Okay, sorry for the technical difficulties. Can somebody just give me a thumbs up or a that you can hear me? Or put something in the chat that you can hear me okay?
Yes, okay, perfect. Okay, well, sorry for the technical difficulty. Of course, IT doesn’t check with me in terms of when when we need to do a software update. But anyway, so we’ll get started. Thanks for your patience. My name is Kim Kennedy and I am one of the financial consultants with Alliant. You should be able to see the screen now. Let me just get this I’m going to just take this off. This out of the way. Okay, so we get the question often do Malcolm and I really work for the credit union and we do. We happen to work in the Alliant Retirement and Investment Services division of Alliant. We are both located in Denver. We have offices in the tech center and out on the west side of town in Lakewood. If you’re joining from another state or would prefer a virtual appointment, we’re we’re good at that and we’re happy to do that for you. I’m going to be walking you through the details of the annuities presentation today. You will get a follow-up communication from either Malcolm or I. But if you have any questions during the presentation, enter them in the chat and I’ll be sure to take all of those questions at the end. So we have a couple upcoming webinars. The next one is October 8th, which is a Thursday and it’s called seven principles for a successful retirement. Just the various different categories that you need to think about as you’re preparing to retire. So if that’s an interest to you, watch for the emails and sign up. And then we have a Roth IRA conversion webinar on Tuesday, October 20th. Roth IRA conversions get lots of talk. So, just understanding how that works and the timing of that and the tax implications. So, again, take a look for that. Um and we have some other educational resources. Malcolm and I aren’t the only consultants doing webinars. Our colleagues also are doing webinars across the country. So, if you go to our webpage, aristotlecu.com, and click on the events page, you can see all of those other webinars that are out there and you’re free to sign up for any of those that you like. We produce a in-house podcast and we store all those historical recordings out on our podcast page. So, if you’re looking for information on a specific topic, um check out that that spot. You might find something that is helpful to you. And last, and certainly not least, both our website and our blog both just have a host of information. So, again, if you’re trying to get smart on a specific financial topic, that might be a place that can help you do that. We recently partnered with a company called Trust&Will. And anybody who becomes a retirement or investment client with us, not just on the bank, but on the investment side, you have access to this Trust&Will company, which you can basically create an estate plan for free. And you can see on the slide there’s quite a few things that that includes. So, if that’s something you’re interested in, maybe that’s a an additional factor for selecting us to as your advisors. Um okay, so we’re going to jump in and get started since I’m already late thanks to technology. The title of today’s presentation is called the good, the bad, the ugly with annuities. You know, what are they and who would want one? I’m I’m not going to be pitching a product. This is really educational. Annuities over the years have gotten a terrible reputation, but they’ve really changed over the last decade. You know, the feds have stepped in and the regulators and they’ve really changed and there there might be one that’s of interest. So, let’s just jump in. Here’s our overview. What is an annuity? What are the different types? But I heard they’re bad. How does the taxation work? 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? And can I get out of my existing annuity? And who can benefit from them? So, number one, what is an annuity? The definition is an annuity is simply a contract between you and an insurance company where you contribute money up front and then receive payments over a period of time. You can choose to receive those payments in a number of ways including a lump sum or an income stream that lasts your whole life. And some of the reasons people would actually buy an annuity is they’re looking for principal protection. They want a fixed rate of return. Maybe you’re looking for long-term growth. Perhaps you’re looking for long-term growth with some downside market protection. You need income for life. Or you’re looking for tax deferred growth.
So, there’s a couple types. There’s immediate annuities and deferred annuities. An immediate annuity is funded with a single lump sum of money and in exchange for that, you get a guaranteed monthly payment. So, you give you give your pot of money to the insurance company and they run through an algorithm based on your age and they say, “Okay, well, we’ll give you X amount of money for the per month for the rest of your life.” That income is it’s an income now story. They usually start that income within 30 days of doing the immediate annuity and you get to choose how you receive that income. Do you want it over your lifetime or there are certain time frames, you know, 5, 10, 15 years that you can choose to receive that income. You’re able to use IRA and non-IRA monies to purchase an immediate annuity. And there’s something else out there called a QLAC and that stands for a qualified longevity annuity contract. So, this would be used for somebody that’s got a bunch of IRA money and it allows you to put some of your IRA money into the QLAC and it defers your required minimum distributions until age 85. Now, there’s a limit. The most you can put in is $210,000. On the deferred side of annuities, these are more focused on accumulation and income. And there’s several types: a fixed annuity, fixed index annuity, variable, and structured. So, let’s look at each of those. So, a fixed annuity is it provides you a guaranteed rate for a specific period of time, 3, 5, 7, or 10 years. Your money is principal protected. Interest earned is deferred until you withdraw the money. There’s no fee. Again, you can use IRA or non-IRA money. And if you uh pull out of the annuity before the end of the term, there’ll be a penalty. And all annuities um have an IRS penalty uh if you’re taking money out before the age of 59 and 1/2. So, the best example of a fixed annuity or comparison is it’s like a CD, right? Where you put money away for a certain period of time and they guarantee you an interest rate for that period of time. So, right now, I think Allianz paying 4.1 or 4.15 for a jumbo CD for 1 year. Fixed annuities, you know, the shortest term is usually 3 years. We have seen, due to the inflation caused primarily by the energy, we’ve seen interest rates tick up. So, I can get a five for $100,000 or more, if you can tie some money up for 5 years, I can get you in California a guaranteed interest rate of 5.8%and if you’re outside of California, 5.85%. So, yes, you have to be able to withstand some illiquidity on your money, but if you want to take advantage of why while interest rates are high and you can withstand that, um that those are great rates. I mean, we’re we’re approaching 6%again. Uh the difference though with a CD is you’re going to get a 1099 from Allianz in every January and you’re going to pay tax on the interest that you’ve earned. With a fixed annuity, that interest earned is deferred. So, let’s say you took money out of your savings account at Allianz and you bought one of these 5-year annuities that I’m giving you the example of, and you didn’t touch it and you waited for the 5 years; you’re not going to pay tax on any of that interest until you decide to take it out at the end of the 5 years. And if you don’t want to do that, you can pull the interest out along the way, and you’ll get a 1099. So, here’s an example of compounding. Obviously, the rates are really low on this slot this slide, but let’s just say for 5 years, uh you put in $100,000 at a 4%rate of return, you can see in 5 years that 100,000 would be about 122,000. Clearly, it would be more if you’re getting 5.8 or 5.85. The next type of deferred annuity is a fixed index annuity. These generally have time periods of 5, 7, or 10 years. These also are principal protected. You have your protected from any market downturn. Now, this type of annuity does not have a guaranteed interest rate, but the interest you earn is based on a market index like the S&P 500. You’re capped on the upside, meaning you’re you’re not going to get all of the market upside. You’re going to get a max. Um and there’s a reason for that, which I’ll explain in a minute. Same thing on the interest is tax deferred until you withdraw it, and there’s no fee on this, either, unless you decide to add an additional feature like income like a lifetime income or a death benefit, and those features come with a cost. So, let me explain it. So, let’s say today, you bought a fixed index annuity. So, the way it works is let’s say you put a hundred grand in today, today, they would take a snapshot of where the S&P 500 is. You would wait a whole year. Your account balance would not change for a whole year, but on your 1-year anniversary, they would take a snapshot of the S&P at that point. Let’s say the market was up 12%on your year. Well, you’re capped on the upside. Right now, the best rate I have is 10 and 1/2%. So, if the market’s up 12 in my example, you’re only going to get 10 and 1/2 of that, and that would be credited for year one. And then they do the same thing in year two. Let’s say the market was up eight, you get eight. But let’s say in year three, the market is down 25%. Well, you don’t get any interest earned in that third year. But more importantly, you do not lose a penny of what you put in or the interest you earned in the prior 2 years. So, the concept of a fixed index annuity is you are willing to accept part of the market gains in exchange for never taking a market loss. And here’s kind of a chart that explains that. So, in years one and two, you see how the the you locked in the gains. And then going into year three, you see the dotted line, that’s the market that went down. But you had the fixed annuity, so you stayed fixed index annuity, so you stayed level. Uh you do get to reset at that lower index value at year three, which, you know, without taking the the hit on the downside, you’ve got a really good opportunity for um making money on on the subsequent year. So, we definitely have seen rates come up on those. So, variable annuities is the next type, and this is usually the one that has caused the negative connotation with annuities. But these range from 3 to 10 years. You are able to invest in multiple stock and bond investments. What I mean by that, within one annuity, you might be able to pick a Vanguard fund, a Fidelity fund, a T. Rowe Price fund, an Invesco fund, all within one investment. You have risk to your principal based on the investment performance. So, you get all of the upside of those different investments, but you also get all of the downside of those investments. And with variable annuities, there’s a built-in death benefit. So, the way that works is let’s say you put in a hundred grand, and let’s say the market tanked and that hundred grand became fifty thousand dollars and you passed away, your beneficiary would get a hundred. The death benefit on a variable annuity is you your beneficiary receives the greater of the current value when you die or what you originally put in. And it sounds great and it is, but you pay a fee for that. Same thing, the gains are tax deferred until you withdraw. Several fees apply to this type of annuity and I’m going to get to a fee slide in a bit, so I’ll defer, but that’s usually the the rationale. You you pay a fee to have those multiple investments and you pay that fee for the death benefit. The fourth type of deferred annuity is something we call a structured annuity or they call them buffer or floor annuities. These are six-year time periods. It’s kind of a blend between the fixed index and the variable. And you have the ability to invest in market indexes like the S&P 500. You have the ability to earn market-like returns and there is downside market risk. However, there is some protection that helps you on the downside. Gains are tax deferred until withdrawn just like the other ones. No annual fee on this one. So, unless you add one of the additional features like lifetime income or death benefits. So, let me give you an example of how these buffers and floors work. So, So, here’s an example of the index was positive. So, in example A, let’s say the um the market return Let’s say the cap rate is 10 and 1/2 in my example, and the market returned eight. So, the market returned eight in the blue, so your account is credited eight. In example B, let’s say the market returned 12 and 1/2, so you can see that blue blue bar is above the cap rate of 10 and 1/2, so your account was only credited 10 and 1/2. So, you’re giving up some of the upside, potentially, in in a structured annuity. And here is an example of when the market is negative. So, let’s say in example C, the buffer or the protection is at 10%. So, the market’s down 8%, you lose nothing because the market is not down more than 10. In example D, let’s say the market’s down 15%in the turquoise bar, so that’s below the 10%buffer. So, your account is only down five because the insurance company covers the first 10%in losses. So, the way I look at this is, you know, lots of people say, “Yeah, I’m just going to invest in the S&P 500 and let it roll.” Um this is a way to invest in the S&P 500 with a safety net because there’s no fee. So, it makes sense if you’re an S&P investor to have some downside protection. And you have a lot of different options you could select. They’re six-year contracts, but you could pick a one-year, a three-year, a six-year. And you There’s more indices you can choose from than just the S&P 500, but it’s a great way to be in the market with protection and for no fee. Uh the other option within a structured annuity is something called a participation rate. Now, this slide is old. The terms are not this good, but on the slide it says you can get 130%of what the S&P does over a six-year period. So, if you look at the example, if the market did 10%over the six years, that’s 60%over six years, you actually get 130% of that, so your account would have earned 78%. So, it’s a way to do better than the actual index does. And these options still have the buffer that provides some level of protection, you know, There There are choices that provide give you 10, 15, 20, 30% protection, and the more protection you pick, the less upside you get, right? The less protection you pick, um the more upside, you know, the more risk you’re willing to take, the more you’re going to be rewarded for that. And a lot of the companies now, um are offering what’s called a performance lock feature. Let’s say you’re four and a half years into the six-year contract, and the market has just been on fire, and your account is way up. A lot of the companies offer you the ability to lock in your performance and either move to cash for the remainder of the six-year term, or to lock and move to another option that might have a 30%protection on the downside, so your your risk goes way down. Um so, the options are constantly changing, uh but they’re they’re kind of creative these days. So, this slide we put in just to show you the power of having that participation rate. If we just look at the first bar, if you’re down 10% in 1 year, people think, “Well, I just need 10%to break even the second year.” But, you really need 11.2%, right? Because you only have 90%of your money working for you. So, you need 11.2%the second year to break even from a 10% loss. And if you jump down to, you know, a big loss like a 30%loss, the next year you need 42.9%to break even after 1 year. So, when those participation rates are well over 100%, they can really help you catch up. Today, the rates are not as rich as 130%. I think they’re around 130, 105%.
So, this chart shows you the different types of annuities and how they fit in line with other investments that you might be more familiar with. So, on the very left, the lowest risk, cash, money markets, CDs, fixed annuities, fixed index annuities, and then you see the gray line. Anything to the left of that gray risk line, your premium or your principal is protected. You can’t lose anything that you put in in there. To the right of the gray line, the next investment that has risk is bonds, and then variable annuities, and then mutual funds, and stocks, and commodities, and crypto, and all those things that go even further to the right. And what’s not on this chart are those structured annuities, and I would say they fit somewhere between the bonds and the variable annuities because there is some some level of downside protection. So, it just gives you a visual of how these fit in with other types of investments. Well, I heard annuities are bad. I mean, they There are fees associated with some annuities. Um there are holding periods or a surrender where you’d have a penalty. They call it a surrender charge, right? I sold you 3, 5, 6, 7 years. And they’ll keep all my money. Well, let’s walk through all of these one by one. So, the first is the fees. This is that variable annuity example I was referring to earlier. This is what I think gives um annuities a a bad rap. That Remember I mentioned the built-in insurance that if you put in 100 and the market tanked to 50 and you passed away, your your beneficiaries would get 100. That’s true, but that’s called a mortality and expense, and you pay This chart says 1 and 1/4. I would say 1 to 1 and 1/4%every year to have that built-in insurance. And a subaccount fee, that’s the ability to have options from Fidelity and Vanguard and T. Rowe Price all packaged together within one investment, and they charge a fee for that. Bond They call them subaccounts, but think of them like mutual funds. A bond subaccount is going to be less than one, an international subaccount is going to be more than one, but on average, that’s a 1%fee per year, also. And then the rider charges, if you were to add lifetime income or an enhanced death benefit, those range anywhere from, you know, 1 to 1 and a quarter also. So, just on this slide, that’s a total of 3 and 1/2% in fees every year. And some of these fees, like the first two, you wouldn’t even see if you owned one of these investments because it comes out of the performance. So, if the if the investment actually did a 12 and a quarter, you would only see 10 because the M&E and the subaccount fee just comes out of the performance. You would see a deduction on your statement for the rider fees, the lifetime income, but the other two you don’t even see. And in years when the market’s on fire and it’s up 20%, you might not even notice 3 and 1/2%coming off. But what about the years where the market’s down 20%? You’re really down 23 and 1/2%. So, the fees, the variable annuity is the one that has the most fees and the highest fees. Number two, that holding period. They call it a contingent deferred surrender charge. And what it means is it’s the amount of time that you’re required to stay invested in the investment before you can walk away without a penalty. So, here’s an example if they’re using a 5 year. So, if you were to bail in the in the first year, they ding you a 5% penalty. And each year it declines a little bit. And they these aren’t accurate numbers, but for example purposes, it starts higher and the closer you get to the end of the term, it goes lower. And there’s all kinds of annuities out there that can be anywhere from 3 to 15 years. Uh Malcolm and I are generally on the the thick side three to five years. Some people want seven if they can lock in a higher rate for longer and just live off the interest. We’re not selling anybody a 15-year annuity. And even if you agree to tie your money up for, you know, three, five, or six years, almost every single company that we work with allows you to take out 10%per contract year without a penalty. So, you do have some liquidity or access to this money and clearly we wouldn’t want to put all of anyone’s money in this type of an investment or any type of investment for that for that purposes. Diversification is certainly certainly key, but you do have some access to your funds. Number three, they’ll keep all my money. Well, that’s not really true. Um deferred annuities equals a walk away value. If you agree to a five-year fixed annuity and collect your 5.85%at the end of the five years, you walk away with your money and all of the interest you earned. Um if the income products, where you’ve added lifetime income or joint lifetime income, those are contracts that you put money in and somewhere down the road you turn on lifetime income, and that income lasts for the rest of your life. And what you’re betting on here is longevity. You’re going to live a long time. If you turn on the income in one of these products, your account value will most likely go to zero or be depleted in 12 to 14 years. And if you’re living beyond that, your account value is zero, but the insurance company is on the hook for continuing to send you that lifetime income um for the rest of your life. You can pick different time periods, you know 10 or 20 years and a lot of the companies give you an option to pick a level income, so you start at X amount per month or year, and it stays the same forever; or, you can agree to start at a lower amount and then have that increase over time. But the bottom line, they don’t keep your money, your account value minus anything you’ve taken out is what you can walk away with, or it also becomes your death benefit. Let’s talk a little bit about taxes. So, think about you know, money in an Alliance savings. If you were to put it in an annuity of some sort, you’re not going to get a 1099 every year, and it’s kind of like triple compounding. You’re getting earnings on your principal, you’re getting earnings on your earnings, and you’re getting earnings on the taxes that you’re not paying. So, it might make sense to do this, especially if you’re trying to keep your income lower for a period of time, or you just like the rate. And at the end of the term, let’s say you did the 5-year at 5.85, and you didn’t need the money at the end of the end of the 5 years, and you didn’t want to bring it back to the credit union, there’s a provision out there called a 1035 exchange, and you can move it to another annuity, and there’s no tax liability. The best correlation I can think of to that is anybody who has done anything in investment properties, you may have heard about a 1031 exchange. You know, you go to sell one of your rental properties, and you roll that money into another rental property, you don’t have to pay taxes on any of those gains. Well, this is the same concept, but with annuities. So, you just move it to the next one, and it moves forward with no tax liability. And as I mentioned earlier, if you don’t want the tax deferral, you can just withdraw the earnings each year and that’ll create a 1099 kind of like you did a CD. So, that’s one way to keep that in check if that’s your desire.
So, what’s in it for the insurance company? Well, if you buy an annuity with a fee, um obviously they’re collecting the fees, right? That M&E fee, the rider fees, the sub account or investment fees. And there is that surrender schedule, that CDSC. So, they know that if you uh bail early, if you bought a 5-year fixed annuity and you decided you’re going to yank all the money out in year three, they’re going to get a penalty. They’re going to collect a penalty out of your out of your money. But the biggest thing that’s in it for the insurance companies company is your time. All right? I mean, when I set these up for people, we are not planning on yanking the money out early, right? This is just a piece of the overall strategy. This might be the safe piece, potentially. So, if you give them, let’s say $100,000, they’re going to take that $100,000 and they’re going to go buy a bond that’s probably paying six or six and a half percent while they’re paying you out 5.85. So, they’re collecting that money for the whole time that you’re inside the annuity contract.
Um no free lunch. This has to do with people that, you know, you may have received in the mail postcards to come to some dinner seminar at some fancy steak place and they’re pitching can’t lose products, double in 10 years. If it sounds too good to be true or doesn’t quite pass the smell test, just be on alert. Generally, those types of products have a longer surrender periods. They’re usually 10 years or longer. Um they pay high commissions to the advisor and generally they have high fees. So, just be on the lookout of that situation. Well, I have one. Now what? So, Malcolm and I will offer to you a no obligation review and recommendations about the annuity that you currently own. Annuities have changed dramatically over the last decade. As I mentioned earlier, regulators have stepped in and they’ve really put a higher emphasis on accumulation products. They’ve tried to significantly reduce and standardize fees. So, that’s something to think about. Um you may be in a situation where you’ve had an annuity for 25 years and you’re paying a fee and it might make sense to move it somewhere else and it would reduce your costs and give you a higher benefit. And if you have an annuity that has one of those lifetime incomes, you know, maybe it makes sense to start it. And if you’re have it and you are never you’re not in a situation to need the income, maybe you need to move out of it because you’re paying for a benefit that you might not use. And as I mentioned before, there’s that 1035 exchange provision which allows you to move from one to the other without incurring top taxes. So, basically just kind of a cost-benefit analysis of what you currently own.
Well, who can benefit from these types of products? Well, if you’re somebody who’s looking for tax deferral, uh I had a clients that um lived in northeastern Colorado and they were selling their farm. So, they knew in the first year they were going to have a lot of gains on selling the farm. In the second year they were going to sell all the farm equipment. And in the third year they were going to sell all the crops. So, they knew they were going to have three to four years of very high taxes. So, they wanted to invest their money in a way that would def- would provide tax deferral. So, we structured a number of things to have them come available after. And maybe it’s something like you’re selling a business. That could be somebody. Or you’re just earning a lot of money and you’ve got a lot of money in Alliance savings or elsewhere and you just want to reduce the tax hit that you’re getting every January on the 1099. Or maybe you’re somebody that’s looking for a higher fixed rate. As I mentioned, Alliance CDs are 410 or 415. If you can tie up some money, get 580 or 585 and take advantage of while we’ve got this higher inflation and lock in those higher rates for longer, maybe that makes sense. If you are interested in trying to grow your money, but you want some downside protection, you want to be in the market, but you don’t want to bear 100% of the downside risk, maybe a structured annuity makes sense for you. Guaranteed income, maybe you’re somebody that says you’re going into retirement and you you need to kind of create your own income stream. Death benefit, I had a client that was diagnosed with a very rare lung disease and he was only expected to live two to three years. So, he wanted to take some of his money and put it in an annuity that had the highest death benefit. So, the death benefit would ratchet up higher than potentially the market gave him. And that way when he passed away, he could pass on the most he could to his two daughters, which did happen and it did work the way he intended. Um or if you’re somebody that wants to avoid probate. Um all these annuities have beneficiaries and they pass directly to the beneficiary without going through probate. Um is an annuity right for you? They aren’t right for everybody, but they can be an interesting part of a diversified portfolio. You know, especially if you need lifetime income to help cover your essentials. I mean, meaning if your income stream in retirement is social security, but that’s not enough to cover your basic living expenses, maybe an annuity with income stream can help shore up that gap. Or if you’re somebody that’s got longevity in your family and you think you might live longer than your money last, you know, these lifetime annuities with income last as long as you do, even if the account goes to zero. Or if you’ve got everything in your 401k and it’s in the market and you’re ready to retire and you just want to reduce the risk on part of your portfolio, that might make sense for you.
Okay, facts versus fiction. They’re too expensive. I hear that all the time. Um then I’ve just alluded to several types that have zero fees. Zero fees. I mean, your fee is your time, right? You’re going to sit in it for three or five, six years. Um they have hidden fees. And as I mentioned, the the Fed and the state regulators have stepped in and all of that has to be very transparent. And all of that is explained if you’re working with somebody who’s trustworthy, anyway. Um they have high commissions and that that’s that’s not true. I mean, ask how we’re compensated. I mean, we we do get paid on these, but it doesn’t come out of your money. Uh, the commissions are typically paid by the insurance company, not you. So, if you put in a hundred grand, a hundred grand goes to work for you. I can’t touch that money. And as I mentioned earlier, nearly all of the annuity companies that we work with allow you to withdraw some of the money during that surrender period, you know, that five three, five, or seven-year period. Usually, it’s 10%penalty-free per year. And lastly, they’re too confusing. Yep, there are a few of them out there, uh, but that’s where we come in, where we can help look at somebody’s overall picture and decide whether this makes sense for you for a variety of different reasons. So, Malcolm and I offer a complimentary retirement plan for for all of you. We we don’t charge for that. I’m going to run you through kind of a quick example of how it works. So, this is Richard and Deborah. They’re both 62. Richard wants to retire at 67, Deborah at 65. Richard has some health health issues. He thinks he’s only going to live till 85, but Deborah thinks she might make it to 95. They’ve got, um, they’re contributing to their 401ks. They’re each contributing the max and their employer is giving them a match of 3%. They each make about 150 a year. Richard’s social security at his retirement would be about 41,000 and Deborah, when she retires early at 65, hers is about 35,000. And Richard has a pension of about 9,500 a year. We take a look at all of the expenses. Their living expenses are about 90k a year and in addition to that, there’s health care for each of them and travel and we break certain things out because we use a different rate of inflation or it’s not going to last your entire lifetime. Um our software pulls in the actual IRS tax tables. We can pull in the state tax tables also in this example. I’ve used the state of Colorado. This is the cash flow screen and this is showing us that um on the very left, Deborah and Richard are working. That’s the teal blue and 3 years in when Deborah retires, you see the income drop down, the teal blue. That’s Richard and Deborah’s social security kicks on. That’s the two navy blue boxes. And then in 2030 when Richard retires, now we have social security in dark blue. His pension in the mint green and then you see the yellow. And these are the bars that are leading up to the planned expenses. That’s the red line that’s going across the page. So the yellow means that you’re going to have they’re going to have to withdraw from one of their accounts or multiple of their accounts in addition to social security and pension to cover what they plan to spend. And then if you jump out about 7 years, you see the orange and that’s the required minimum distribution. Um most people I think realize that their pre-tax money inside 401ks and traditional IRAs and 403bs hasn’t been taxed yet. So uh at some point at age 73 or 75 depending upon when you were born, you have to start paying your least favorite Uncle Sam. And then you can see right around 2040s or right around 49, I guess, the social security drops off and that’s when Richard is passing away. Um but there’s still money left for Deborah. So this gives you an idea. The secure income screen, what this is showing us is that their essential expenses, which is the red line, are covered at about 59%and their total expenses, including travel, is covered at 49%, which really only gives them a probability of success of about 74%. So let’s do some what ifs. So let’s consider repositioning some of the assets that they have in their 401k into a lifetime income annuity. Does that help give them a little more security? So by doing that, now you can see that the we’ve added that secure lifetime income, which is the dark green. Um now their essential or basic expenses are covered at 80%and total expenses at 68%and now now they have a 99%chance of probability of success. So a little more comfort that those basic expenses are covered. So it’s just a peace of mind and security that um people look at that. So I am, since I was late getting started, I’m going to skip my little thing here and just jump towards the end. So ways we can help you, you know, certainly we do the complimentary foundational financial planning. That’s kind of what I just showed you, kind of a quick example. We can do some advanced planning also with Roth conversions and take a look at taxes and cash flow analysis, estate planning. Like I said, we have that relationship with the Trust&Will company. And investment management, what that is what Malcolm and I do is build retirement plans and strategize on the different investment choices that you have available. So, the credit union has checking and savings and CDs. On the retirement and investment services department, we have quite a bit that we have available to you. Pretty much anything you can dream up, we have available. So, I I’ll kind of stop where we started. That Trust&Will slide is basically, if you become a client of ours on the retirement side, you would have access to this Trust&Will situation for free. Um, okay. So, let me open it up for questions. Uh, before I do that, let’s see. Poll.
Let’s see. How do I launch this? Give me a sec.
Okay. So, I’m going to launch a poll. If we’re going to reach out to everybody anyway, but if you are interested in meeting with us and you want to do that sooner than later, feel free to put yes on our survey and we’ll reach out to you first, basically. Um, but with that, I’m going to open it up to questions. So, I’m going to come back on. Maybe. There I am. Um, and then let’s see if we have some questions. See, Q&A. Um, first question, is it possible to invest in an annuity from an IRA or a 401K to defer RMDs? Well, the only way you can do that is if you use that QLAC annuity that I mentioned in the very beginning and there is a a limit to that. The max you can put in is $210,000 and what that does is allow you to defer RMDs on that amount of money from let’s say 75 to 85. So, you get a a 10-year um break on that. Um okay, what else? You’ve guys got to have more questions to that than that. It’s the only question I see right now. What else? You got to have something.
Was it interesting? Did you learn something about annuities that you didn’t know before?
It’s hard to know when I can’t see anybody. So, feedback is always appreciated. Good, I learned a lot. Thank you. Thank you. And it it is somewhat interesting. I mean, that I I hear people as they get closer to retirement, they say, “You know, Kim, I’m less concerned about hitting a 20%return and more concerned about preserving what I’ve worked my whole career to save.” So, you know, you start thinking about how can you preserve the money you’ve saved and reduce risk? A lot of times an annuity might be part of that situation to help help in that. I use a four-bucket approach like the protection, the income, the growth and income and growth. So, that protection bucket is where you don’t have any downside risk and what can we do to give you some growth? Um Okay, another question. If I have an annuity that matures this December with another insurance company, can I roll it over to another one? Sure. I mean, we should certainly take a look at that and make sure, you know, all the ducks are in line and depending on whether it’s IRA money, you can certainly just transfer it to another one, no problem. And if it’s non-IRA money, we just want to make sure we do it correctly through that 1035 exchange process so you do not run into any taxation. Whatever you’ve earned in the current one, we want to move that forward so you don’t have a tax hit along the way. Um somebody said, “I’ve learned way more about annuities than I ever knew before this webinar.” Thank you. I appreciate that. Um and it is certainly worth considering, you know, down the road at some point. If you’re a fixed investor, if you’re chasing CDs and Treasuries and you want interest rate, now is a pretty good time. You know, we have inflation up because of the energy costs and all of that and we’ve seen them pop up. I mean, 5.85%. I’ve got another company that’s um said I’ve already seen an email that they’re going to increase their rates on October 1st. So, if you’re a fixed interest investor, for sure now is a pretty good time to kind of look at it. And even, you know, these rates are obviously based on inflation, but volatility in the market drives some of the other rates. So, if you think about that fixed index annuity that I talked about, that doesn’t have a stated interest rate, but it’s tied to the market. So, the market’s been pretty volatile in the last few weeks, right? So, think about if you bought it today, you know, the the Dow was at what, 54,000? Now we’re down to about 51,000. So, our starting point is lower and you sit on it for a year and then on the anniversary, if the market’s gone back up, you have an upside max of 10 and 1/2%. I mean, if you got 10 and 1/2%in a no risk, no fee investment, uh people would trade stock market risk for that all day long, right? I mean, that’s a that’s a pretty interesting perspective, but um anyway, so let me see. Let me check questions one more. No more in the chat. Let’s see, here’s another one. A couple more, okay. Uh very interesting. I’m sure it varies by circumstance, but do you consider annuities making up a certain percentage of a strong portfolio? Any rules of the road? You know, um there isn’t really rules of the road. Um it’s a lot about your comfort level with risk um and access to the money, right? If you think about a triangle, and I have liquidity at the top, risk and reward on the other two points. Generally, with any investment, I can give you two of the three, right? If you want low risk and a high return relative to interest rates, you need to give up your liquidity and be willing to tie that up. So, depending on how much you have, determines whether you’re in a position to do that or not. I mean, I generally most people, I won’t say all, but most people do not want to throw 100%of their money in the market and just let the market rock and roll them through retirement. I usually see maybe a quarter to a third. People want some of their money safe. So, that would be the best I have for that question. Um what info do you need to review an existing annuity? Basically, just a current statement. And you can email that to me, and we can set up an appointment to talk about it, and um just take a look, and I’ll give you the pros and cons, or Malcolm will give you the pros and cons of what you currently own. Is a non-qualified It’s non-qualified and I can’t afford to pay all the taxes at once. So, yeah, that’s the idea of the um of the 1035 exchange. If you transfer from an annuity to a money market, um you’ve Let’s see, there’s a couple questions from the same person. Hi, Christine. Um So, if let’s say you leave it in the annuity for 3 years and you’ve got the tax deferral on the earnings that you’ve earned in the 3 years. And then at the end of the 3 years, you want to move it to a money market, then absolutely, you’re going to pay tax in that year on that 3 years of interest. But if you don’t need it and you can roll it to another annuity, you can you can just roll that forward. Um and if you don’t want to have that big tax hit at the end of the 3 years or 5 years, then you just do a withdrawal each year and you would get the 1099 on that. Um let’s see. Is there an advantage to delaying an annuity purchase to a later age to have guaranteed income in older years when you’re less able to manage finances? Would it take less of an investment to cover a shorter lifespan? Sure. I mean, the, you know, the longer you’re willing to wait if on those income annuities, um, a lot of them will say you put your money in and your cash might earn you a 3 to 5%. But then they have this income account that might roll up by 10%a year for 15 years. And the sole purpose of that income bucket is where they calculate that lifetime income from. So, again, now with interest rates the where they are, we’re seeing a lot of these companies either increase those roll up rates or um increase the withdrawal rate. So, if you put some money away and let it cook for, you know, 8 or 9 years and it’s growing by 10%a year and you’re going to be older by that point, so your withdrawal rate will be higher. Sure. Yeah, and we can kind of back into that, too. If you’re looking for a certain dollar amount at a certain point in time, we can back into it and see how much you need to get that amount of income by a certain age. Um what else would I say? Oh, a lot of those income annuities now, let’s say for example, you’re getting 20 grand a year from the income, a lot of them will double that income for a long-term care-related expense. It’s clearly not long-term care insurance. It is not going to cover a nursing home, but if you had an extra 20 grand a year, in my example, could that help cover some home health care costs? Absolutely, it could. So, um so, there’s some different things out there that um as people get older and get closer to retirement that they’re concerned about. Um let’s see. I have a defined pension from work. Would it be better to take it as opposed to buying an annuity? There would be no fees and a straight payout. I have the option for the lump sum as well. So, yeah, that’s a great question. So, a defined pension plan, so that’s a pension that you have with your company. Let’s say you’re single and you decide to take that pension plan from your company and they’re going to give you X amount of money for the rest of your life and when you die, they keep the money. So, let’s say, God forbid, you turn the pension on and you get hit by a bus in year three or four, that money goes back into, you know, the United coffers or whoever your your company is. And if you’re married, you probably pick joint, so if something happens to you that pension continues. Um, we’ve also seen some things with pensions where companies have changed them. So, a lot of times people want to at least explore if they took the lump sum and bought an annuity to do the same thing as the defined pension plan does, what’s the delta? What’s the difference between taking it from your company versus moving it to an A-rated insurance company and maybe picking up a beneficiary or picking up a doubler for, you know, long-term care related expenses. It a lot of times it’s not as much as the defined pension plan, but sometimes it’s worth a look. You know, I’ve had people say, “Yeah, I really don’t want to leave my money in the Kaiser pension.” Or if they’ve worked for they saw what happened to United Airlines and if they’re a Carp, you know, a Continental person, they clearly don’t want to leave it in Carp. They saw what happened to United. I mean, think about Enron and, you know, some of those were the pensions kind of evaporated. So, you know the strength of your company better than I do, but that is sometimes the reason why people will look outside of of their defined pension. Um, let me see if I’ve got everybody.
I think I have everyone’s questions. Um, so, thank you for sticking around. I appreciate you waiting for the technical difficulty. Of course, it’s a we’re going to update you in 3 minutes and you don’t have a choice of deferring it and, you know, it just says, “Oh, and we may reboot three or four or five times.” So, I appreciate you hanging in there and uh coming back on with me to go through annuities. So, look forward to talking with you all within the next week or so and thanks for joining me. Have a great rest of your day.