Well, we’re going to go ahead and get started. My name is Malcolm Horn and we have Kim Kennedy with us. Also, um again, thank you. Thank you for taking time out of the day to attend our webinar regarding an annuities. Today’s going to be very educational. Uh we’re not going to dig into specific companies, products like that. This is today’s webinar is going to be very educational regarding the you know the pros and cons of annuities, the bad, the good and the ugly. Common question that Kim and I get are, are we employed by Allian Credit Union? And yes, we are. We’re part of the retirement investment services division of the credit union. We are located in Denver, Colorado with offices in Lakewood and DTC. Anybody that’s joining from out of state, we do virtual meetings. Also, of course, if you live in Colorado and you’d rather do a virtual meeting, we’re happy to do so. At the end of today’s webinar, we’re going to answer any questions that you might have. So, make sure to put that in the Q&A and chat box. Also, if there’s anything specific that you want to kind of understand regarding annuities, put that in the chat box, too. And we’ll make sure that hopefully we cover all that. But, you know, again, there’s a lot of moving pieces when it comes to annuities. So, we want to make sure we’re answering those over the next week. We already call everybody just to kind of touch base, make sure your questions were answered. Also, we have some upcoming webinars that we want to make sure that you’re aware of. And that’s going to be on Thursday, June 18th. We’re going to be talking about Irma. Irma has to do with Medicare and the amount of income that you make and your Part B and D premiums may increase depending on your income. So, again, we want to make sure you’re aware of this. more and more people are being affected by this and they’re like, “Why is my Medicare much higher than than what they’re saying it is? It’s because of Irma.” We also are going to be talking about tax planning, you know, ultimately showing you and discussing ways to help you reduce what you pay to the government in regards to taxes. So, again, very educational um but very good. Both these are very good topics we like to talk about and we implement when we work with our members, our clients. Um are we are not the only ones that do webinars. There are other financial consultants that do webinars. You can look at the schedule and feel free to attend any of those. We also produce a podcast on various financial topics. Our website has a lot of financial information if you’re looking to learn more about a specific financial topic. So with that, we’re going to pass it off to Kim and she’s going to jump into annuities. Thank you again for attending. Well, thanks Malcolm and welcome everybody. Appreciate you spending a little bit of time with us. So let’s just dive in and uh talk about annuities. So here’s our overview for today. What is an annuity? What are the different types? But I heard they’re bad. How does the taxes work with annuities? What’s in it for them? Do I get a free meal with that? How do I know if the annuity I have is any good? Can I get out of my existing annuity? And who can benefit from annuities? Well, first the definition of what is an annuity is it is simply a contract between you and an insurance company where you contribute money upfront and then receive payments back over a period of time. And you can choose to have those payments come back in a variety of ways, including a lump sum or an income stream that lasts your whole life. Some of the reasons people buy an annuity is they want principal protection. They want a fixed rate of return. You might want long-term growth or long-term growth with some downside market protection. You may be looking for income for life where you’re kind of creating your own pension. Or if you’ve got money in savings that’s nonretirement, you’re just looking for tax deferred growth.
There’s a couple types of annuities. There’s immediate annuities and deferred. So, let’s dig into each of those. An immediate annuity is funded with a single lump sum of money. So, you’re basically handing a pot of money over to the insurance company and in exchange for that, they’re going to give you guaranteed monthly payments. This is an income now strategy. You can choose how to receive that money over a certain time period. Maybe you want it over 5 years or 10 years, 20 years or your lifetime. You can use IRA or nonIRRA money to buy an immediate annuity. There’s also something out there called a QAC. It stands for qualified longevity annuity contract. And this is a way where you can put some of your IRA money into one of these contracts. and it basically defers your required minimum distribution until 85. There’s some catches that go along with that in terms of the growth of the contract and there’s a maximum. The most you can lock away in that type of a contract is 210 grant. Deferred annuities, these are more income oriented as well as accumulation oriented and these come in a couple different flavors. a fixed annuity, fixed indexed, variable, and structured. So, let’s look at these in more detail as well. So, a fixed annuity, think of it kind of like a CD. You’re going to get a guaranteed rate of interest for a specific period of time. Your money is principal protected. The difference between this and a CD is your interest earned is tax deferred until you withdraw the money. Right? If you have a CD at Alliant, you’re getting a $1099 every January and you’re paying tax on the interest that you’re earning on that CD. With a fixed annuity, that’s not the way it works. It’s deferred. There’s no annual fee for a fixed annuity, and you’re able to purchase these with IRA or nonIRRA assets. There may be charges and a tax penalty for early withdrawal. Tax penalty is if you’re pulling money out before 59 and a half, you’re going to get dinged an IRS penalty. And early withdrawal simply means if you bought a five-year fixed annuity and you want to bail after two years, they’re going to charge you a penalty. And just to give you some ideas of rates, I mean, you can see the rate rates of CDs on Alliant website. We’re still under 4%. I’m looking at a three-year fixed annuity, 100 grand or more. We just got some new rates today, 5.05%. A fiveyear is 5.4% and a sevenyear is 5.5%. So all those are $100,000 deposits. So we’ve seen with, you know, the the war causing oil prices to go up and inflation to go up, we’re actually seeing interest rates tick up a little bit. We don’t know how long it’s going to last. Uh, but those are some pretty good rates, especially if you’re a conservative investor for at least some of your money. So, here’s an example. If you just were to say, let’s go all the way down to the bottom on the left, 4%, which is a little low compared to the rates I just told you, but if you put a 100 grand in at 4%, they acrew daily, they compound annually. At the end of the five years, your 100 grand is 121,665. just kind of gives you an idea of uh how it grows. A fixed index annuity, these are usually five, seven, or 10-year contracts. Malcolm and I are generally in the five to sevenyear range. These are also principal protected. So, you are protected from market downturns. You don’t have a stated guaranteed rate of interest like a fixed annuity. You get interest earned based on a market index like the S&P 500. The amount of interest you can earn is capped uh certainly based on the return of the market. So for example, right now the best cap rates we have are 9 and a quarter 9 and a half%. So let’s say you owned it today. They take a snapshot of the S&P 500. You’d wait a whole year on the anniversary. They’ll take a snapshot again. Let’s say the market’s up 12%. You’re capped. You’re only going to get nine and a half or nine and a quarter in my example. Let’s say the second year the market does six. You get six. Let’s say the third year the market’s down 25%. Well, you don’t get any interest that year, but more importantly, you do not lose a penny. So, the concept with a fixed index annuity is you’re willing to accept part of the market gains in exchange for never taking a withdrawal. Same thing. Interest earned is tax deferred. So, you know, if it’s IRA money, obviously it’s always tax deferred. But let’s say you took money out of a savings account or something that was nonretirement. You’re not paying tax on that interest until you withdraw it. No fee on this contract. Unless you decide to add on a special benefit. There are ways where you can turn these type of products into lifetime income streams or you can add an enhanced de death death benefit feature if you’re looking to beef up beef up a death benefit for a beneficiary. Same thing, you can use IRA or nonIRRA money for this type of product. And same thing about, you know, charges, tax penalties, and early withdrawals. That’s kind of consistent. All right, here’s an example of what I just described in the previous slide. Um, so let’s say you can see the market is the dotted line. In year one, the market goes up, you got gains. In year two, the market goes up that you locked in some gains. Year three, the market goes down. You see the dotted line dropping down, but notice your annuity value is staying level. And then at that three-year mark when the market goes down within the fixed index annuity, you do get to reset at that lower index value going into the following year. You don’t have to make it up. You just get to reset, which is really a nice bonus. Uh variable annuities, these are the ones that generate all the bad press and all the negative connotation that annuities are bad. Well, let me tell you why. So the time periods uh 3 to 10 years, I’ve seen some even longer than 10, 12 to 14 years. You do have the ability to invest in multiple stock and bond investments. You do have risk based on the underlying investment that you select. I mean, on the good side, you get all of the upside of whatever those investment options do, but on the downside, you get all of the negative market performance as well. There is a a benefit in there called a death benefit. So, for example, in a variable annuity, if you put in $100,000 and the market tanked and your h 100,000 dropped to 50,000 and you passed away, your beneficiary would get the hundred. So, the way it works is is your beneficiary gets the current value or the original deposit, whatever is greater. And it sounds wonderful, right? But there’s a cost to that. Um, gains are tax deferred until you withdraw. Nothing different there. Several annual fees apply. And those fees apply whether the market’s up or down. And we’re going to talk about fees in a few slides. Again, IRA or nonirra money is fine in this type of a contract. And then there’s something called a structured annuity. Um, and it’s kind of in between. It’s a blend of a fixed index and a variable. These are six-year contracts. You know, the the regulators came in some years ago and standardized a lot of this stuff and uh really focused more on accumulation, but this these are six-year contracts, as I said, a blend of fixed index and variable. You are able to track or invest in market indexes like the S&P 500. So you’re able to get marketlike returns and you do have some downside market risk. However, you can add some protection. Now some of the things now, you know, you might get all of the upside or 90% of the market and 20% protected on the downside. I I’ll show you some examples of that in a minute. Same rules apply. Gains are tax deferred until withdrawn. No fee on this contract either, unless you choose to add an additional benefit such as an income writer or an enhanced death benefit feature, either type of money, IRA or nonIRRA. Okay, so let’s take a look at one of these structured annuities. So they have cap rates just like the fixed index did. Um, so let’s say in example A, the market did eight. So you see that in the teal blue. So you get eight. In example B, let’s say your cap rate is 10. Um, in example B, the market did 12. So you see the blue is above that cap line. Well, you’re going to get credited the cap rate of 10. So you are leaving some of the upside of the market on the table potentially. Now if the market is negative, you may receive a negative uh hit to your account but only when it’s greater than the buffer or the protection level. So let’s look at uh example C. The buffer is in this case let’s say 10%. That means that the insurance company would cover the first 10% in losses before your account had any negative performance. So an example C, let’s say the market was down eight. You see that in blue? Notice you you’re down zero because the account is down less than 8%. So you don’t lose a penny. Now, example D. Let’s say the market’s down 15%. Now the buffer covered the first 10. So in green your account is down five. So a buffer means that the insurance company will cover the first x% in losses. So generally we see those buffers 10 15 20 even 30%. Obviously the more protection on the downside the lower your upside is. There’s also one other strategy within these structured annuities and it’s called participation rate. You know, this slide shows that it’s 130% participation. And what that means is if you pick the six-year option on the S&P at the end of the six years, you’re going to get 100% you’re going to get over 100% of whatever that index does. This slide is saying 130%. Those rates aren’t that high right now. I mean, we’re around 10 105% to 110 depending on the carrier and rates are changing all the time. But in this example, if the index over six years did 60%, so that’s 10% a year, at the end of the six years, you’re actually getting 130% of that. So you would make 78%. So it’s a way to earn more than the index performs. they still have that level of protection, you know, a 10% or 20%. And again, more protection that you choose, the lower the upside is. Also, a lot of these companies now are offering a performance lock feature. Let’s say you purchase this one on the screen and it’s a six-year contract and after five years, the market has just been on fire. or you’ve had a lot of gains, you’re very happy with the performance, you got one more year left. Maybe you’re close to retirement or close to needing the money. You have the ability to lock in those gains and then you can move the money to something that may have a higher downside protection. So, some of these companies allow you to lock once a year, some multiple times a year. There’s one company that offers 24 locks per year. We would never use that many, but it’s nice to know that um you have multiple lock options available. And why is this participation rate strategy important? Well, obviously on the on the positive side, earning more than the index performs is always a good thing, right? We always want more. But what if you’re coming off a negative market? And if you just look at this chart, the top level, if if your account is down 10%, people think, well, I’ll just get 10% the next year and I I’m back to a break even. Well, you actually need 11.2% in that second year to get you back to where you were because you only have you lost 10, so you only have 90% of the money working for you. So, you need 11.2 to break even. And if it’s a big loss, let’s go down to like a 30% loss, you actually need 42.9% the following year just to break even. So it just gives you an idea of how those uh participation rates can be very powerful. So this chart is showing you how annuities fit in with other investments that you may be uh that are more common to you. So starting on the left, lowest risk, cash, money markets, CDs, and then we have fixed annuities and fixed index annuities. And then you see the gray risk line. So any investment to the left of the gray line, your principal or premium deposit is protected. So you don’t have any risk, downside risk to the money that you put in. To the right of the risk line, bonds. bonds have risk. Uh variable annuities, mutual funds, stocks, and if we went further, it would be sector stocks and commodities and crypto and you know, some of the crazy stuff on the far right. What you don’t see on this chart, and I’m going to kind of add it for you, is those structured annuities. And I would say those structured annuities fit between bonds and variable annuities. meaning you have upside you do have some downside risk but there’s that buffer there’s that safety net that you can choose you 10 15 20% so less risk than 100% stocks for sure okay uh I heard annuities are bad right fees that’s usually the most common thing that Malcolm and I hear is well I don’t want to pay all those fees annuities are terrible well Not all annuities have fees. I just gave you several examples of annuities that have no fee. Holding period or the surrender charge, this is the length of time that you need to leave your money in the contract before you can pull it out without a penalty. So, a surrender charge is a penalty if you pull out before the end of the term. And lastly, they’ll keep all the money. Well, that’s not really true. and we’ll we’ll walk through all that. So, let’s take the first one, fees. So, as I mentioned earlier, variable annuities are the ones that give us the bad rap for the fees. So, the first fee you see on on this slide is mortality and expense. We call it the me and fee. Remember that example I told you that variable annuities have this really cool built-in death benefit that you put in 100, the market tanks to 50 and you die and your beneficiary gets 100. Yeah, there’s some built-in insurance there, but it’s not free. You’re paying for that. This says one and a quarter% probably. I would say closer to 1% is what we’re seeing in products today. the subac account fees. Uh I said that you have the ability to invest in multiple stock and bond options. You know, within the same annuity, you might be able to pick a Fidelity fund, a Vanguard fund, a T-roll price fund, and an Invesco fund. So, you’re able to access multiple investments within one platform. Well, that’s not free either. On average, the fee to use those investments is about 1%. Now, an international fund is probably a little higher than 1% and a bond fund is a little lower, but on average, we use 1% for subac account fees. And then writer charges, if you did add the lifetime income or one of those enhanced death benefits, they charge for that, too. So, in this example, the fees could be three and a half% per year. Now, if the market’s up 25% and you only got 22 and a half, right, you’re not going to notice it. But if the market’s down 20 and you’re al now you’re down 23 and a half, you’re going to notice that, right? So, the fee applies whether the market’s up or down.
The holding period, the surrender charge, it’s it’s actually called a CDSC. It’s called a contingent deferred surrender charge. It’s the amount of time you’re required to stay invested in the product before you can walk away with your money without a penalty. Most of them, well, all of them basically have a declining schedule. Meaning, if you bought a five-year product, this is showing that well, if you bailed in the first year, they ding you a 5% penalty. If you bailed in the second year, they’d hold back four. So, and it kind of declines down and once you meet five years, you move it. Well, you know, Malcolm and I work with this all the time. And when we’re building plans or investment strategies for people, we’re clearly not going to put a 100% of somebody’s money in something like this that if they need it, they’re going to have a penalty, right? So, we need to diversify that out. And generally, when we’re building uh proposals for folks, annuities are not the bucket where you’re going to take your money f from. We’re going to have a liquidity bucket or multiple liquidity buckets where you could get money from. Um, holding period, like I said, ranges from three to 15 years. Malcolm and I are generally between three to seven depending on the type of annuity and the need for the client. And even though these things have surrender charges for three, four, three, five, seven years, almost every single company that we work with allows you to take out 10% of the contract value each contract year penaltyfree. So there is some liquidity um in these types of products,
but they’ll keep all my money. That’s another thing we hear often and that’s not true. I mean a deferred annuity equals walk away. Whatever you put, whatever the account is worth minus your withdrawals is what you walk away with. It’s also your death benefit, right? Um and then there’s income products that have lifetime income. If it’s your IRA and you have a spouse, you could set up joint lifetime income. even though it’s your IRA, the money can continue to your spouse. You can set it up for a certain number of years. Some of the companies allow um or have level income, you turn it on at a grand a month, you get that forever. Or increasing income, you start lower, maybe 700 a month, and it increases each year as interest is credited back. So the point is is they don’t keep your money. Your money comes back out in a variety of ways. Let’s talk a little bit about taxes. Now, I’m not talking about IAS. Obviously, anything you invest an IRA money in is tax deferred until you take it out. But let’s talk about let’s say money that’s nonirra. Say you took a 100 grand from the from Alliant, right? You buy a CD over there, you’re getting a 1099. You buy any other type of annuity, you are not getting a 1099. In fact, you are getting triple compounding. You’re getting earnings on your principal. You’re getting earnings on your earnings, right? Most of these things um compound annually. So then your earnings earns money. And then you’re also making earnings on the taxes that you’re not paying. So that’s the triple compounding effect. and and let’s say you bought a three-year fixed annuity and at the end of the three years you didn’t really need the money and you don’t really want to pay the taxes on the interest that you’ve earned through the three years. you can move it to another type of annuity and that process is called a 1035 exchange. And if you were to do that, there’s no tax liability. And to illustrate for you, some of you may be may have heard something similar with investment properties called a 1031 exchange where you owned a rental property and you sold it and you don’t want to pay taxes on the gain. So, you take the proceeds and you invest it into another rental property. um that taxable piece of the gains moves forward. Well, this is the same concept relative to annuities. And if you’re somebody that doesn’t want the tax deferral and you just want to pay taxes on the interest or the earnings each year, just take it out, right? You can do that withdrawal up to 10% a year and that will trigger a 1099 to come your way. So, what’s in it for the insurance company? Well, some of the annuities as I as I mentioned have fees. I mean the CDSC that surrender charge all of them have that. So if somebody does bail before the end of the term then they’re going to keep some percentage of that as the penalty. The me fee that’s that mortality and the expense fee that comes with uh variable annuities. The writers if you add the lifetime income or the enhanced death benefit there’s a fee for that. And then the fees that are on the investments again that’s a variable annuity uh fee only. Uh so yeah they can make they clearly will make money on fees uh depending on the type of annuity you purchase. But the main thing they what’s in it for them is your time, right? Let’s say you bought a five-year fixed annuity of 100 grand and you’re getting 5.4% and you’re not taking it out before the end of the five. They didn’t make any money on your fees, but they had your money for five years. So, they take that money that you invest and they go buy some kind of a corporate bond paying more interest than what they’re paying you, right? So, that’s what’s in it for the insurance company. Now, some of you may get postcards in the mail to come have an a dinner at some expensive steak restaurant and they’re pitching can’t lose products, your money doubles in 10 years. If it sounds too good to be true, it probably is. If it doesn’t pass the smell test, there’s a reason. Um, most of those products have high fees. They have longer surrender periods. These are the 10 to 12 13-year type products and they’re usually paying the advisor a high commission. So, you know, don’t don’t get sucked in because of a stake. Okay? Make sure and if you go to one of these and you get some information and it sounds good, call us. Malcolm and I are happy to walk you through what is really being sold to you at these dinner seminars. Excuse me. Okay. You already have an annuity. Now what? Malcolm and I will do a no obligation review of what you have. We’ll explain what you have. We’ll offer recommendations. Annuities have changed a bunch over the last 10 years. all the regulators came in and they’re trying to um revise them and reduce fees and shorten surrender periods with they’re placing a much higher emphasis on accumulation products meaning how do you earn money more than just turn on an income stream. So it’s like maybe safe accumulation, those kinds of things. Fees have been very much reduced and in some cases to zero. And if you have an investment and it has income and you’ve sat on it for 15 years, um you know, maybe it makes sense to turn it on. You know, you’re paying for that income. And we run into people and and some that were our clients that were 15 years ago based on their financial situation, it made sense that they thought they were going to need lifetime income. And then we get 10 years down the road and their job changed or their financial situation changed or they inherited money and they really don’t need that income anymore. And maybe it did make sense to reposition that money out of a product that you’re paying for a benefit that you no longer need. So, but if you do need it, maybe it makes sense to turn it on because you’re paying for it. And depending on what you have, it may be an option for you to move it somewhere else through that 1035 exchange process, not take a tax hit in making the move, and you might be able to reduce the costs and fees, increase the benefits, get a higher rate of return or upside potential, or more protection on the downside. So, it’s really just that costbenefit analysis of does it make sense to keep what I have and kind of do the pros and cons of that versus what’s available in the marketplace today. So, who can benefit from these types of products? Well, are you looking for tax deferral? So, I have have a client that some years ago he uh and his wife were selling a farm and they were going to be in a huge tax bracket year selling the farm. Then the second year they were going to sell the farm equipment. So, another big tax year. And then the third year they were going to sell the crops from the farm. So he was looking for ways to make his income as low as possible for the next handful of years while he went through this transition process. So we put as much as we could in kind of a laddered approach of you know three year, five year, sevenyear so that he could pay tax on that interest down the road when he was in a lower tax bracket. Maybe it’s you’re going to sell a business and you’re going to take a big tax hit. Maybe you’re in your high earning years and if you’ve accumulated a bunch of money at Alliance and the the taxes on the interest you’re earning is is pushing you to a higher tax bracket. Those are some ideas, too. Higher fixed rates, like I said, the credit union CD rates, I think the one-year CD is 3.99. I think it’s right around 4%. I didn’t look it up before the webinar. Sorry about that. But as I said, we have a three-year fixed annuity that’s 505, a fiveyear that’s 5.4, and a seven-year that’s 5.5. So if you believe that interest rates are high because of inflation and increased oil, and you believe they will come down, maybe it makes sense to lock in some of your money at a higher rate for longer. Again, this assumes that you don’t need it or don’t need more than 10% of it per year. Um, growth potential with some downside. Maybe you’re getting close to retirement or you’re transitioning into retirement and you want to be in the market, but you don’t want to be 100% exposed to the downside of the market. This is where those structured annuities can come in where you can say, “Yeah, I might get all the upside of the S&P, but I also have a safety net of about, you know, 10 or 20% depending on the option that you select.” Guaranteed income. If you’re if you need um you know your own personal pension to kind of cover your your needs in retirement or you don’t have that much saved and having a fixed income that comes in for the rest of your life or you and your spouse’s life, maybe that makes sense. Death benefit. Now, this doesn’t come up too often, but a couple situations where it has come up. I had a client that um was diagnosed with a really rare lung disease and he wanted to take some of his money and add the biggest death benefit to it to it he could. His life expectancy was like two to four years. He wanted to ratchet it up so he could pass on as much money as possible to his two daughters. And we did that. We went out and found the one that had the biggest death benefits. and he did pass away in about three years and therefore we passed on um more money to his daughters. The other situation that Malcolm and I see with death benefits is just people are saying I am never going to use this money or all this money and they may take a chunk of money and just try to ratchet up that death benefit for no other purpose than for their beneficiaries. And are you looking to avoid probate? All annuities have beneficiary designations. No different than your 401k, right? You put a beneficiary on the annuities and any account that has a beneficiary on it avoids probate, which is always good. You don’t want to pay the courts and the lawyers to go through all that process. So, is an annuity right for you? We know they’re not right for everybody, but they can be a valuable part of a diversified portfolio. Not only if you need guaranteed income, but think about that. If you’re somebody that does need guaranteed income, how do you know? Well, what if you don’t have a pension? You all you have is social security and that’s not enough to cover your basic living expenses. Wouldn’t it be nice to take a chunk of what you’ve saved and create enough guaranteed income coming in that you could pay all your essential bills and not have to worry about the market going up and down? Also, and this is a question we hear often, um, or a concern I should say, if you think you might live a long time and you could potentially outlive your savings, that might be, um, a concern. All of these companies that we work with that provide lifetime income, once you turn that income on, it generally goes to zero in about 12 to 14 years. But once your account has gone to zero, the insurance company is still on the hook for paying you that check for as long as you live. So if you live to 103 and your account’s been zero for 20 years, they’re still cutting you that check each month. And then lastly, if you want to reduce risk on part of your portfolio or protect fully part of your portfolio, these make sense. There’s ways you can do it with no fee. That also makes sense. Okay. Fact versus fiction. Well, they’re too expensive. Well, I’ve shown you several options that are well, this says low cost, but I’m going to say no cost options available. They have hidden fees. Well, again, the regulators came in and requires fees to be made transparent. Malcolm and I are looking to build relationships with people that are going to last, you know, decades down the road. We’re not going to go sideways over a fee. We’re going to explain all of that. um they have high commissions. Again, most of that has been reduced. Um however, you know, feel free to ask Malcolm and I. We’re happy to share with you what we get paid. But the most important thing that you need to understand about commissions with annuities is they’re not paid out of your money. I mean, if you invest a hundred grand, a hundred grand goes to work. the commission that comes to us or our our back office comes from the insurance company. And you might ask, well, how can they do that? Well, they know that they’re going to have the money for five years and for example, and they also know that so they’re okay in fronting that commission knowing that they’re going to be compensated. And they also know if you bail early, they’re going to res receive a penalty. So, um I can’t touch all that money. Well, as I mentioned, nearly all the annuity companies allow you to withdraw some amount of money during that surrender period, and it’s it’s typically 10% per year penaltyfree. Every now and then, there’s a company that might p a higher rate if it’s 5% or they might p a higher rate if you have to and you might have to wait till the second year before you can take that out. Uh, they’re too confusing. Yes, there’s a lot of things out there, but that’s where Malcolm and I come in and figure out what’s appropriate for your needs. Are you looking for income? Are you looking to just have some of your money at risk and some not? Um, that’s our job. That’s that’s why we’re here to help. So, what we offer folks is we call it a discovery session. It’s basically a complimentary retirement plan or financial plan. And I’m going to run through a quick example with some annuity income to give you an idea of how this works. So this is uh Richard and Deborah. They’re 62. He’s going to work till 67. He’s got some health issues. He thinks he might only live till 85. Deborah wants to retire a little earlier at 65 and she thinks she might live till 95. They each are contributing contributing the maximum to their 401ks. Each of their employers is matching them at 3%. They’re each making about 150 a year. And Richard’s social security, if he turns it on at age 67, is just under 41,000 a year. And Deborah is planning to turn hers on early at 65 in conjunction with when she plans to retire. And you can see it’s a it’s almost 35,000 a year. And Richard has a little pension. So he’s got some money coming from that about 9500 a year. Expenses. So living expenses. These are the basics, right? Food, clothing, gas, utilities, cell phone, internet, uh all the basics to run your household. They want 90 grand a year in their pocket to cover their spending. Food, out to eat, all that. We’re going to put an inflation factor on that. We know everything costs more each year. In addition to that, um we’ve got some health care expenses for them and we’re going to use a different higher rate of inflation for health care. We know those costs go up faster than others. And then travel. They want to do some traveling in the early years of their retirement. Maybe not until they’re, you know, 85 and 95, but they want to frontload their retire retirement with some travel. Uh, our software pulls in the actual IRS tax tables. We can pull in any state taxes and utilize that in your model. So, here’s the cash flow. And basically what you’re looking at, if you see that red line that goes across the screen, those are their expenses that we just went through. And how we’re going to cover those expenses is determined by the color in the bar. So you can see on the far left um they’re at that t teal blue is their salary. So you know for the first three years both of them are working. You can see that the salaries far exceed their planned expenses. After three years Deborah retires. So now we’re down to Richard’s income. But she turns on her social security. That’s the navy blue. Then a couple years later Richard retires. Now there’s no more salary. Social Security is the dark blue. Richard turns on his pension. That’s the mint green. And the yellow means that they need to withdraw money from some of their investments to shore up what they plan on spending. Then you go out about six or seven years and you see some orange and that is required minimum distribution. So our system is calculating that. Uh we help our clients manage that. Um, and if it works exactly like this, and it probably won’t be exact, but if it did, and Deborah made it to age 95, at that point, she would still have about $583,000 left in her portfolio. Now, this is saying that the probability of success is about 74%. So, let’s dig into that. Um, the expense coverage, total expenses are covered at about 49%. essential expenses at 59%. So that’s the basics, right? And we want those to be covered maybe at a higher level just because we don’t want you to pay your energy bill based on what the market does. So what if they repositioned a portion of their assets into an annuity that has lifetime income that would provide a higher certainty of expense coverage. So in this case we move some of the money to annuities and now you can see the probability of overall success has bumped up to 99%. Total expense coverage at 68 but that essential expenses jumped all the way up to 80. So that just gives us a little bit more comfort that uh they’re going to be okay. Okay. Uh, with that, I’m going to give you one more analogy before we start taking your questions. So, I know that was kind of a quick short presentation, but hopefully you’ve got some good questions out of that. So, the the analogy is retirement planning compared to mountain climbing. So, if you’re a mountain climber and you’re prepping for a big hike or climb, what what are you doing? You’re training. You’re learning to um use your gear. You’re you’re working out. You’re doing all those things to get ready to climb the mountain. When you think about retirement, what are we doing? We are saving money in our 401ks and IAS. We’re trying to pay down our debt, pay off our cars, pay off our credit cards, pay off or down our home, get our kids through college, all those things. So when we get to the top of the mountain retirement, we’re we’re in the best shape possible. Well, with mountain climbing, sometimes the trek down can be the most dangerous, meaning you could slip, you could fall, you could, you know, trip. Uh, in fact, I believe the guides that help people go up Mount Everest say more deaths and accidents hurt happen on the way down as opposed to the way up. Now with retirement, what are the things that could hit us during our retirement years?
So that’s a lot of things, right? I mean, and hopefully not all of those things come our way, but uh we try to kind of stress test the plan and what if those things, you know, what if if you’re married, what if one spouse passes away early? What if you have a long-term care event? Uh what if health care goes up higher than we think? What if you have an unplanned expense or event? We’ve had clients come to me, hey, my daughter’s getting divorced. I need to take out 40 grand to cover a lawyer. my son’s in needs to go to rehab. I need to pay for that. So, some of those spending shocks can can uh hurt you, too. But, you know, we try to model and stress test whatever we can and get you, you know, the strongest uh situation as possible. So, that’s what we have for you today. And I think Malcolm’s going to come back on and uh start a poll and then we’ll take your questions.
you. There’s the poll. We’re going to call We’re going to reach out to you anyway, but if you want to hear from us sooner than later, say yes and we’ll reach out to you then. So, let’s get some questions. All right. Um, apologies. We we did not record the webinar today for complianc’s purposes. We just don’t uh we will do this again. So if you’d like to attend a later time, please do so. Is there a minimum for setting up of an annuity? Um there are they’re pretty low. It kind of depends on the company and the type of annuity. I mean, some of them have a $10,000 minimum, some of them have a $25,000 minimum. Some can be even lower than that. But depending on what you’re trying to do, I mean, opening an annuity for three grand doesn’t buy you much.
Once you have an annuity and are collecting it from collecting from it, can you end the annuity and collect the remaining money? Are there penalties to do so? Well, once you complete that surrender charge, that surrender period. Let’s say it’s a let’s say you bought an income annuity. It’s a seven-year surrender. you turned income on in year three. When you get to year seven, if you don’t want that anymore, whatever’s left in the contract, you can absolutely move without a penalty.
Someone said, “Haha, I like mountain climbing, but not that hardcore.” Yeah, me neither. Yeah. Um, let’s see here. That’s all the questions that we have at the moment really. So, yeah. So, I mean, four over here. Okay, there was four and then two. You got all those looked at? Yeah. Okay. Yeah. Yeah. So, yeah, kind of good. You know, again, again, we’re going to reach out to everybody and just kind of make sure that if you have additional questions, we answer those. Um, what else do you want to say, Kim? I was just going to say, I mean, that, you know, this is what we do to help our members plan for retirement and put together a, you know, certainly a no obligation plan, um, and no obligation proposal, too. We think we’re doing things right enough and have a good mix of options for people to at least consider that might be a little more diverse than what you’re able to get within your 401k. So, you know, give us a shot. you’re not obligated to do anything with us, but it’s it’s a pretty good process. I think um most of the people I think I saw a couple people on here that are we already work with and I think they would probably agree that the process has been worthwhile. Yeah. Hey, and the other thing that I’ll say is like we we hold ourselves to a fiduciary responsibility. We’re here to build long-term relationships with our members. So, you might run into advisors, but they’ll set up an annuity for you and you’ll they’ll disappear. you’ll never hear from him again. That’s not the case when it comes to us. I mean, I think we come in, we want to build long-term relationships and we’re always doing what’s in your your best interest. Um, there is a question, is there a fee to use your service? We don’t charge a fee for the planning and the analysis of your situation. I mean, we really believe that that’s your opportunity to get to know us a little bit and, you know, make an opinion of whether you think we know what we’re talking about. I mean, if you did decide to become our clients and move forward with any of the investment recommendations that we’ve offered, you know, we talk through those, you know, in terms of, you know, if it’s managed money, how much that cost would be, etc. Are monthly funds received taxed? Well, if it’s an IRA, for sure, right? I mean, if that money hasn’t been taxed, if you take out a monthly income, yes, taxable. But usually we set those up to withhold taxes on the front end and you get a net amount a into your um bank account.
Um okay. Hey um what if I have a financial advisor would like to meet to discuss what your strategy going forward may help us as members. So, I was kind of question is like, yeah, I’m a financial advisor, but are you willing to kind of Yeah, go ahead. Yeah, we hear that a lot, right? I mean, people want a second opinion. Sometimes we run into people that have had a financial advisor all these accumulation years, but they’re making a switch over to retirement and they’re not sure they’re with the right person. You know, sometimes people advisors are good at just picking investments, but planning and answering questions around social security and taxes and RMDs isn’t it. and people don’t feel comfortable that they have a game plan going into retirement. Yeah, we we do second opinion type meetings all the time. So, we’re happy to do that. Yeah. So, can you turn on lifetime income? Can you have that transferred into a traditional IRA with any tax consequences? So, I think the question is if it’s an IRA, you turn on lifetime income and can you have that income transferred into the to another traditional IRA, I guess. Um, does that make sense? No. Turn on lifetime income and have that transferred into an IRA without a tax consequence. Uh, so I mean you can do a transfer from one IRA to another whether it’s an annuity or not, but I think the income is truly a distribution. I don’t think you set up lifetime income as transfers. I’ve never done that. Have you, Malcolm? I don’t know if the carriers allow that. No. So, so again, annuities have been around forever. Um, and I’ve run into Aliance had a really old annuity where the only way you pulled out that money is you took an income stream over a 10-year period. And so what we did with that annuity was we turned on that income and every year they transferred a certain amount into the client’s IRA and it was considered a a transfer. So that was a one way we unwind one of those old annuities. That’s Yeah. Yeah, that’s true. We’ve run into that with TIAA CF. Um they they have um some of their products, not all of their products. The only way you can get your money out is a 10-year transfer payout annuity. So, we do set those up for people and you’re just turning it on and transferring basically 10% a year from their IRA to another one with and transfers are not taxable as long as you set it up correctly. Yeah, it looks like this person has the Alian 222. Yeah. So, you’re not going to be able to you’re not going to be able to turn the income on until 10 years after purchasing that account. Yeah. The 222 it’s it’s kind of a nice thing in that there’s no fee for that lifetime income, but your fee is you got to wait 10 years before you turn it on. And if you got the time, that’s one thing. Man, I know. I don’t know how long you’ve had it, but they’re they’re they can pay some pretty good bonuses up front, but you got to wait a long time to get it. Yeah, exactly. So, what else? All right. Well, that’s it. I mean, yeah, we got it. We got everybody. So, well, thanks everybody. We appreciate you spending a little time with us and we look forward to talking with you all soon. Thanks so much. Yep. Bye.