Share This Episode
Finishing Well Hans Scheil Logo

Single Premium Immediate Annuities

Finishing Well / Hans Scheil
The Truth Network Radio
February 10, 2024 8:30 am

Single Premium Immediate Annuities

Finishing Well / Hans Scheil

On-Demand Podcasts NEW!

This broadcaster has 308 podcast archives available on-demand.

Broadcaster's Links

Keep up-to-date with this broadcaster on social media and their website.


February 10, 2024 8:30 am

Robby is back again this week with Tom Griffith for a brand new episode! This week's discussion is about single premium immediate annuities. 

Don’t forget to get your copy of “The Complete Cardinal Guide to Planning for and Living in Retirement” on Amazon or on CardinalGuide.com for free!

You can contact Hans and Cardinal by emailing hans@cardinalguide.com or calling 919-535-8261. Learn more at CardinalGuide.com. Find us on YouTube: Cardinal Advisors.

YOU MIGHT ALSO LIKE
Finishing Well
Hans Scheil
Faith And Finance
Rob West
Faith And Finance
Rob West
Faith And Finance
Rob West
Planning Matters Radio
Peter Richon

Hi, I'm Joanne Vichner, Memaw with It's Storytime Memaw, an answered prayer for stories that point children to God on the Truth Network for kids. Your chosen Truth Network Podcast is starting in just a few seconds. Enjoy it, share it, but most of all, thank you for listening to the Truth Podcast Network.

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. Oh, welcome to Finishing Well with certified financial planner today, Tom Griffith.

And how fun today. It seems like a mouthful, but I think you're going to love it. Single premium immediate annuity. And so for those of you who have listened to the show many times, you would know that an annuity is not unlike social security, that it's money that you keep getting paid on after you make some type of deposit.

And it pays you for some period of time, and it can pay you for life. Well, as I was thinking about this idea of a single premium, meaning you're making one payment, and then you're getting paid back for that immediately from the time that you originally make the deposit. Well, when you think about it, what Jesus' death on the cross literally was a single premium immediate annuity. For those of us who accept that grace, who accept that gift that he gave us, immediately we receive eternal life. And even when you say the Lord's Prayer, if you think about it, it says, give us this day our daily bread, right? And so immediately we get access to Jesus, which he is, right, the bread of life. And so in communion, we take that bread and his flesh. In other words, we are getting that kind of forgiveness, and we're getting that kind of bread through his word every day and that kind of thing. And then it says, forgive us our sins as we forgive those who sin against us. Well, that was the deposit that he made for our forgiveness, his blood.

And so still in communion with him, as we receive his forgiveness, we get an opportunity to forgive others as well, that we might receive that again, part of that an immediate annuity that Jesus paid. But getting back to what we're actually talking about today, Tom, as far as how this can help you in retirement, a single premium immediate annuity. Yeah.

No, I love the comparison there. But I think one thing that it's helpful to define is, let's take this long phrase, and oftentimes you'll see it abbreviated as SPEA, or single premium immediate annuity. And let's just talk real quickly about each piece of that. So single premium is this is a one-time transfer. As you're moving money, a chunk of money from your IRA or your bank account or wherever it is, over to the insurance company as a one-time.

And the immediate part is this income starts right away. And so that's, this is one specific type of an annuity. There are lots of types of annuities out there all doing different things. But I think it's helpful to define what this type is, because this is, all annuities are just a tool.

And if you're using the wrong tool for the, or you have a job and you're using the wrong tool for it, it's not going to work well. But when we have specific things we're trying to accomplish, and this is the right tool for it, it can work wonders within the plan. And so what we're going to do on today's show here is we're going to walk through three examples of how this specific type of annuity, we use it in our practice to help clients reach their ultimate goals, which is just a stream of income that they need to meet sort of what they have there. So the first one, and this is one that we're selling a lot of these days, is what we're going to call the social security delay annuity. And so these are for the people who come in, they maybe have just retired at 65, they've listened to our other shows and are on board of wanting to delay social security, but they have this pot of money, but they don't really know how to use that and turn it into an income. I mean, that's just, they've already viewed that as an asset, it's growing, I save, I put money there, and it's invested, and now I have this pot, but how do I start getting money out? And so what this does is you can take a single transfer, and all of these examples we've just solved for a monthly income of $1,000. If that's all you need, it would take this money, this much money.

If you need more than that, like say you need 2,000, you could just double these, and these numbers could change a little bit depending on when we run the quotes. So just know it might not work exactly this way, but in this example is it would take a single premium of $55,000 as a one-time transfer, and you get a monthly income for $1,000 a month guaranteed for five years. And so on the social security delay one is it pays for five years, and then it's done. It's over, there is no lifetime piece to it, but really what it's done is it's gotten you the income you need to allow you to delay social security, and now if you start this at 65, this payment stops right when you're turning 70, and you've maximized your social security. It's really more of a behavioral way where people feel like, okay, I have this paycheck coming in, I have a future paycheck from social security, and it's just mentally they can sort of get over having to draw down, say, their IRA balance.

And so this works great. Again, the numbers can be different. Sometimes you need more, sometimes you need less, and so if you're interested, call us and we can look at that. Yeah, and it's a huge issue really for those who return in 65, and if they have retired, right, and they're not at their full retirement age, which at this point in time is almost 67 years old, then there's a huge difference between what your social security amount will be right before you're at full retirement, or even if you can wait till 70. And so when you run your social security statement, you can see the difference in those numbers, and by using some of the IRA money that you have, especially if you've got a Roth, you know, that's even better, then you postpone, and when you do the math on like, wow, I invested this, but I got this much back, it can really, like you said, it's a tool to way exceed the interest that you would have made if the money just sat there on deposit somewhere, right, Tom? Exactly, so I mean on one hand, social security, let's look at social security for a second, is between your full retirement age and age 70, is your benefit grows by 8% a year every year you delay it.

And so if we have a bank account that was paying a guaranteed 8% a year, we would have a line out the door of people signing up. Well, you have that available to you through social security by delaying that, and so by getting this annuity and pulling down some of the money that you're, say, is in your IRA, is you allow this other pot of money, social security, to continue to grow by 8% a year, and so we're getting some interest from the annuity, I could calculate that for you, we're also getting the growth from social security, and plus, you know, when we look at social security, especially if we have a couple, especially on the higher earner, so if we have one couple who's earned more than the other spouse, delaying that higher check is not only good for their lives while they're still alive, but it will also be around for whenever the first spouse passes away. So it really just sets up their sort of financial plan, the long-term plan for success by having that higher check, and this annuity is one tool, one way to be able to get there. One other point I will just make on income, I heard someone say this recently and I thought it made some sense, is income in retirement becomes more important than the amount of money, than the assets you have.

The assets are important, I mean, mostly for the reason for how much income they can produce, and so, you know, yes, you have this money, it's saved up, it's done well, but now you have to figure out how to get money out. The annuity is just a very efficient way to do that, and it's guaranteed where you don't have to worry about market fluctuations or a big stock market crash or like a COVID type event happening where the markets have gone down pretty significantly. And it seems like you guys use, and again, we're going to talk about several different kind of single premium immediate annuities, but this particular tool is something you use pretty commonly. We use a lot, and it's really because we have, we've really convinced people that delaying Social Security is wise, and we don't always recommend everyone delay Social Security. So, you know, don't take this as blanket advice for everybody, it's specific to the situation, but in a lot of cases, it makes sense to delay Social Security. So now we have the other problem is, okay, if I'm delaying Social Security, I need income to live off of because the bills haven't gone away, I still need to, you know, pay my mortgage or pay for groceries or whatever it might be. And so this is something we can do, and we do a lot of to really set up that income in the short term while we're delaying Social Security. Right, and I actually, you know, kind of had the opposite thing happen to that, you know, when I turned 68, which I already was at full retirement age, I had two daughters decide to get married in the same year, which, you know, I wanted to pay for their weddings, and literally was going to have to go into debt to do that, but when I looked at, wow, if I go into this debt, I'm going to pay more than 8% interest on the debt that it makes sense to go ahead and take, if I could get the two weddings paid for with my Social Security in the first year, it made sense for me.

So I went the other way. But it was based on just realizing that that 8% was not going to be overcome by debt, right? Yeah, I mean, I think that's a great example of a scenario where you might want to take it earlier, Social Security. And so again, it's not everyone should delay it. And this isn't our blanket advice.

And we have a lot of people who recommend go ahead and take it. But again, if you have the resources, you have the money and you're able to, delaying makes sense. And so let's get into sort of the second example of how we can use a single premium immediate annuity. And we're going to call this like the inherited IRA annuity thing.

And so we did a show last week where we talked about, you know, what type of beneficiary are you? You know, and one of the things is if you're in that group of people, the non eligible designated beneficiaries, which is most people, so I don't want to go back through that again. But if you have to distribute your IRA over a 10 year period of time, it has to be out. Well, you can set up a single premium immediate annuity to pay for 10 years, and then be done. And then so it's paid out. And then it's emptied by the end of the 10th year, there is no more payments.

So you satisfied the IRS requirements, you satisfied the income that you need, and you spread out the taxes evenly over those 10 years, where you're not getting hit all in one single year with a big tax hit. And so it's easy, it's a way to sort of just take the inherited IRA, set it, forget it, you get a monthly check, you know, you've satisfied all the rules, you don't have to worry about investment performance, you don't have to worry about missing any RMDs, you don't have to worry about any of that. It is very simple, very clean. Again, not for everybody.

But it's a very straightforward way to handle when you inherit an IRA. Wow, that's like genius. As I was sitting there thinking about, yeah, absolutely.

You know, because that would really be a burden to me, like, Oh, my gosh, I got to figure out, you know, how to do this. I got to look at the taxes here. Yeah, that's, that's great.

Well, we've got to go to a break. So we want to remind you that we are brought to you by, you know, Finishing Well is brought to you by cardinalguide.com. So if you go to cardinalguide.com, you're going to see the Seven Worries tab. And so the, the tab that we are talking about here today is income.

And so I know for a lot of folks in retirement, income is a gigantic worry, you want to make sure you don't run out. And so there's all sorts of resources there at that particular tab, including the show notes for today's show, which is again, single premium. I already forgot, let's see single premium, immediate annuity. There you go. I like the word you used.

What was it called? Spita? A Spia. A Spia.

Sounds like some kind of sweetener, which it kind of would be if you had it coming in. And so, you know, again, at cardinalguide.com, you're going to also find the contact information for Tom and Hans. And of course, Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement.

And so we'll be right back with a whole lot more of this Spia. 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 we are talking about single premium, immediate annuities and Spia? You got it. All right. Well, eventually we'll get it. But anyway, you know, this is one of those topics that I just think, you know, what an amazing tool to really take away one of those seven worries, which is that of income.

Absolutely. I mean, I think it's important to know, like when we're doing this, we're not blanketly just recommending this for everybody with all their money, right? This has been, we think this out, it's a thoughtful process to come up with the right amount and then the right plan. But it solves an issue of, and really one of the biggest concerns we see with people coming into our business is the worry of running out of money. I mean, if you really ask most retirees, they're retiring, what worries you the most?

I mean, you might come up with several answers, but if you start counting them up, the number one answer you're going to get is running out of money and living too long and running out of money. And the annuity solves that issue is you get a check, especially the first two we talked about were just for a set period of time. But this next one we're going to talk about is lifetime income. And we have other shows where we've talked about lifetime income on annuities.

But what that does is just solve the issue of you potentially running out of money and just knowing that you've got this check coming in for as long as you live. And I think one thing that I think we need to talk about a little bit is just a lot of times when you bring up the word annuity, you sort of get this reaction from people of like, I don't like annuities, I heard they're bad or whatever it might be. And it's really kind of interesting to me, because the people love pensions, if they have a pension, they're really proud of it.

They love getting that check each month. But they hate annuities. It's like, well, wait a minute, especially these type of annuities that are designed to pay an income are just a type of a pension. Social Security is a type of an annuity. I mean, it's just it's another way to set up a stream of income. And a lot of the pensions that are still out there behind the scenes are buying annuities to support the pension. So, you know, it's just I think it's helpful to talk about that. And there are certainly types of annuities out there that are not right for most of our clients. And so I don't want to say that all annuities are great. But when these type of ones and we're doing them thoughtfully, intentionally, can really help solve a lot of the problems from an income standpoint. And so let's sort of talk about this third speed.

We're going to quiz Robbie on that here at the end to get that term down. But this next one is a lifetime SPEA. So you put the money in a single premium, and it pays for the rest of your life. And so this is what most people think when they think of an annuity, is you give you put the money there, you get a check, and it goes on indefinitely. And so this one, the first two, it did not matter your age, because it's paying for a set number of years, and then it's done. This next one does matter how old you are, because the insurance companies are looking at how long they have to pay out for you, and it's based off life expectancy and all that. And so in this example, we ran it on a couple, so husband and wife, that are both 65 years old. And so if you're younger, it will pay less.

If you're older, it will pay more. And we've also put what's called a 20-year certain on it. So joint and survivor, life payment with a 20-year period certain.

So that's a lot of words that I just put in there. But if I just summarize that, is it will pay for as long as either one of you are alive. And if both of you die before 20 years has been met, it will continue paying out until it's reached that 20-year mark. So if me and my wife, Chelsea, bought this, and both were in a car accident 10 years into the payments, our kids would continue to get checks for the next 10 years. So the total of 20 years get paid out. So you at least know somebody's going to get a check for the 20 years.

And so again, like we did on the other examples, as we solve for a monthly income of $1,000 a month, again, this is on a joint couple, it would take $182,929 as a single premium to fund $1,000 a month for the rest of your life, rest of both of your lives. And so again, this solves that risk or that worry of running out. If you know you have this check coming in, you wouldn't want to do this with all of your money. This would just be with the portion of the money you have saved. But you know, you add this to your social security, you add this to some of your other savings, some of the interest you're getting off things, it can really help be useful to build an income plan out, sort of for the rest of your retirement.

Yeah, you know, I would love one. I mean, what a cool way to just set it up and go, okay, well, you know, and again, when I've looked at my own plan for my wife, etc, when I'm gone, you know, one of the biggest, most wonderful things is the social security, which is an annuity. In other words, there's a set amount of money that she is going to get for, you know, until she's gone.

And, and, and to have that in other ways coming in, in the same stream is like, man, it just takes away the word. Absolutely. And so let's see sort of the rest of the show today to talk a little bit about sort of running through an example of how what we might do for a client who comes in, you know, a typical financial plan that we work with is, again, one of the main concerns they have is income. So we kind of start there, you know, we're helping with social security, we're helping with Medicare, we're helping with the investments, we're doing all of these different pieces. But first and foremost, we need to make sure they have the income set up to last for the rest of their lives.

I mean, that's, that's the most important thing that we're doing for them. And so let's run through sort of a case study, if you will, where we have a couple coming in, they're both 65, and they're just retiring. So they're, we're helping them with Medicare, they have all this IRA, 401k money they saved up. And they're really trying to think about, you know, when should we take social security, because that's what most people default to, is I retire, and I take social security right away, because that's, they know they can go there to get a source of income. And so a lot of times, we'll ask them on the way in sort of what is their thoughts on social security, because we want to kind of know where they are from day one, because we don't, you know, someone is really firmly on, you know, I'm taking it now, and I don't want to hear anything else is we will work around that we can build a plan around that we don't have to wait.

But if they're open to listening, we might recommend they wait till 70. And we can show them how to get the income from that social security replacement SPEA, or pay for the five years to get them to age 70 to delay it. So we sort of built that in, and we get them the income they need, we might solve for replacing their social security check with the same amount from the SPEA. So we take a chunk of their IRA, set it aside, draw that down over the five years, so it is being spent. But what that then gets us to do is get the higher check at age 70, let us go on into the future on those checks.

So we've we set that up, and we've really solved their income from that standpoint. Now let's fast forward a couple years, and then one of their parents passes away. You know, they had this, and they had some IRA money too, and they leave, you know, we're going to use the example we did in the show to make this easy on myself, but they they had an IRA worth $97,000 that they had, and they leave it to, you know, the husband who's 60, or now he'd be say 67. And so he falls under these rules where he now has to distribute that inherited IRA over a 10-year period of time. Well, they're off enjoying retirement, they're traveling, they don't want to worry about the investments, they don't want to worry about making sure they make the right amount, they don't want to worry about trying to structure their taxes where it's sort of even every year. So he comes to us, and we might put him in this inherited IRA, single premium immediate annuity, where we're guaranteed to have it paid out by the 10 years. We have it set up where the taxes are withheld from the check, so it covers the taxes on those distributions, and we meet the IRS requirements of the 10-year window, and he doesn't have to worry about it. So now he sets it up, and he's getting another $1,000 a month of income for the next 10 years. And so now they can go enjoy retirement even more. And so I think that would be an example there. And then we have sort of this last, I'm going to use a different couple here, where they come in, and maybe they started Social Security before they met us.

Maybe they retired early, they started at 62, and they've sort of just been living off their money, but don't really have a real plan of how to draw it down efficiently, is we might look at that lifetime SPEA, a single premium immediate annuity, where now we can create another $1,000 a month of income to go on top of their Social Security checks to really get them the income they need to live on for the rest of their lives. And so those are just sort of real quick examples that you might find yourself in one of these situations where we might use one of these tools to really get you the income that you need. Yeah, I love the idea of the tools, because it's like trying to use a Phillips head screwdriver when you need just a regular screwdriver. You tear up everything by using the wrong tool. And so all these financial tools in the right hands is like a good mechanic or a good surgeon, right?

You put the wrong saw in his hand, and he ain't going to make too good an incision. And that's the beauty of you guys' experience with working so many different scenarios, right? Oh, sure. I mean, because I think that's exactly right. Annuity is just a tool, as is traditional investments, as is everything else, right?

I mean, it needs to have a purpose. It needs to be solving an issue. And if you're trying to use the wrong tool to solve a problem, that's not going to work well. You're going to end up leaving sort of unhappy or feeling like you could have done better. And so again, this isn't right for everybody.

The amounts are different for everybody. And maybe you don't need extra income. And if you don't need any extra income, then this isn't what you need, right? For you, you might want to be looking at some tax planning, because assuming you have this IRA, you don't need extra money off of it. That's great.

You've done well. You've lived well within your means. Well, now we need to come up with a tax strategy of how to wind the taxes in those accounts down so you leave your kids in a better position. Or if you're trying to build this money up to leave to the church or whatever charity you want, maybe we don't do any Roth conversions. We want to leave it there, let it grow, continue to grow tax defer.

And then ultimately, if it's going to the church, they don't pay taxes, and everyone benefits in that scenario. So when we start from a planning standpoint, is we want to sit down and we want to listen to what your goals are first. That's the first thing we start off with, because everyone is different. And again, we want to listen and to Robby, your point, and maybe you made this on the last show, but you know about the prayer is like, you know, we have two ears and one mouth.

And so we want to listen first is we want to listen to, you know, what the clients are saying, what they're worried about, what concerns they have. And then we have sort of this toolbox of things we can use to do it. Today's was talking about a specific type of tool, it might not be right for you.

And we would never recommend someone put all their money in something like this, because we need to leave some money outside of this. But again, if it works well for you, if you find yourself in one of these situations, this could be a really good solution. Darrell Bock Oh, absolutely. And again, I, you know, it's like so many things that, you know, I love doing this show, I've learned so much, and I know our listeners have learned so much. So thank you, Tom, again, for your time.

And we want to remind you, as always, that the show is brought to you by cardinal guide.com, the cardinal guide.com, the cardinal guide.com, you go find the seven worries tab. And they're like, this would be a good time to ask me about the SPEA. Tom Scott I was gonna quiz you, Robbie.

So you know, what's the abbreviation? Darrell Bock I know it's S P. It must be SPEA. Tom Scott You got it.

Darrell Bock I got it. All right. So yeah, they're the seven worries tab, you're gonna see income in there, they're gonna talk about SPEA's, but also, they can have show notes for what we talked today and all sorts of great ideas for, for ways to, you know, create a worry free situation with your income. And again, one of my favorite things at the website, of course, how to contact Tom, how to contact Hans, and it's all there at cardinal guide.com.

Of course, if you want the full book, you can get Cardinal, I mean, Hans' complete cardinal guide to planning for and living in retirement. Well, as always, Tom, it's been so much fun. Thank you. Tom Scott Thank you.

Darrell Bock God bless. The opinions expressed by Hans Schile 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.
Whisper: medium.en / 2024-02-10 10:33:28 / 2024-02-10 10:46:05 / 13

Get The Truth Mobile App and Listen to your Favorite Station Anytime