five year all at once. And then paying varying interest rates with the best being the five year. And then she had 20 grand come due every year at that time. And she did have to pay tax on the interest, but that wasn't a problem because her income was low enough. And so eventually we got that money invested or we spent it on things, but it was just comforting knowing that we didn't have to go break a CD that every year, this time of year, we would have this money available to us.

And so I came up with the concept and I wasn't the first one to think of this, but we did kind of think of it on our own. And we're doing this many years later with these MIGAs or multi-year guaranteed annuities because they're just paying much more significant interest than the banks are able to pay on CD money or that bonds are able to pay and bonds have fees. And how they're able to do that is the insurance company has very little expense in doing these things. And we just write the policy in, or in this case write five policies with four different companies. So that's how we spread it around a little bit.

And we just simply throw them in the drawer or we've got them in the computer and then we manage these things once a year. Yeah. And I love the way that you decided on the different insurance companies just based on their different rates. And so it gave you both the concept of diversification and better rates all at the same time, right?

Well, yeah. And so he's going to get an average of 2.684%. That's the average of these, which totals $11,941 of tax-deferred accumulated interest by the very end of the six years. And providing he's left it in there, that's significant compared to like a few hundred bucks that if he just leaves the money there. Now this isn't for everybody. I mean some people just say, I want to simplify this. You know, I've got a hundred grand sitting there that I know I won't need. It's been sitting there a while. I want that five-year deal at 3.15.

We go for it. Some people, they have the money's in an IRA and they have a bunch of cash in there. Or maybe they have stock investments that are inflated that they've done really well with and they want to make it more conservative. They're just going to go for the five-year deal, some of them, because they're not going to be needing this money. And then sometimes with those people, we plug in a different kind of annuity for part of their money or their safe money and one that would generate an income starting in five years or four years or seven years. I mean there's all kinds of options, but this is a way to manage large amounts of cash and get a decent return and not pay taxes on it. Right, I mean that's pretty impressive when you think about it. Almost $12,000 in interest on money that was essentially just sitting in a checking account doing next to nothing, right? Yep, it is.

He thought that way. And you compare this thing against bonds, which are liquid. I mean if you have a bond fund or we put a lot of our customers are in conservative strategies or portions of conservative strategies and that's basically bonds and we can sell bonds at any time, you know, and we don't have penalties on those. We do have a fee that's going to be on there and or the bond fund. I mean we're going to charge a fee to manage them, but when you stack this thing up against bonds at the low interest rates in the environment, this thing looks pretty good too.

It's all guaranteed. If interest rates go up, you can actually lose principal? Well, let's just say you have a $10,000 bond that is paying 3%.

It's pretty hard to find one, but let's just make the math simple. And you bought it three years ago and you're just collecting your 3% coupon every year. Now that interest rates are so much lower than they were three years ago, that bond is still yielding its 3%, but they've adjusted, the market has adjusted the principal of the bond down from $10,000 to maybe like $9,000. So you're really not getting 3% anymore if you sold it.

You're getting 3% on your original investment, but if you sold it and cashed it in, you know, it's a value that's on your statement is $9,000. So it still says a $10,000 bond and if you hold it till maturity, you're going to get $10,000 back, but maturity might be 10 years from now. So as people are buying and selling, when interest rates go up, bonds and their value go down. Interest rates are low as they can possibly be. The chances of those interest rates going up and creating that situation obviously make, is what you're saying, is that's part of what makes these MIGAs look so attractive.

Well, it does. And then because the insurance company's taken that risk, I mean, this money is put in bonds by the insurance company, but they're taking the risk, okay? The insurance company is, or they're just holding the bonds for a long period of time and managing it and offering these rates to take in new money. So that's their problem, not ours. And there's a lot of people, while interest rates have gone down over the last several years, that have actually made money when they look on their statement on their bonds, because when interest rates go down, the value of your bonds go up because the market adjusts it to a higher value that's yielding a lower interest rate. It's the complete opposite of the way you think.

Yeah, that's what I saw immediately. But unfortunately, time has grabbed us again. You know, again, the idea is that, wow, when it comes to looking at these strategies, you know, you want to be good stewards of your money, and letting it sit there and do nothing when you're not really using it is kind of what the, you know, the guy who had the Mina's that put them in the ground did.

We don't want to be with a gnashing of teeth crowd, and so we'd be thinking about that. You can go to cardinalguide.com, get Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement, as well as contact him, email him with any questions or concerns. He would love to hear from you, as well as don't forget that at Cardinal Advisors on YouTube, there's a video that shows this strategy. Again, it's called Cardinal Advisors.

If you just put that in YouTube, it'll come right up and you can see it. So again, thank you, Hans. Great show. Thank you. Finishing well is a general discussion and education of the issues facing retirees. CardinalGuide.com, Cardinal Advisors, and Hans Schleil 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' bestselling 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.