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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, welcome to Finishing Well, with certified financial planner, Hans Scheil, and today's show, and you're going to love it, guaranteed income for life, which means that you now have a license to spend. Like, that's an interesting concept, right?
And boy, you're going to enjoy us talking about that. But as I was listening to the video that's along these same lines, they talked about why they did that video, and this idea of a license to spend. And I couldn't help but think, but it's also a license to give. It's a license to tithe, right? That once we begin to see that, oh my goodness, you know, we're not necessarily in control of our financial outcome.
God is, right? And he said, trust me in this, and, you know, see that I don't give you more than you can possibly give out. In other words, you can't outgive God. And so interestingly, I think that the reason people don't spend in some cases when they have very, very large balances is because of fear. And that whole idea of I've got to hoard this money keeps us from tithing, which, again, is not a healthy place God is telling you. And so I think that through this show, I feel like Hans is going to give you some real wisdom.
I really know he's going to give you some wisdom on how you can both spend and tithe and really end up with a whole lot fuller life, right Hans? Well, it's true. And we have people come into us or the Zoom or in person, you know, and they hire us to do financial planning for them, retirement planning. Most of them are in their 60s, around 65. Some of them are in their 70s.
But, you know, they come and they're sitting across the table or they're across the table on the Zoom. And we get to know these people. And when we're taking them in as a client, and we're doing the discovery meeting, and we're kind of learning what they want and what they have and kind of where they're going when they're going to retire, and we're planning things out, and then we have them give us their budget or their amount that they want to spend or they're going to spend.
And we base that on, we have a little exercise, we go through that. And many people that come into us, we just categorize them as savers. I mean, they just, they have way more money than they need in their retirement to spend at their given level.
Okay. And they're hiring us to make sure they're going to be okay. And it's kind of like I can sit there in the beginning meeting and say, you don't really need to pass money, you folks are going to be okay. I mean, and we're going to show you a whole bunch of things you can do to make yourself more okay, and to pay less taxes over time and to do a whole bunch of things. But if you just get right down to it, these savers, they live on, so they're like living on their social security checks. And maybe a small pension or maybe a pension and they got social security checks and all this retirement savings. You know, I'm asking, what's it for? And I'll shut up and boy, some people are like, they have trouble answering that question. What's all this money for?
And so I don't, we have other videos on that. I want to kind of get into these are the savers. And if you want to reverse that and call them under spenders, they're not really under spenders, though, because they don't have a desire to spend more. Typically, you really got to pull that on them.
They're just fine on what they have. So, you know, Tom and I have just been talking about this trouble by this, we have a lot of people, we come back to them in the financial plan, say, you know, you really could give more, you could spend more, you could give some to your kids selectively. You folks have a lot of options in front of you. And so Tom came across this research paper from David Blanchett and Michael Finca, that is actually in the video in the show notes, the the summary of the research study. And what it really says is that people that buy annuities, income annuities, where they're getting a check every month, and they know that check isn't going to stop until they're deceased. If it's on a couple, they know that even the survivor is going to still get the check until the second of two dies. And so the great thing about a check coming in and, you know, October is there's going to be another one in November and December and so on. So and so what these guys have figured out in their research is people in retirement that have retirement savings that shift a portion into annuities that send them a check every month tend to spend more, which is a good thing for people that are underspending and they're not able to really utilize their resources and their money to to enjoy themselves. And tithe as well, right?
Yeah. Well, and you know, you, you brought that into the discussion, because I hadn't really thought about their tithing of these underspenders. But, you know, if they're leaving all this money growing tax deferred, they're probably at the very least not tithing on it, because it's just kind of there. And they're not paying taxes on it. And they're just tithing on their social security income or whatever it is.
And, and I'm sure there's many people that are too afraid to tithe because they think that they need to hoard the money in case something bad happens or, you know, whatever. So what I'm thinking, which you brought out, Robbie is, is that a person that sets up an income annuity for a couple or for a single, and they know that every month, there's going to be another check next month, and the next month and the next month, they have a license to spend from month to month that money they get a check for. And keep in mind, we're only talking about part of your money here. So we're not talking about putting your whole savings into this income annuity, we're just talking about some of it. And then you're just going to get a check guaranteed for life.
Yeah, it's a dream, right? You know you're not going to run out of money. Here, here it's coming. And so, like I said, it also gives you that license to tithe from a standpoint of, you know, I know I'm going to get this much next month too, and it's going to just keep coming. And the great news is, as you keep giving, believe me, God is going to make sure that he can get it to you.
He'll get it through, when he can get it through you, he will get it to you, is what they say. Well, yeah, and this annuity that's coming in, it's just like your paycheck was when you were working. And, but you know, this one isn't going to stop till you're deceased. And so that's a great source of money to do your tithe. This check comes every month. And you could tithe for other money out of this. And then I want to keep in mind, keep point, that when we have other money in an IRA, and we're going to, when you get to be 70 and a half, we're going to do our tithing through a QCD. And so, and we're going to get a tax benefit out of it where we weren't before.
So you know, what I want to do before the break is I just want to go over the two examples that we had in the video. So we just took a round number like $500,000 of retirement savings on a couple who are both age 65. And we left the money there. And we, we started drawing immediately $3,090 a month. And that $3,090 a month or $37,000 a year is guaranteed for the life of both people. Okay.
I mean, it's just I'm oversimplifying it. But you've just with $500,000 on a couple, both age 65, we can set up a $3,000 a month plus income that you're going to get a check every month for the rest of your life. Now, just as an example, that amount is 7.42% of the amount that you put in there.
Okay. Now that's not really an interest rate. That's a distribution rate. So but it's 7.42% of the 500,000 is guaranteed to the both of you, as long as just one of you is alive. So if you lived up one of you lives up into your 90s, it's going to be one of the great investments that you made. You know, I got right here on the video board. If one of you lives to 95, your 500,000 is going to pay back over time 1,112,000.
That's hard to beat. Yeah, especially when it's giving you a check 30 days after you sent it there. Now on a single, the 500,000 is going to produce 7.92% or almost 8% of a distribution rate is 3,300 monthly.
And that's going to continue as long as you're alive. So and I want to point out that the unused cash balance, if you would meet an early death is going to go to your beneficiaries. So they're just going to wind down the 500,000 and pay interest on it.
And then wind it down through these payments. And when it gets to zero, you still keep getting checks. But if you die before it gets to zero, then whatever's left in this thing is going to go to your beneficiaries.
That's a question that people always have. And so and I use 500,000 because it's a round number. I mean, you could take half of it, you could double it.
We have people do all sorts of numbers on these things. And since I must, and I guess you can answer this question, is that when that goes to your beneficiaries, is it tax free? Or is that if it's coming out of an IRA, it's not?
Right. So if it's coming out of a traditional IRA, well, it's whatever the 500,000 that went in is, if that's a traditional IRA, well, then it's going to be taxable when it goes to the beneficiaries. If it was a Roth IRA, then it's not going to be taxable. And your beneficiaries are going to have to distribute it.
If it was used, you use non-qualified or not IRA money, the 500,000, then a portion of it is going to be taxable, a small portion, a large portion of it is going to be tax free. Well, we're going to take this moment to remind you that this show was brought to you by Cardinal Guide, cardinalguide.com. And there you're going to find the Seven Worries tab. And today's show, of course, is under income, guaranteed income for life.
And so beautifully, there's a video along these lines and the whole idea of a license to spend, which shows you the research that Hans was talking about, and all these examples. It's all there on this video under the income tab at the Seven Worries, as well as, of course, the contact information, because, again, they're using round numbers. Yours may be completely different. And your situation, whether that's, again, qualified, non-qualified money, all that requires explanation for me.
So I wouldn't be surprised if it does for you too. It's easier to just dial 1-800-HANS, right? Or go to the contact information at cardinalguide.com, as well as Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement, amazing book. It's all there at cardinalguide.com.
Of course, we'll be right back with a whole lot more on the guaranteed income for life, a license to spend. 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, as Certified Financial Planner Hans Scheil and today's show is Guaranteed Income for Life, a license to spend and a license to tithe.
And so Hans, the video's got some amazing bullet points, all sorts of information. Yeah, I mean, one of the challenges in our work really is to help people spend some of their principal. It almost sounds like it goes against what financial planners stand for. The traditional one is that, you know, we're supposed to help you accumulate money and accumulate wealth. And when you get into retirement planning, we do decumulation, you know, so we help people spend their money over their retirement and enjoy it. But yet we want to be sure that they don't ever run out of money.
And this whole first part of the video, we gave you a couple examples, but we were just trying to use general numbers to give you an idea as you're taking a hunk of money. And you're sending it to, in this case, two insurance companies, because there's one for the first five years, and then the one for the sixth year, for the rest of your life, for either a couple or one person. And it just sets up a check that you're going to, you're going to start getting a check 30 days later. And then you're going to get that same check until both of you are deceased. If you're in a couple and for a single person, you're going to get that check until you die. And an example, we talked a little bit about what if I met an early death? Well, then you know, the principle that's left in the annuity, so that if that happened quickly, after you buy something like this, most of the money is going to end up going to your beneficiaries. So that is what we were talking about. And with the whole idea that people are going to be more inclined, clients are going to be more inclined, you will be more inclined to enjoy your money, a certain amount of it every month, if you know that a check's coming in next month and the next month.
So in the video, we went through several points that we made. Number one is we use these, for these savers, if we catch them before they start Social Security, we're going to want to delay Social Security, as long as we can, as long as makes sense, you get essentially 8% interest on leaving your Social Security check with the government to your 70. And sometimes the smaller earning spouse we started earlier than 70. But in any case, we just want to make that point, these people that are under spending, we're going to pull that money out of the IRA to live and take advantage of the 8% we can get from Social Security. We talked about annuitizing some of your savings. And that's the whole concept here is we're not talking about using all of it. But if you took the safe part of your portfolio, the amount that's not invested in stocks, that would be more in fixed income securities.
If we took that portion for many people, that's 40, 50, 60%. And we shifted it over to annuities that offer really better guarantees than bonds. So you're not going to have, you're going to have the safety aspect, but they have the ability to start an income and pay you a check every month, just like a paycheck. And it's going to, they also provide the guarantee that it's never going to stop until you're deceased. So it alleviates the fear of running out of money.
Yeah. Which is still, I've always loved the idea. And I didn't really, you know, until I started doing this show, have any idea what the word annuity even meant. And the more I've heard about it, the more I love the idea and, you know, Social Security itself is kind of, you know, like that idea of like, man, here comes a check, here comes a check, here comes a check. And what I did not realize, you know, was going to be such a gigantic part of life after age 65 or 66 and eight months or 70, depending on when you take your Social Security, is huge. And to have an annuity on top of that, oh man.
Well, yeah. And it just, the older you get, the harder it is to stomach the ups and downs of the market. And so you let the insurance company, you know, bear that risk, and you just know you're going to get a check every month. Or you have a smaller of your pot is at risk and you know that your money you spend and that you set up to spend isn't at risk in the market. So now some of the other things we found in this study and reading it is that the people who have significant savings, they tend to understand the most. So it's those it's those of you that have accumulated a lot, you're going to be have a tendency to significantly underspend.
That's really what you want to do. We're fine, we'll help you do that as effectively and tax efficiently as we can. But when you really talk to these people, and you can show them a safe way to do it, most of them would enjoy spending a little bit more with a little encouragement. So the reasons for underspending that people give is they want to leave an inheritance, and which is very noble. And but I'm going to tell you also is if you're significantly underspending, a lot of your kids who probably have your grandkids, or they have kids themselves, they probably would like some of the money now.
And and you know, you get into some of these annuities, you could once a year, you know, shift a little money to them as a gift, where you can watch them enjoy it while your grandkids are small. So and there's also the number two reason was a lot of people are, you know, just uncertainty. They're just, they don't know what's going to happen in the future, so that we're going to spend nothing, or next to nothing just to prepare for all contingencies. And I know that, you know, where you were talking earlier, Robbie, you just had mentioned that we think we have an amount of control, or we can control or manage these things in the future, but it's really God that's in control.
He could take it all away from you in a second. Yeah, I can think about so many examples of that in my life where I used to worry about things that really, as I look back now, decisions I really agonized over, in hindsight, wow, it was all based on fear. And fear is really what leads to worry. And this is, you know, one of the beautiful things of, you know, what you teach on here is to remove the fear and allow you the license, in other words, to do what really God meant for you to do, which is live bountifully for him.
Well, sure. And then they talk about unknown life expectancy, which is a very valid concern. I mean, the only one that knows how long you're going to live is God. You shift some of your money into an annuity, a life annuity, then you just remove that really financial concern, because you're going to get a check every month as long as you're alive. The study also found that people in general, they have a general dislike of spending down wealth.
I mean, there's just a general dislike of that. It's like you've accumulated, and you've accumulated, and you've accumulated, and now you're retired. And, you know, we all have a finite number of years, but they get real finite when we're, you know, when you're yours and my age, you're just looking forward, it's only going to be so many years. And if you're retired, you just have a general dislike of chipping away at your retirement savings. So we're an annuity with a part of your money, we'll just give you that license to spend and license to tithe.
Understanding, you know, increases with, you know, underspending actually increases with age. So the older people get the less inclined they are to spend any of their money. annuitization is the longevity risk and market downturns. I mean, annuitization mitigates the risk of how long you're going to live.
It also mitigates the risk of the markets up and downs, which which a lot of people really are thankful for that once they start one of these income annuities going. Retiree spending does not track to full inflation. So, you know, when you when you watch people and you watch a whole group of retirees, they tend to increase their spending over time.
But it doesn't track fully to inflation. And then the final point that I wanted to make really on this whole business of the retiree spending is, you know, there's, there's three categories of time is the people in their 60s and early 70s that retire, they're going to have the go go years, they want to go travel, they want to go see their grandkids, they want to take up a hobby, maybe several hobbies, they're going to be going and going and going and going. And then next are the slow go years. And the slow go years, you're going to spend less. And it's just the slow go, you just don't really want to travel as much anymore or any at all.
Maybe you're just slowing down. Maybe it's a little harder to travel. The expense of it just kills you. And when you go from the go go years to the slow go, you're going to spend less than the slow go years.
And then the third place that we go is the no go years. This is, this is when long-term care you're spending for other things is going to go down even more because when you're not moving around and going places and doing things, you're spending less money, but where you're going to be really spending money is on long-term care or paying people to take care of you. And that's where long-term care insurance comes in. Right. And the other thing that I think must be attractive at this point is the juncture is that as interest rates have gone up, this makes annuities a lot more attractive, right?
Well, it does. Very much so. I mean, the payouts on these things or the interest that's credited is significantly higher than it was three years ago when interest rates were the, you know, the Fed was about zero and five years ago and it just, so higher interest rates, you know, are bad for consumers, but they're great for insurance companies and the insurance companies increase the payouts on the new annuities. They can increase the payouts on the annuities that were already enforced because the assets were invested best at those lower rates. So we've gotten to a point now where interest rates, you know, in my opinion, are really at their peak. They've raised them and raised them and raised them to try to get inflation under control. And now they're starting to talk about and they're going to lower them as the Fed is. And I think it's going to be significant over time. So if there's ever a time to sit down and take advantage of this, it's probably now. This is that if we want to sit down and talk about this, because we can lock in some pretty good values for people.
That's what I thought. So again, you want to do that by going to CardinalGuide, cardinalguide.com, and there you're going to see the Seven Worries tab and today's show is under the Income tab along with that video. And of course the Contact Hans information, which sounds like, you know, the time is now. Don't hesitate to do that. It's all at cardinalguide.com as well as Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement. Great show, Hans.
Thank you and God bless 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.
