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Share it. But most of all, thank you for listening to the Truth Network Podcast. Welcome to Finishing Well with Certified Financial Planner, Hans Scheil, and today's show, is a $200,000 annuity 10 years later. And the idea of that is we're looking at all these market fluctuations and those kind of things going on in the stock market. And you might be thinking, man, I need to find a way to lower my risk. But yet I'm looking for things to grow big.
Well, that's kind of why we're choosing this topic today. And then the neat thing is that from my standpoint, when you think about something that starts small and grows really big, you can't help but think of what Jesus said in Matthew 13 about the kingdom of God itself, which starts out as the smallest of seeds, a mustard seed, and then it grows to the largest of gardens, plants, this tree. And so when you think about it is you invest in the kingdom of God, whether that's in your own life by studying and praying and those kind of things, or even cooler when you have a chance to take that and invest in somebody else's life. Oh, my goodness, right, the fruit that that will bear for eternity, the seeds that will continue to grow into lives. I can't imagine a safer, more fruitful investment. And so along those lines, you know, we're hoping to share this idea, which really can shore up your long term income needs, right, Hans?
Well, it can. I mean, that's, that's the thing that faces you when you have this pot of money, in addition to your social security, and all of a sudden, you see that you're going to stop working and the paycheck stops. How are you going to live? And then what if you spend too much in your early years? What if you have some big market losses? Maybe you don't spend enough. And then that doesn't have as much risk with it other than you're risking your lifestyle by being too conservative, because you're afraid to run out of money. I mean, there's all kinds of things going on in retirees minds. And so when we do financial planning, the income planning piece of it is just a big part of it.
And it's just really to get people at ease and comfortable with how they have things set up. So in today's example, what we're showing is just a straw man example here of what if you took $200,000 of your IRA, or your 401k, and you put it in this annuity that and then you waited 10 years to start the income from it. Okay, you don't have to wait 10 years, you could start the income immediately, you could start it in five years, six years, seven years. But in the example we're using today, we're showing a couple, both age 65, that take $200,000 and put it in this annuity that guarantees a future income. And then once the future income starts, it never stops until both of them are deceased. And then we have an example for a single person, age 65, same $200,000, same annuity, but the difference is, we're only ensuring longevity for one life. So they get more, the single person is going to receive more in income for life.
So that's kind of a mouthful. But we chose the $200,000 number, just thinking that it's about 40% of a $500,000 IRA. Or if you want to look at it, typically we have many people come into us with a million dollars of combined IRA money, or 401k money that they haven't paid taxes on yet. And they're very fortunate to have this amount of money. A lot of them are amazed by it.
Many people are scared of it. And a lot of reason that's there is that the stock market has done so well over the last 10, 15 years. And people are nervous about it as well, because they're thinking, what if this all goes down or I lose it all in one year, and when I'm dependent upon it. So risk assessment, and then risk management, asset allocation, those are all things that we do with people when we put together a retirement plan.
So what we're showing you today is just one tool that we have at our disposal. And a lot of people look upon this as a replacement for fixed income, or as a plug for bonds. So in other words, if you had this $500,000, and you were going to take 40% of it and put it in something with a fixed interest rate, like a bond, 40% of that is $200,000. And so if we, you know, if you call us up, and you want us to consider one of these types of annuities, I would encourage you that we're going to do some financial planning with you to make sure that the dollar amount is right. And that also whether this particular annuity would be right for you. Now, what I just want to get down to what the thing is, is you put $200,000 in there, there's a couple both age 65, and then they leave it alone, they don't touch it for 10 years. This thing produces an income of $30,920 a year, or a little over 2500 bucks a month. And that 2500 bucks a month is going to come in, regardless of the amount in the annuity, as long as one of the two people is still alive.
So if one person passes away in their 80s, or their early 80s, and the other one lives to be 98 or 100 or something, this is going to be the best decision they ever made. Right, so it's kind of like, you've used the term over the years that for that first 10 years, right, that $200,000 is essentially just baking, right? It's growing in value so that when you turn the income on, right, which is when you're going to need it after the 10 years, then the cool thing is, is that here this goes for the rest of your life, like Social Security, it doesn't matter if you live to 140, which obviously wouldn't happen. But with that income of $30,000, you know, after seven years at whatever point of turning on that income, you've now overrun what you originally invested, and everything else now is just, you know, extra money, right?
Well, it is. And the $30,920, or 2500 plus bucks a month, dollars per month, behaves once you turn it on a lot like Social Security, it just comes in. And if this is on a couple, it's going to come in at the same amount, no matter if just one of them is alive, no matter how long it's been paying, no matter if the balance and the annuity has gotten down to zero and beyond, it is going to pay the 2500 bucks a month for life of both people. And so sometimes when we offer these people together, we start with the income desired in 10 years, and then work our way backwards to figure out how much they need to put in there.
That's, that's another way to go about this example. But I just want to just give people some numbers, or another way to look at this on a couple, this is more than 15% a year based upon your original deposit. Keep in mind, you've left it there for 10 years untouched, but it's going to yield for life over 15% of the original amount every year.
And for a single person, the same $200,000, same product, same thing will generate $34,160, which is a little bit less than $28.50 a month. But the same thing, that $28.50 a month is going to come on, come in as long as the person's alive. It's just clearly a guarantee coming from an insurance company that really guarantees, at least for this original portion, or this $200,000 portion, you're never going to run out of money.
Right, and there's lots of other factors that are in there, not to complicate matters, but like what happens if while you're trying to let it bake or something, you know, both of you are in a car accident or something? Yeah, I mean, that's the first question that people get is I don't want to sign over $200,000 to this insurance company if I die before it pays me anything or we both die, do we get nothing? And the answer to that is no, is that during the accumulation period, you're going to get your original deposit, or you're not going to get this because you're deceased, but your beneficiaries are, most likely your children, your adult children. They're going to get whatever's in the fund, so if that happened five years out, like in 2029, this $200,000 has grown to $241,000, and the $241,000 would then be paid out to the beneficiaries of the annuity. Okay, now, I mean, what would happen if you, I'm just going to ask some of your questions for you, what if you happened, you left it there the 10 years, you got to 2034, the 10 years are up, and you've got $294,000 sitting in your annuity because that's what it's grown to in 10 years.
The, but you look and you say, well, you know, gee, we're now 75, both of us, and neither one of us are in very good health. We don't think we're going to make it much past 80, and so we're really not all that excited about taking this $2,500 a month income. Well, I mean, first of all, if you're not in good health, you're probably going to need the $2,500 a month in income, so we can just start that, and that'll just wind down your $294,000, and when the second one of you passes away, whatever's left in the account is going to go to your beneficiaries anyhow. And the only way this account is going to get down to zero at collecting the $2,500 a month, if one of you lives, outlives the money that's in it, and the one that outlives the money that's in it is still going to get checks on a zero balance.
I mean, that's where the, now you're into the insurance company's money. So we want to remind you that we're going to go to a break now, but this show is brought to you by Cardinal Guide, cardinalguide.com, and there at Cardinal Guide, you've got the seven worries tabs, and one of those is investments, and so that's what we're talking about today. This annuity is an investment, and so if you go to that, you're going to find a wonderful video that is on the same topic, right? The $200,000 annuity 10 years later, but it's a video, and with that is a board that shows you all these numbers so it's easier to see and watch that, and then there are these show notes that goes into all the charts and graphs of exactly how this particular type of annuity works. And of course, you know, the wonderful thing is at cardinalguide.com, you know, you've got Hans' complete book to, whoa, I can't believe I'll edit this, The Complete Cardinal Guide to Planning for and Living in Retirement. And then there's the Contact Hans page, because again, these annuities are something that can be custom-made based on your needs and, you know, what your income needs are and all those things, what your portfolio might look like, all those require a personal touch, and so he doesn't want to give you the cookie-coater approach. He's got lots of products to figure out which one would be best for you. So contact Hans at cardinalguide.com.
We'll be right back with a whole lot more on the $200,000 annuity 10 years later. 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 Hans Scheil, and today we're talking about a $200,000 annuity 10 years later, the idea of a low-risk but great big-growth idea with an income essentially guaranteed.
And so, Hans? Okay, so what this is, is we put $200,000 in this annuity on the couple who are both age 65. What that $200,000 will do is we let it sit there for 10 years, and starting at the beginning of the 11th year, $30,920 a year of income, or a little over $2,500 a month, and that's paid for the lifetime of both people.
Okay? And meaning that if one of them lives into their 90s, this is going to be one of the best decisions that they ever made. Now, sitting right beside that, we have a $200,000 annuity on a single person, age 65.
It doesn't matter whether it's male or female. And the single person, if they leave the money there 10 years, and then turn on the income, it's $34,160 of annual income. So if they pay that by the month, it's a little bit less than $2,850 a month, a pretty substantial income. Starting at age 75, or when they're turning 76, and that income goes as long as that person is alive. So, and we've covered earlier in the show, if you pass away or both of you pass away, and the married couple, before we ever get any income, there's a cash value to this thing that will be paid out to your beneficiaries. If one or both of you in the married couple situation pass away, shortly after you start the income, the remaining cash value in the policy will be paid out. So it's not like you've put your money on the line, and you have to live a long time to get it back.
You won't be getting it back, but your beneficiaries will, okay? Now, there's some added benefits to this thing, that if we start talking about those in the beginning, we confuse people. But this thing has an enhancement, which is a type of a long-term care benefit. And I want to be clear, this is not long-term care insurance. So this is an added benefit. If you or your spouse, if you buy this thing on a married couple, or on the single policy, if you specifically need long-term care, you need assistance with two of the six activities of daily living, this monthly income that you're eligible for will double, okay?
It'll go to two times. So in other words, the $2,500 a month income will become five grand a month, and it can stay doubled for up to five years. So it's a long-term care or a home health care enhancement benefit.
And in the $34,000 income, or the $2,850 a month, you know, that's like $5,500 a month under the doubled feature. So, I mean, it's a pretty nice thing, and there's no underwriting for this. In other words, people that have some health conditions that prevent them from buying long-term care insurance, they can get this. And if we've got a couple, and one of them is in good enough health to get long-term care insurance, well, then we'll offer them long-term care, and then we'll prepare to use this if the one that's got the poor health needs long-term care.
It's pretty nice. Oh, absolutely. You know, and the thing I think about that is, it's kind of like that tree we talked about, because it's fruit for your family, right? Because long-term care to some extent takes such a load off all the people that would be, you know, taking care of for you down the road. And when you think about it, like when we talked about somebody that lived into their 90s, but let's say that, you know, the last four years of those 90s, you know, oh my goodness, what an investment, and what a thing that it would pay off for your family is incredible.
Oh, yeah. I mean, it is, this is a tool that we use, and many times we are sitting down doing financial planning, and we're not even, we're not going to sit down and individually explain every tool that we're using. We're going to show people the whole financial plan and what their income is, and so many times we work backwards where we're solving for a certain amount of money that people need as a cash flow. And then we come up with that number, and then we work backwards to come up with the number, and this example is $200,000. So say we discovered that this couple needed $2,000 a month, for instance, starting in the 11th year. Well, then we would take that $2,000 a month and work backwards, and we would come up with something like $160,000 or $170,000 that they would put in this thing. So, which brings up the point, well, what about the first 10 years? Well, we're not putting all your money into this thing.
So if it was the $500,000 IRA 401k, that other $300,000 is going to be invested and presumably earning returns, and if you can't afford to take risks with the balance of it, and you can't afford or don't want to pull money out of that, then perhaps we need to be thinking about another type of an annuity that's going to generate an income start now. So this is just for one piece of your money, and it's for people that want longevity and they want to get rid of the risk that they're going to run out of money in their 80s or 90s by spending too much early on or the stock market doing poorly. It takes a lot of those risks off the table. So I'm just trying to explain one tool, and I'll also point out that you don't have to wait 10 years to start the income.
I've just shown this as somewhat of an extreme example. We have many people buy these things, or a couple, both at age 65, and they're going to turn on the income perhaps when one of them is 73, when they're going to face required minimum distributions, they're going to start the income in eight years. And it's going to be less than the 2500 bucks a month, but not substantially less. And you don't have to decide right now when you want to turn on the income. I'll just show an example of turning it on in 10 years. You could start it in two years, you could start it in five years, you could start it every year, you have the option of turning on the income or not. And so we could just put in your financial plan that you're going to start this in 10 years, but you could come to us or we're coming to you at the sixth year and say, okay, it's time to turn on the income. That's the beauty of it, really, is that you got a partnership, from my standpoint, which you guys are my partner in several different aspects of finishing well at this point in time between your Social Security and Medicare and all those things. You got somebody that knows the whole picture, right to help you see and structure that thing.
So that really you're taking care of not just your family, but your you know, the obviously your caregivers, other people that would be concerned your extended family. Well, sure. And so, and I've just been talking about IRA money all along. But this thing is eligible, you could put just regular money in here.
Okay. And you can just take 200,000 of savings or 100,000 of savings, and buy the thing and now you're going to have a portion of the payments, tax free, because they're just returning your own principal to you. And you're going to have tax deferral on the growth of the thing during the 10 years.
So we could get pretty confusing if we start talking about all the different features. I'll also tell you that you could put Roth IRA money in here, and then you'd have a tax free income, you could, you could convert this over the years as this particular company allows in plan Roth conversions inside of a traditional IRA annuity. So if you put this 200,000 all out of your IRA, you could take every year you could take 20,000 of your 200,000 and convert it to a Roth.
And by the time you started the income, the income would be tax free 10 years later. I mean, that's kind of a simple example, but it is pretty sweet. Wow. So yeah, yeah, I think I'm following you. So, and well, I'm looking at the whole thing. So you talked about, you know, your minimum distributions, right?
You got to consider your, what are they called? RMDs, right? Right. Your required minimum distributions.
You're covering that, right? Because as you're, as you're distributing money out of this to your income, does that, I guess that counts towards that? That counts toward your required minimum distributions, but if you don't do it for 10 years, then you're going to have to take your required minimum distribution or RMD out of the other 300,000 that you put somewhere else during age 73, 74 and 75, because you're not taking any money out of this. You're letting it bake for 10 years.
Um, so it gets a little confusing, but that's, that's where we come in is to sit down and advise you with that. And if you converted it to a Roth, there is no required minimum distribution on Roths. And to answer your question, anything coming out of here out of the pre-tax portion does count as a required minimum distribution in RMD. Right. And so it's the, and again, it shows you the beauty of having a partner to help you with, you know, some of these complications, but the, but the beauty of it is that, you know, between the two ideas of, you know, covering your minimum distributions, if you've got the income turned on and converting, you know, to a Roth to make that tax free in the future, you know, you kind of all sorts of interesting benefits, especially when you add the longterm care in there. So it's just like, oh my goodness, what an opportunity.
Yeah. And so I just want to get this in before we wrap up the video and I encourage you to go look at the video and then there's show notes with the illustrations on all these things, but there's a simplified multi-year guaranteed annuity sitting beside this, where you'd put $200,000 in there and you would leave it there for 10 years. And that would accumulate $344,000 more in cash value than either one of these things that we've been talking about. And there's a reason for that is because there's a charge inside of this annuity for all these extra features, mainly the income for life. So it'd make more sense in the video. And what I want to share with you is I wouldn't study this thing too hard.
You just give us a call and we can sit down and see if number one, one of these things would be right for you and then what the right amounts were tailored to your ages. And then we could show you our recommendation. Perfect.
Right. Which is a perfect time to say that show is brought to you by cardinalguide.com. And if you go to cardinalguide.com, you're going to see the seven worries tab. And this video we're talking about is going to be under the investments tab. And again, the title of this show being a $200,000 annuity 10 years later. And of course also the contact information for Hans and Tom it's at cardinalguide.com and Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement. So great show Hans. Thank you and God bless you.
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 complete. 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.
