5 Kinds of Annuities for Wealthy Investors

Peter, good to see you.

Welcome back, everyone. Today, we get to talk through five kinds of annuities for wealthy investors. Annuities can provide a guaranteed stream of income in retirement. And while the benefits aren't as significant for high net worth individuals, there are a few that can make sense as part of a comprehensive retirement plan. So one of the top concerns, of course, for most retirees is outliving their money. A longevity annuity can help with that, also known as a QLAC. It can provide some peace of mind.

Can you explain this, please? Yeah, well, as you mentioned, you know, wealthier individuals may not have that same fear of outliving their assets or going broke while they're still alive. But at the same time, wealthy individuals enjoy protection.

They want to have spendable income and they enjoy leverage of their assets. So that's where annuities still may make sense and play a part as part of a complete financial picture. And the longevity annuity contracts or the qualified longevity annuity contracts basically take some money and set it outside of the requirements for RMD. So you predetermine an amount that you're basically saying this is IRA money or 401K money that I otherwise would be required to pull from and withdraw from and pay taxes on starting at RMD age. And you set it off to the side and say, this is no longer going to be counted in that equation, but I am going to promise to start taking income from this account at a certain predetermined time down the road. And generally, there are not beneficiaries on that amount unless the payout mode has been set to pay out for a specific certain number of predetermined years. So one, the all of these, by the way, I'm going to just kind of aside all of these have pros and cons, benefits and disadvantages as every financial decision and choice and vehicle does. So here the potential pro is that you're setting the money outside of the RMD requirements. The potential con is, well, if you never get to that point that you've predetermined down the road, that money is also basically outside of your estate value and would go back to the insurance company. And that is an important thing to know.

All right. Next, let's talk through hybrid long term care annuities, which combine the features of a fixed annuity with a long term care rider. And these annuities have become very popular recently. Why is that?

Yeah. And I think these types of annuities have become popular across the board. I know we're specifically kind of talking about this for higher net worth individuals, but for everyone, I think that there is a concern with making sure that the amount of money that we have when we start retiring lasts for as long as we need it to throughout retirement, longevity protection. And then for everyone equally, it should be a concern of how am I going to address the potential cost of long term care expenses and coverage and protection? And unfortunately, not nearly as many people have actually taken steps to address that, which is why I think these are becoming more and more popular. First off, traditional long term care insurance is exceedingly difficult, is more expensive, can be use it or lose it. So not only has the insurance industry kind of gotten out of or gotten away from that business, making it more difficult to find that kind of insurance policy, but people didn't really find it terribly attractive. It doesn't mean, though, that we are not experiencing long term care needs in higher and higher numbers. Yes, we're living longer than we were a generation or two ago, but that does not mean we are living healthier lifestyles and lifetime. So there is a need for long term care planning.

Everybody should have it. And how these annuities work is if you have set up an annuity to generate for you a baseline of guaranteed lifetime income and then experience some kind of qualifying long term care need, you can't perform two of the six activities of daily living or you're in skilled or nursing care, they will increase the amount of income that you are eligible to receive and will receive for a certain period of time. And that may be for up to five years.

You might be able to be in the comfort of your own home for that period, or it may be only until the money runs out and you are required to be in a nursing or skilled care facility. So the specifics of how this works are actually very important because those distinctions make a big deal to a lot of people. You should understand what the level of protection is. But bottom line, if I've got an account with money in it and I need to take more out of that account, I can do that. I can take more of my money out when I need it the most, which is essentially what this feature allows, is that you've set up a guaranteed lifetime stream of income.

And when you need it the most to cover the cost of care, they are willing to and agree contractually to pay you more. It's just that in any other kind of account, if the balance goes to zero as a result of pulling more money out when you need it the most, that's it. You are out of money. You're out of income. You're out of death benefit. Whereas doing this inside of a guaranteed lifetime income annuity with this health care feature, they will allow you access to more of your money when you need it the most. But if the account balance runs to zero or you expire the period of this protection, then you are still guaranteed ongoing lifetime income. So it just reverts back to the original amount of income.

So it's not comprehensive coverage. It's not going to nearly address all of everything that long term care could cost, but it gives you access to more of your money when you need it the most without the risk of running that well, completely dry for those who are charitably inclined. A charitable gift annuity would also be a great option.

Yeah. And the charitable gift annuity, the donor receives an income, but also receives an immediate tax benefit because they've basically pre gifted the remaining lump sum to the charity, to the church, to the nonprofit of their choice. And while they are still alive from that gift that they've pre given, if income, if interest is generated, they actually get to to receive that along the way. Now, a lot of times that interest is is also donated to that church or organization, but that's kind of the the the the grantor, the owner of this, the person who does it, that's their choice. So they could have a spendable income with some immediate tax benefits from having made the gift. And then when they pass away, their charity actually receives that gift or they can use it as a mechanism to not only have all that happen, but also generate some income that is giftable along the way as well. So it's it's kind of a win, win, win type of situation. And for those who would like to minimize taxes while helping family, good option would be a grantor retained annuity trust. Explain this one, please.

Yeah. So the grantor retained the person who earned the money, who has the money, keeps control of the money, but it's placed in trust. And the next generation or the beneficiaries can receive income from this. Now, the grantor is responsible for paying the estate or the gift taxes on that amount. But the beneficiaries aren't. And when gifts are made, oftentimes that's not the case.

So an example of this is actually the Walton family with Walmarts are pretty famous example. All of the children and next to next and next generation Waltons receive income as a result of the trust that have been set up, which retain all of the original assets that Wal-Mart owns so that the root value is there. There's no estate. There's no gifting because the trust is set up and it doesn't die or pass away.

Those original assets have already had the taxes paid and get retained. But the income along the way is passed on and passed through to this generation's modern beneficiary recipients within their family. And then last, can you explain the benefits, please, of a Medicaid compliant annuity? It basically can serve to help get assets outside the spend down requirements. Again, this is a big one where I'm going to emphasize the point that everything has benefits and disadvantages where you are putting money outside of the requirements to spend them down.

You are generally also setting some firewalls in place that you can't get to those assets if you need them or change your mind. And if you are defaulting to I would rather opt for Medicaid rather than spending my personal assets, you are also opting for, in a large part, the government getting to set your standard and quality of care. So the government's perspective is if you have money, you should pay for your own care. And if not, we've got this fallback here of Medicaid where we'll step in and cover those costs, but we get to determine what level of care you are receiving. And so at a certain point in time, you are required to spend down basically all your assets before the government steps in to make yourself broke. Well, if you've got a spouse or you've got assets that you want to protect, you can protect certain amounts like a healthy spouse at home is allowed to keep the home up to a certain value around $600,000 is allowed to keep one vehicle is allowed to keep about $125,000 in a bank account and a monthly income of up to like $3,030. It's inflation adjusted those numbers every year.

So ballpark, those are the numbers. However, if you've got assets that you want to try to protect, you can put them into this Medicaid protected compliant annuity and basically put them behind a firewall. The caveat is that it is a single premium immediate annuity, which means you can only gift into it once and the payout starts immediately. The state is generally the beneficiary. So if you pass away early, the assets go to the state where they would have gone from spend down requirements anyway, and the income generated from the single premium immediate Medicaid compliant annuity is also a countable asset.

So that's going to be attacked for the spend down reasons anyway. So, you know, I think that there's kind of a benefit and disadvantage that you need to really be aware and talk through on this one to make sure that it is suitable in the right kind of situation. But in my mind, I battle with this one because would I rather spend my money to establish my own level of care or protect the money for beneficiaries down the road?

Because likely if I'm around, it's going to require to be spent anyway. So much to consider, Peter. I'm glad we were able to talk through these options. So clearly it warrants a discussion with a professional. So if somebody would like to have that conversation with you, Peter, how can they get a hold of you?

Yeah, give me a call and we'll go through these when, where, what type and if at all and annuity is appropriate for your situation. Nine one nine three zero zero five eight eight six nine one nine three zero zero five eight eight six is the number to call. You can also visit online. It looks like rich on planning dot com. It's my last name, Roshan Roshan planning dot com.

You can email me Peter at Roshan planning dot com. Annuities are not always evil, nor are they the best thing since sliced bread and always the right tool for all of your money to be in. In fact, I actually will give one universal annuities are generally never the right vehicle for all of your money to be in because they have some liquidity factors.

You need to have some accessible money somewhere else. So just be aware of that as well. All right, Peter, thanks for your time today. Thank you.

Hey, folks, Peter Roshan here with Roshan planning. So glad that you are enjoying the podcast. Planning matters radio. You know, one of the tools that we've put out there that people really seem to appreciate and really are our finding of value is at nine one nine retired dot com. It is your retirement tax bill calculator. If you've got any kind of retirement account, your tax deferred 401K or IRA, this is the website.

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