3 Retirement Income Annuities

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Enjoy it, share it, but most of all, thank you for listening to the Truth Network Podcast. 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, and how fun today's show. I think you're going to see some interesting tools that we want to make available to you, and they are the three retirement income annuities. And interestingly, as I was thinking about these and listening to Hans and Tom in their video just talk about these tools, like, man, I said, you know, that lines up well with that idea of a cunning or a skilled workman in the Bible. When they were making the tabernacle, God spoke time and time again that this would require a skilled workman. And, you know, what they're skilled in is skilled in the use of tools.

And so as I looked at that word, I found interestingly, there were three attributes in the Hebrew word cunning or workman, and I wanted to break those down for you a little bit because I see it completely in these tools that we're going to talk about. So the first one that these skilled workmen would have was a complete commitment or they're totally on your side. In other words, they're united with you and what the overall vision is.

You know, where are we going and how is it headed and who's it going to benefit, right? And not you, not them. So sort of like a fiduciary as we've talked about many times here. And the second attribute that they've had biblically was a passion, right? That they had a passion for these tools, for what the tools could do, and for what it would look like on the other side of what those tools could do. And that, you know, that you can tell when somebody has a passion for the skill that it is that they're doing. And the third thing that they had was a phenomenal understanding, right? That they had experience in the use of them and they knew when to use a hammer, and that's not what you want your surgeon to have, but it may be what you want your bricklayer to have, you know?

In other words, especially if they're good with it. So as we talk about that, I think you're going to see these tools, these three retirement income annuities. They're so cool, the different ways that you can use these annuities and what all this means, Hans. Yeah.

Well, I love the story about building the tabernacle and the skilled craftsman. And I think it applies to this is when we're helping somebody with their retirement, people come to us a lot of times in their early sixties, mid sixties, and they'll come to us around Medicare and they're basically, they don't know much about Medicare and they're looking at that and then social security and long-term care and their IRA and pre-tax money and you just go on and on and on and on. It's a bit like children, like young children that are coming of age and there's a lot they don't know and they're vulnerable and that's kind of the basic early retiree or person coming into the retirement picture. And what today's show is about is really three different tools of many.

We have more than three tools, but that we use, a lot of times we use all three of them with the same client to do different things. And so the three types of annuities that we're talking about is first the single premium immediate annuity, or it's an acronym SPIA, S-P-I-A. And what that does is it's just like it says, you put in a chunk of money and it starts kicking you out an income like next month. The second kind that we're talking about is the fixed indexed annuity with an income rider. And that what that does is it's not going to kick out an income right away. You put in a lump of money and then you wait as long as you can to start the income. But the beauty of that is once the income starts, it doesn't stop until the person insured is deceased.

And that covers two people. So like I have this on my wife and me, and I'm thinking she's going to live longer than I do, but you don't really know that. And those checks that are coming in, we've already started some of these, they're going to come in, the last one's going to come in the month before she dies.

So it's hopefully in her 90s sometime. It's a very useful tool because people are worried about spending their money too quickly and running out of money when they get to old age. And the third tool that we use is the MIGA, or the multi-year guaranteed annuity.

And this is very much like a CD. It's not at a bank, it's at an insurance company. It doesn't have FDIC insurance, but it is backed up by the assets of the insurance company. And many of the companies that we use, most of them are A category companies, either A or A plus, some of them A minus.

And so they have the wherewithal to back up these things. But you're able to earn a significant interest rate, above market rate, and you just pick your term. So it's very much like a CD where you buy one of these for like five years. And in the example on the video we're showing, it pays all five years, 6.15% interest. That rate has already come down because interest rates are kind of topping off. Since we made the video, that rate is now 5.8.

So anyhow, it's fixed. And the people that bought it before the rate went down, they're guaranteed the 6.15 for the five years. So you lock in something that's known. So not really wanting to turn this into a monologue, but just give you an outline of the three types of annuities. And we want to kind of get in to like when and how we use them.

But I want you to react a little bit, Robbie. Yeah, and it shows the complexity to an extent of the tools that we're talking about. Because to me, when I came into doing this show, I had no clue what an annuity was. And then I realized that, oh, well, that's a way that you're going to put money in and you're going to create an income for life, right? And so that's what I had structured all annuities into my brain as.

But here we have three different kinds. Two of them are not that way because the first one, which is what you call SPIA, SPIA, the single premium one, apparently that one, you only get an income for five years, right? Yeah, on that particular version of it that I'm illustrating, you could get an income for life.

It would be a lot less than that on $100,000 going in. But for the purpose of illustration, yes, it stops in five years. Maybe if we got into a little bit of like why we would use a SPIA and where we would use a SPIA with an end date of five years, I think you'd start to understand them a little bit better. Right, which is the whole idea of the show.

Is that Robbie? And all of us get to know. But anyway, I was, as I was just, you know, just the two that I see on here immediately don't show in the examples anyway, an income for life. The MIGA is more of an investment tool. And, you know, that one is paying out over a period of time. And it runs out, am I right? Yeah, at five years, it doesn't really run out.

It just ends. And in five years, you either leave it with the company for another five-year term or three-year term, and you're able to negotiate the interest rate, or at least find out what it is and make the decision. Typically, at the end of the five years with MIGA, the people either take the money or we roll it. And we generally go to a different company because it just seems like a new company is going to offer better rates than the company is to their own customers renewing for the second time.

Okay. It's just kind of how the world works. So if we go back to the SPEA, we're using this so much, this five-year SPEA, is when a person is retiring at 65, or 66, or 67, or 64, and they're going on Medicare, and a lot of them want to take their Social Security now, okay, at 65. And even though they have to give up some, they're retiring because they want that check coming in. They want the security of the check coming in every month. Even when they can look on paper and see that they'd be better off living off of some of their assets, delaying Social Security, and taking it a later date, like 70, and getting much more money for life, and much more money for their widow, and they're going to say, no, I want the check now.

And we hear that out of a lot of people. We come, some people come into us, they've already taken their Social Security just for that reason. They wanted that base income. So where we use this is we sit down with this person, providing they have other assets that they can live off of. They have IRA money, or 401k money, and so this is just showing you how we could create an income out of your IRA money that's going to run out in five years.

And you say, what am I going to do in five years? Well, you'll have your Social Security by then. So it's a way to create an immediate income, and somebody, an insurance company, is sending you a check every month, and it's going to allow you to delay Social Security. So, and in this example, the person puts $100,000 with us, or with the insurance company, and they start paying them out checks of $1,856.57 a month, and they start in the end of 2023, which is now, and the checks keep coming in until the end of 2028.

That's a long time. And the total guaranteed payments, $111,394.20 on the $100,000. So they've only gotten $11,000 worth of interest over the five years. So you're not going to get rich off the interest, but it's a way of providing a guaranteed check. To replace the, and it's also, you know, but correct me if I'm wrong, but it's a way to take IRA money that hasn't been taxed, right? And of course, you're distributing it, so it's going to get taxed, which is necessary to the equation. But what also happens now is by waiting on your Social Security, you're creating a larger tax-free income later on, because your Social Security is larger, and it's not going to be taxed, right?

Well, right. I mean, let's say, for instance, a person had a $3,700 Social Security check that would come to them at 70, if they waited till 70. And they were just ready to take, you know, a $2,800 check now, just foregoing the $3,700 check five years from now.

And the numbers would actually be a little worse than that, but I'm just making them up. So $2,800 a month, and they were ready to take it, but they're able to forego it, or say, I'm not going to take it, because I'm going to take some of my IRA money, like $200,000 of my IRA money, and I'm going to get a $3,700 check, start next month, and that's going to come in every year for five years. So when I get to be 70, and that runs out, my Social Security check kicks in at $3,700. And, you know, it's just a way to move the clock ahead five years and have the people get a check in the mail every month. Yeah, like, and it's tax free forever, where the IRA, you know, is something that you were going to have to figure out how to deal with the taxes on it. And so what a great use of it, to provide yourself with that, you know, income that goes on forever. We want to remind you that the show is brought to you by CardinalGuide.com, where you can find the Seven Worries tab, which today, obviously, we're talking about income. And you can find show notes on the video that they did on the three retirement income annuities, as well as Hans's book and, of course, how to get up with Hans and Tom. It's all there at CardinalGuide.com.

And so we'll be right back with a lot more finishing well. 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. Index or fixed annuities are not designed for short term investments and may be subject to caps, restrictions, fees, and surrender charges, as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.

Please refer to our firm brochure, the ADV 2A, Item 4, for additional information. Welcome back to Finishing Well with certified financial planner, Hans Scheil, and today's show, three retirement income annuities and strategies to go along with those. And we left our hero, we're finishing up the SPEA, the single premium immediate annuity, and we're talking now about the right fixed indexed annuity, which was really the one that just, man, lights up my world.

I love that idea. Well, and so the whole concept in this second annuity is to put the money in, let it sit there for five years and grow, and the insurance company can tell us right now, based upon a certain amount of money, what your annual income is going to be if you start this in the sixth year. It can tell us exactly, and I just want to make reference, when we keep talking about the video that we use to prepare for the show, there's YouTube videos. This one is called three retirement income annuities. It's on YouTube. It's under Cardinal Advisors, and you can go find these after you listen to the show, and you can see the video and get the show notes.

And so we're on the radio, we're trying to go over a bit of a complex subject where we don't have the benefit of a visual aid. A hundred thousand dollars for this same 65 year old person, if they put it in there now, in five years, that hundred thousand will create a seven hundred and eighty three dollar a month income, and that income is for the life of two people. Okay, I ran these based upon a husband and a wife who were 65 years old, both of them, and then once the seven hundred and eighty three bucks a month starts coming in, it continues to come in until the second one of them passes away.

Okay, so if one person lives into their late 80s and 90s, this is going to be the best decision they ever made. So we pair these two annuities together where one starts paying out immediately, and then it stops in five years, and the other one kicks in in the sixth year, and then it continues at the stated amount for life. Now seven hundred and eighty three bucks a month isn't going to get it for most people, but that's why people put two, three, four hundred thousand in this second annuity, pair it with the first one, and this is how they allocate their IRA money to create an income for life. And we try not to use up all of the IRA when we put together these income for life, we just use part of it. Now depending on the size of the IRA, there's going to be money left over that's in there, and you know, what's that for? Well it's for the future, because these things, neither one of them take into account inflation. So you know, we're moving ahead, Social Security takes into account inflation, so we're delaying Social Security, replacing that income, and then creating an income once the Social Security starts through the fixed index annuity, that that income, like Social Security, is going to go on for life.

The only thing is it's not going to get an inflation adjustment. So we need a separate account, and because we're not going to touch the separate account or the leftover money in their IRA, we can invest that money, and we're not as susceptible to, if the markets were to turn bad in year two or year three, we can just kind of hang in there, because we're not going to need that money for, till down the road, a longer five, six, seven, eight years, it increases our time horizon. So we have the people...

I'm sorry, go ahead Hans. I was just going to say, to some extent, since they held on to start their Social Security, and they've got an increase Social Security, this annuity is just there to supplement the Social Security, right? That's all it is. Right, so if they've got the 3,600 and then they put in 200,000, like you talked about, as 1,400 more, that's pretty sizable income per month, and considering they have other assets, and they can live on that kind of money. Sure, and for us, it's a matter of how much do they have, how much do they need. We keep talking about one income and one Social Security check, but part of this presentation is for couples, and so we're going to have two Social Security checks, and we're going to start one at one time, one at another time. We can create immediate income with the SPEA, end that income when the supplemental income or the the fixed indexed annuity and the income rider, we can tailor that to a specified amount, and then we do these in such a way that there's other money that now we have choices with that. We can either invest it, and we can invest it more aggressively than we otherwise would, because we've got our income guaranteed from the bottom up. And this is where the third annuity comes in, is that some people, they're just ready to be done with the risk in the market. Before we get to the third annuity, which I know we're going to get to it, but the other thing that's cool about, and you've always mentioned it, I got it from you about a fixed income annuity, is the idea of continuing to let it bake. Like if you don't need that additional income, maybe on one of those annuities, like you talked about if you had two or three of them, you know, the longer you let them bake, that other income is going to go up and up, or you know, again, you're just raising the income, right? Well that's what happens, is that we're assuming now with this example that this couple or person would need the 783 bucks a month when the other one stops on the 100,000, but if they get to 70 and they think, you know, I can do without that for a year, if they wait a year it becomes $858 a month. And that's for life now. So there becomes an incentive the longer you delay, the more it's going to pay you for life, or pay both of you for life. And so we find and we expect that a number of people will get to the chosen time to start it and they'll say, hey we don't need it now, we're going to delay it and we'll do it year by year, and the longer we wait the more we get for life. And it's an excellent feature that's in there. And it's an option, it's purely your option. So we're just showing the client what they're guaranteed to be able to collect at a given date. That's awesome. Yes. Now we can go on.

I just, you know, the idea of letting it bake always appealed to me. And so the extra money is, this is money we're not going to need for at least five years, maybe longer. And this can be money in an IRA, this could be money that's not in an IRA, that it's in the bank, or it's invested in stocks outside of the IRA, just in a brokerage account.

And we have a lot of clients that just want to reduce their exposure in the market as they get older. And so this MIGA, or the multi-year guaranteed annuity, is a pretty simple thing. This product, it shows $100,000 put in at the beginning of the five years, which is like right now in 2023. And you leave it there for five years, you get paid 6.15% interest.

And as I told you earlier, that's now 5.8 for new customers. You leave the interest there to accumulate. And at the end of the five years, it's going to be $135,109 is your $100,000 is turned into that. And then you also could have the interest paid out monthly.

If you wanted the income starting right now, it'd be $512.50 a month that you'd get a check for every month. And your thing would then be worth $100,000 at the end of the five years. So there's lots of ways to work these. There's also ways to get it the principal without a penalty.

There's all kinds of these things. We write them as long as 10 years. Some people really want to take advantage of these interest rates that are in the 5% range, 5% plus. They can lock it in for 10 years. And I still get 10% of it any year that they want it.

We have people ladder these things. And if you use money in a brokerage account or a CD or money that's in the bank that you're getting interest now and you're paying taxes on, if you put it into one of these MIGAs or multi-year guaranteed annuities, the tax is deferred then. You don't have to pay the tax as it accumulates.

So these work, these MIGAs, all three of these annuities work for both IRA money and not IRA money. We can put either kind of money in there and then the taxation is obviously different. So the other question I know I have on all three, what happens if you die? Okay.

Well, let's go back to the SPEA, the five-year payout deal. If you die, this is on husband and a wife, then the wife is just the beneficiary if it was written on the husband and she just gets the rest of the checks for the five years. But if it's on one person or both of them die, then the beneficiary gets the rest of the checks for the rest of the five years.

Okay. So somebody is going to get the check and the payment. That's on the first one. The second one, the fixed index annuity, again, if the person it's written on dies or if it's written on two people, the husband and the wife, the survivor is going to be looking for that income. So nothing much really happens when the first one of them dies. There's some options there, but let's just make it simple that the other one is going to want to continue this thing and start the income at the appropriate time. But if they both die before all the money is paid out, then the balance in there goes to the beneficiaries. We have this happen all the time where somebody bought one of these things, never took any money out of it. They're waiting to start the income at a future way and they pass away. Then there's a named beneficiary, they get a check.

But they have options, of course. Yeah, unfortunately, we've run out of time again before we ran out of show and I'm sure that's the situation with the MIGA as well that there's going to be a beneficiary and that's going to happen. But again, you've got questions and you want to find out about it, you go to cardinalguide.com and there you're going to see the Seven Worries Tabs. Today's show was on the income and there's a link right there to the Cardinal Advisors YouTube page, but it's Cardinal Guide is how you get to the website, how you contact Hans, get his book, The Complete Cardinal Guide to Planning for and Living in Retirement. Great show Hans, thanks.

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 Whale is designed to provide accurate and authoritative information with regard to the subject covered. 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. We hope you enjoyed Finishing Whale 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 Whale radio show on the website and send us a word. Once again, that's CardinalGuide.com. CardinalGuide.com. This is the Truth Network.