RJS 6-14-25

Episode Transcript

Speaker 1 (00:00):
Good morning to all. Craig Shelly here and this is
Safe Money. I'm here every Saturday to talk with our
listeners about financial strategies we use to manage and protect
assets safely. I've been in an insurance agent for over
twenty four years. During that time, I've learned a few
insurance strategies, like using annuities as safe money harbors or

(00:23):
using cash value life insurance to supplement retirement income. Just
a reminder, you can call our office at five six
three three three two two two zero zero if you'd
like to enroll into one of my virtual Medicare community
meetings I give two every month via zoom, or you

(00:43):
can email me at Craig at Craigshilly dot com and
that's my name, cr Aig at cr AI G S
c h I L l ig dot com. Since June
has designated as National Annuity Awareness Month by the Coalition

(01:06):
for Annuity Awareness, today I want to continue my talk
about annuities. This month is focused on educating consumers about
the role and benefits of annuities, encouraging consumers to consider
them for meeting their financial goals, and seeking professional help
for implementation. How might an annuity help your retirement goals. Also,

(01:33):
please remember annuities aren't sexy. They don't have sizzle. We
don't talk about them at cocktail parties. Now. Wall Street's
been sending mixed signals lately, but one thing's crystal clear.
Retirement accounts are taking a beating between market volatility, looming

(01:53):
trade wars, and ongoing uncertainty. Many Americans have seen double
digit gains and double digital losses in their four O
one ks and iras, and some may tend to panic
When markets are shaky. Clients crave safety, They want guarantees,

(02:15):
They want stability, they want predictability. While banks are locking
clients into CDs with mediocre yields and minimal flexibility, annuities
can offer you better growth potential, tax deferral and guaranteed protections,

(02:36):
competitive interest rates with zero market risk, access to funds
in case of emergencies, and legacy protection income options. CDs
just can't match the legacy protection inside an annuity. Annuities

(02:56):
have beneficiary designationsransfer to whomever you select. There's no probate
proceeding involved, and with retirement portfolios down, many investors are
moving out of the market and into safe money strategies,
especially if their CD is coming due or savings are

(03:19):
sitting idle. A company called a theme as fixed annuity
rates right now of four point four percent to four
point eight five percent tax deferred on a three to
seven year annuity for less than a one hundred thousand
dollars investment. That means no ten ninety nine for the

(03:43):
interest in January if you add another quarter of a
point if you invest more than one hundred grand deposit,
and you can continue adding to these accounts, there's virtually
no cap in most regards. Why consider annuities in your

(04:04):
retirement strategy. A well diversified retirement strategy that includes a
mix of assets can help turn your retirement vision into
a reality. Annuities in particular, can play an important role.
Annuities provide retirement income you can't outlive. They're the only

(04:26):
product that offer a guaranteed income for life. That's one
of the main reasons to consider including an annuity among
your retirement assets, even if you already have substantial retirement
savings and investment accounts or other financial products. Annuities support
a wide range of needs because no two retirements are

(04:50):
the same. Unlike many other financial products. Annuities are designed
to support retirement needs. Therefore, some annuities in include added
charges or even limit early year access to your money. However,
annuities also offer many advantages you may not find in

(05:12):
other financial or retirement savings vehicles. Different types of annuities
offer different advantages. Here's just a few examples. Predictable guaranteed
growth you can rely on. Built in protection against losses
due to market performance. Guaranteed income growth options to help

(05:36):
ensure income goals are met regardless of market returns. Inflation
protection options that can help reduce the impact of inflation
on retirement assets before and after you begin taking retirement
income accumulation options to guarantee certain levels of growth no

(05:58):
matter what the market does. Taking a lump sum and
turning it into an immediate lifelong income stream. In my practice,
I've used spias to complete a life insurance sale and
or complete the funding of a trust. This guaranteed that

(06:20):
the premiums would be paid regardless of if the payer
granted was alive or not. Grandparents buy a life insurance
policy on a grandkid and then they pay with a
SPIA to fund the premiums for a set number of years.
This completes the cycle of the life policy and that

(06:42):
financial transaction. Many of my clients have used annuities to
guarantee their incomes and continue their monthly paychecks that they're
accustomed to even when they aren't working. I have clients
that use use their annuities as play checks so they
can continue voting, playing pickleball, or taking that annual trip.

(07:08):
Just like whole life insurance, annuities are kind of like
a Swiss army knife. You never know when you might
need them. Let's talk about income annuities for many here.
Income annuities are designed to provide individuals with a stream
of guaranteed income for life or for a specific for

(07:30):
a specific period of time. Using a portion of assets
for guaranteed income helps clients add certainty to their retirement income.
For now clients, that goes back to my spear a
single premium and media annuity. This is designed to provide

(07:51):
income that starts immediately, and in the annuity world, the
word immediately usually means within one to twelve months months
of the contract issue date. Typically, this product can be
attractive to clients who are already retired or about to retire.

(08:12):
Income later clients, they might be a good fit for
idea a deferred income annuity. This may be appropriate for
clients who are planning for their future guaranteed income needs.
Deferred income annuities generally require the contract owner to defer
annuity income payments for a minimum of thirteen full months

(08:37):
after the date their contract is issued back to spias
single premium and media annuities. So the SPIA may be
a good choice for somebody looking to create an immediate
pension like stream of income because it's funded with a
lump sum payment which you would no longer have access

(08:58):
to with most companies. It's important to have a separate
liquid asset. Now. Please remember there are some companies today
that have a speA that you can access a little bit,
but generally speas it's a one in done scenario. The
benefits of a speA guaranteed lifetime income or for a

(09:21):
certain period of time, typically inflation protection options. They will
have a cost of living adjustment. They do come with
income payments. Annuity payments are based on a guaranteed rate
of time of purchase and are fixed unless they have
a cost of living annuity writer option that had been

(09:45):
elected at the time of issue. They're a good heads
against inflation risk and the liquidity risks. Sometimes there is
no access to principle, but again it does depend on
the company you're dealing with. Let's talk about ideas a

(10:06):
deferred income annuity. It may be a good choice for
someone looking to create a pension like stream of income
for some point in the future. It may be funded
with a single lump sum payment or multiple payments over
a period of time. Since the income is deferred, idea
generally provides a higher guaranteed income than a spear would.

(10:29):
And that's true. Remember ideas they're like a fine wine.
They need some time to you know, they need time
to bring their flavors out. However, you will not. Let's see,

(10:55):
you want to have access to original payments or be
able to take withdrawals from ada, so it's important to
have a separate liquid asset liquid cash account. Some of
the benefits to adea guaranteed future lifetime income or for
a certain period of time, you can generally defer income.

(11:16):
Deferring income provides a greater guaranteed income amount. Typically you
can add purchase payments to buy more guaranteed future income.
Income payments are based on guaranteed rate at the time
of purchase, and they may vary based on the length
of the deferral. They are subject to some inflational liquidity risk,

(11:39):
but again remember ideas. Like all annuities, you do have
guarantees built in there. FIAS fixed index annuities, and FIA
may be a good choice for someone looking for some
level of growth or income potential with downside protection. Each

(12:00):
index account is credited with interest if any, based in
part on the performance of a stock or bond market index.
Some of the benefits of an FIA you have downside
protection means you have a guaranteed floor tax, deferral of
earnings on non qualified assets, guaranteed lifetime income or for

(12:24):
a certain period of time. There's a potential for higher
growth than traditional fixed annuities because you can invest in
that some of those indexes, there's moderate growth potential. The
interest credit is in part linked to the performance of
an indexed fee surrender charges may apply based on when

(12:48):
premiums are paid, typically in excess of Most contracts will
let you take ten percent every year. Growth potential is
limited against inflation, but it's not bad. There may be
some additional charges if you pick up. Some writers, credited

(13:11):
interests may be lower than index performance. If performance of
selected index is negative, no interest would be credited to
the contract. Growth potential is reduced when optional benefits are
elected for an additional fee. Now let's talk about rila's

(13:32):
registered indexed linked annuity. Now I don't do anything with rila's.
This would be more of a This is a would
be inside a variable annuity, or there are some for
one case today they have rylas built into them. They're
sometimes referred to as index variable annuity, or they can

(13:54):
also be called a structured annuity. A RILA maybe a
choice if you're looking for some level of growth or
income potential with some limited downside protection. So you can
have a guaranteed floor put in, but you still could
lose money via fees. Or if a market index goes

(14:16):
below a certain portion, you can put in a floor,
but you're gonna pay a fee for that floor. So
AARILA essentially is it's it's a it's an index annuity,
but it's variable, so it gives you options to you

(14:36):
can be more aggressive. You will probably get you can
get more than six percent cap return, so maybe they'll
go up to ten or twelve, but you could lose
four or five percent, maybe have a guaranteed floor of
minus five. It just depends the rate of interest credited

(14:57):
on the contract is linked in part to the return
yarns of an index. They have more upside potential than
a fixing index annuity, but they do have some only
limited downside protection. And then there's also variable annuities, and
I don't do anything with these either. A variable annuity

(15:18):
provides the greatest potential for growth but also the highest
risk of loss. So variable nudies is like a mutual fund.
It can go up or down. And there is no
guaranteed floor inside a variable annuity unless you buy a
writer for that said contract to have a guaranteed amount

(15:40):
at a future date. So some variable in newdies allowed
you have like a guaranteed a GMA or it guarantees
you'll have X amount of money after a certain period
of time. So if you put fifty in, they'll say,

(16:01):
will guarantee you you have one hundred grand, but maybe
it won't be for ten years or something to that effect.
But there is a cost item to that type of guarantee.
Optional benefits can be added to certain annuities to customize
and enhance them according to your specific needs. Optional benefits,

(16:23):
known as writers, may have an additional cost. It's not
may they will, but some variable noondies will offer some
living benefits that you can use while you're living. So
a guaranteed income amount writer guaranteed principal amount, so they'll
guarantee your principle will be x at a future date

(16:46):
if the market tanks. Death benefits varies. Types of optional
benefits provide guaranteed death benefits that may exceed the contract
value at the time of death. Death benefits within a
variable annuity or very advantageous depending on the consumer's need.

(17:07):
In the past, when I sold variable annuities, there were
cases where I was able to get some death benefit
protection for clients that didn't qualify for an individual life
insurance policy due to diabetes or past medical history, which

(17:28):
does come up. So in cases like that, sometimes variable
annuities are a good fit. Again, it does depend on
the client need and their overall situation. People that don't
qualify for life insurance can still get annuities, but some

(17:50):
fixed or fixed index annuities may not offer death benefit
riders the variable annuities would offer. Let me do. So
I'm going to do We're going to do an example here.
If I take one hundred thousand dollars investment, and this
is assuming we're in the twenty four percent federal income

(18:13):
tax bracket, and I'll assume a six percent raid to
return over twenty five years. Now that's not guaranteed. Note
that the lower maximum tax rates on capital gains and
dividends would make the investment return for the taxable investment
more favorable, thereby reducing the difference in performance between the

(18:36):
investments shown. I'm not showing the impact of any tax
penalties for withdrawals prior to age fifty nine and a half,
so we have to assume this person's over fifty nine
and a half, which so that's off the table. Please
consider your personal investment horizon and income tax bracket, both

(18:57):
current and anticipated, when making an investment decision, as this
may further reduce the results of the comparison. If I
put one hundred K into an investment using twenty four
percent tax racket six percent radiary return over twenty five years,
if I defer that money for twenty five years, you

(19:20):
would have an account balance of four hundred and twenty
nine one hundred and eighty seven, not a bad deal
for over twenty five years. Six percent tax deferred. Now,
if I had that in a taxable account. So say
I had that in a non qualified CD, that hundred thousand,
because I got to pay taxes every year on it

(19:42):
would only be worth three hundred and four thousand, eight
hundred and eighty eighty seven dollars, not for twenty nine
one eighty seven. Now, if I had this in a after
tax account like a WROTH, and let's just figure six
percent raidary turn, I would have three hundred and fifty thousand,

(20:04):
one and eighty two, not four hundred and twenty nine
one eighty seven. So that's just an example I'll use.
But it just shows the benefits of tax deferral. So
let's talk about non qualified annuity taxation, tax deferred growth
of account value. You can have tax free transfers between

(20:29):
investment options, rebalancing or changing objective risk profiles. In annuities
which allow transfers of contract value, a portion of your
guaranteed income for life may be excluded from taxation. There
is a exclusion ratio in non qualified annuities. Remember, a

(20:52):
CD will produce a ten ninety nine every year for
your interest income. Now, if you have a CD that's
inside an IRA, that interest is tax deferred, you wouldn't
get a ten ninety nine on that. But I am
talking about non qualified CDs. But remember a non qualified
annuity won't send you a ten ninety nine because of

(21:14):
that being a tax deferred contract. You will pay ordinary
income taxes on any growth upon withdrawal. There is a
ten percent income tax penalty assessed against earnings with drawn
prior to age fifty nine and a half. For those
people under age fifty nine and a half. If you're

(21:34):
going to buy an annuity today, you need to know
you don't want to touch it to at least age sixty,
and you really want to push it out as long
as you can. I have a lot of fifty somethings
and forty somethings that'll buy some non qualified fixed annuity contracts,
but I will only sell it to them if I
know they have enough liquidity if they need emergency funds

(21:59):
for a later d in time annuities, whether it's a
fixed annuity, a fixed index annuity, or ada. Again, the
longer you have them and the longer you keep them
open the better off they will be. However, I do
a lot of ladders with fixed annuities, so you can

(22:20):
buy a three year, a five year, and a seven year,
then every three to five years you can change them.
But there's something to be said about doing an annuity
ladder because you'll probably need to tap that money later
in life. Now, just like life insurance when we're talking

(22:41):
about whole life insurance, annuities kind of can be a
Swiss army knife later in retirement. It's one of those
things where we don't have that money earmarked for anything
right now, but you might need it for something later.
And that's kind of the beauty of annuities because there'll

(23:02):
probably be more money there than you actually think there is. Plus,
the exclusion ratio when you're taking money from a non
qualified annuity is very advantageous to you guys watching your
taxes and watching your tax rate in retirement, that's a

(23:23):
big advantage of that. So every time you tap your IRA,
you're gonna have to pay minimum ten percent withdrawal, and
depending on if you live in a state that has
income tax, you have to pay both federal and state
income tax. Now in Iowa, in Illinois, if you're over
sixty five, you don't have an income tax issue. But again,

(23:47):
tax is still coming to play with all my clients,
regardless of income, because during retirement, you guys, your tax
brackets sometimes go up because now you have no more deductions.
So keep that in mind. Another cool thing about annuities

(24:07):
that people don't take a new account, but you need
to remember it's a guaranteed stream of income. You can
give me an amount of money now, and I can
guarantee they'll give you an amount of money every month
for the rest of your life. That's the beauty of annuities,
So keep that in mind. Remember, nobody likes annuities. They

(24:29):
like what annuities do. Don't forget. I give monthly virtual
meetings regarding Medicare. I do two meetings with two different
companies every month, and one meeting I'll cover Medicare supplement
plans with a standalone drug plan. That meeting sponsored by
well Mark. United Healthcare is a sponsor. For my other
virtual meeting, I focus on Medicare advantage plans known as

(24:51):
Medicare Parts C, and I cover the benefits of that platform.
You can call my office at five six three three
three two zero zero for the Zoom meeting codes and
additional dates and times. You're also welcome to email me
at Craig at Craigshilig dot com and that's my name,

(25:12):
c R a I G at c R a I
G S c h I L l I G dot
com and I can send you the virtual zoom Link
meeting codes, dates and times. This is Craig Shillig with
safe money.