RJS 6-28-25

Episode Transcript

Speaker 1 (00:00):
Good morning to all. Craig Shillig 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 an insurance agent for over twenty
four years. During that time, I've learned a few insurance
strategies like using anwdies, a safe money harbors, or using

(00:22):
cash value life insurance to supplement your 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 you can email me at Craig at Craigshillig dot com.
And that's my name, cr Aig at cr AI G
S C H I L l ig dot com. On
today today, I want to talk about annuities and I

(01:05):
have some retirement articles that I'd like to share with you.
This is the last Saturday of June. June is designated
National Annuity Awareness Month by the Coalition for Annuity Awareness.
This month is focused on educating consumers about the role
and benefits of annuities. Encouraging consumers to consider them for

(01:26):
meeting their financial goals and seeking professional advice for implementation.
So let's talk about the noise of volatility. Diversifying your
portfolio with investments that have fixed interest rates can help
limit your overall market risk. Let's talk about stock volatility.

(01:51):
In the years before World War Two, there was tremendous
volatility in the stock market. Since then, there have been
continue periods of extreme volatility, but none on the scale
experience back in the nineteen twenties. Over the long term, however,
stock investors have been rewarded for assuming greater volatility. So

(02:16):
let's talk about the bond volatility shift. Bonds experienced greater
stability until the nineteen sixties, after which they became more volatile.
Over time, the level of volatility between stocks and bonds
has been comparable to the point where bond pricing is

(02:38):
less predictable. A more recent example of this is going
to be twenty twenty two, when both stocks and bonds
both went down. That is almost unheard of in the
market world. However, that can happen. Bonds are still subject
to risk issues, So let's cut through the noise. Investors

(03:04):
looking to diversify their portfolio, might consider financial tools with
stable interest rate guarantees that are backed by the strength
and stability of offering insurance companies. You can talk to
your investment professional about your needs. Over the past year,
stocks have become less volatile than they have been in

(03:27):
the past, while bonds again are becoming more volatile. The
other thing that's going to influence the bond market more
recently is going to be one how the Fed decides.
I think that's next week, it'll be July one, if
they're going to cut rates or not. That's one issue.

(03:50):
The other thing that affects the bond market, also, remember,
is going to be our deficit. That does and will
play a role in how bond portfolios operate. If there's
one thing retirement comes with, it's a lot of questions.
You may be asking, when is the right time to

(04:13):
plan for retirement, How much will I need? What if
I live longer than I expect and run out of funds?
What kind of solution will best fit my lifestyle? Whether
you're nearing retirement or if you're already in retirement, an

(04:33):
income anuity provides guaranteed income unaffected by market fluctuations, offering
predictable payments with no surprises. Here's how income annuities work.
So you purchase an income annuity from an insurance company
with a portion of well I mean i e. You're

(04:57):
your the amount you're going to have, or you can
even use some investable assets. You get a contract from
the insurance company. The company issues you a contract explaining
the terms and outlining outlining to you exactly what your
payments will be. The insurance company then will invest that

(05:22):
money to provide you with a steady, guaranteed amount of income.
And the key point here is yes, they're investing the money,
but your amount is guaranteed. It has nothing to do
with market fluctuations. Then you'll get steady income. You receive
regular payments starting at the time of your choice and

(05:45):
continuing for a set period of time or for your lifetime. Generally,
you can't access your funds outside of the regular scheduled payments,
and there are some newer annuity issuing companies that are
making a few changes to that, but that's usually a

(06:07):
general rule. So here are some retirement risks that you
can prepare. You can prepare for so longevity market factors.
Let me talk about longevity first. So I can't predict

(06:29):
the future. You can't predict the future. No one can
predict the predict the future, of course, but we can
definitely prepare for the future. Knowing how certain factors may
affect your retirement income strategy is a crucial first step.
While most of us would choose a longer, healthier life,
it raises the risk of outliving our savings. That's probably

(06:52):
one of the biggest issues I get from older clients.
So the over eighty crowd, they're worried about living beyond
how much money they have. For male and female couple's
age sixty five, there's a seventy one percent chance one

(07:12):
or both of you will live to age ninety, which
could mean many years in retirement. So let's talk about
market factors. No one can predict the future, of course,
but again we can prepare for it. For a male

(07:36):
or a female couple that's dealing with market fluctuations and
knowing that we're going to live to age ninety, ups
and downs in the market, which is ie volatility can
seriously impact our retirement portfolios. You've heard me talk about

(07:56):
sequence of returns in the past. The sequence of returns
can all suppose risk. Having negative returns in the early
years of retirement can be a major detriment to later
years in retirement based on your overall assets portfolio. So
having enough predictable income may lessen the pressure to use

(08:20):
other portfolio assets to generate income. And you guys have
heard me say this before. You really need another bucket
of money outside of your assets, ie a deferred income anuity,
a FIA FIA, or cash value life insurance because you

(08:41):
can pull from those buckets and let your assets return
or get back to normal after a major market downward
or downturn in the market. Fifteen percent is the average

(09:02):
the stock market volatility from nineteen fifty to twenty twenty three,
So that's how volatile the stock market can be. Let's
talk about housing and healthcare expenses. It's crucial to consider
these potential out of pocket expenses when calculating retirement income needs.
So I have a lot of clients that'll just buy

(09:23):
a five year speed to cover what they think their
sixty months of household payments are going to cost, whether
it be utility bill, property taxes, homeowners insurance. Car insurance
is a big one. Your overall health insurance and Medicare.

(09:44):
Whether you have a supplement or advantage plan, that all
plays into this. Healthcare spending is estimated to rise to
an average of one hundred and fifty seven thousand dollars
per retiree. That's one hundred and fifty seven grand of
your assets you're going to need to spend on your
healthcare through retirement. On average, people age sixty five and

(10:07):
older spend thirty six point two percent of their annual
income on their housing expenses, and in most cases that
can even be if the mortgage is paid off. So
please keep that in mind. Because you have your paid
off house, however, you still have to pay taxes, repairs, insurance,

(10:28):
and all those issues are going up in price. Let's
talk about excessively with withdrawals. Dipping into your investment portfolio
is part of funding retirement, but your withdrawal rate can
affect the probability of meeting retirement income needs. The higher

(10:49):
the withdrawal rate, the greater the likelihood that money may
run out too soon. And I hear that a lot
people are worried about that. It used to be you
could take a four percent withdrawal and you'd be okay.
That doesn't usually jive now with inflation, so keep that

(11:13):
in mind. So talking about inflation, inflation is the cumulative
inflation rate over the past twenty five years was eighty
eight point six percent, which means a dramatic reduction in
your purchasing power. Okay, inflation's gone up eighty eight percent
in twenty five years. Where were you twenty five years ago?

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Remember what gas costs twenty five years ago? It sure
was in three or four bucks a gallon. Inflation constrain
your retirement portfolio, requiring larger withdrawals just to maintain your
current standard way of living. So let's talk about three
foundational elements for a secure retirement growth potential, access, and

(12:02):
predictable income growth potential. These are assets set aside for growth,
offering the best possibility of keeping pace with inflation, although
they also entail potential market risk. Examples of these include stocks, bonds,
mutual funds, and variable annuities. Access so liquid assets such

(12:28):
as those in money market or savings accounts sometimes called
Murphy funds, are readily available for emergencies or for discretionary spending.
I remember going to a talk once and the head
speaker said that and you had to be there because
he kind of has a dry sense of humor. But

(12:50):
his statement was America doesn't have a debt problem. They
have a spending problem, and that's directed toward It doesn't
matter if it's the government or consumers. We spend money
on everything. Predictable income. This is the foundation of your
retirement income plan. It's income that isn't exposed to market

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ups and downs and is guaranteed to be there when
you need it. There are three key sources for this
kind of income. Your Social Security check, a defined benefit
pension plan, which most of those these days are going away,
and the lifetime income options provided to you by guess

(13:35):
what an annuity income annuities might be right for you.
If you want to introduce certainty into your retirement plan,
you're seeking guaranteed lifetime income. You're willing to give up
control of some of your assets in exchange for a

(13:56):
regular income payment i e. A monthly pay. An income
annuity can help reduce the risks in retirement when we're
talking about longevity, and annuity offers guaranteed income with options
to cover yourself or a spouse, provide beneficiary protection and

(14:18):
secure income for life, or for a set period of
time market factors market volatility can impact your savings. Luckily,
fixed income annuities aren't exposed to market fluctuations, which means
they'll provide stable, guaranteed income, housing and healthcare expenses. You

(14:42):
can use an annuity income for these costs, which would
allow you to keep other assets invested and ensure you
have money when you need it. When we're talking about
rmds require minimum distributions once you each a certain age.
This year it's seventy three. The IRS requires minimum withdrawals

(15:11):
from your non ROTH IRA or qualified assets, So your
four O one K, anything that just says IRA, those
have an RMD number attached to them. An income annuity
can satisfy this requirement while guaranteeing a steady stream of income,

(15:32):
and I do that all the time. You can move
some assets from an IRA to an annuity and let
it spit out like five years of income back to
excessive withdrawals. A steady stream of annuity income reduces the
need to dip into your current retirement assets. This lowers

(15:54):
the risk of depleting other retirement assets too quickly. When
we're talking about inflation, leaving some retirement assets in the
market will help you guard against inflation. While income annuities
themselves come with some inflation risk because the payment it's
amounts are fixed, using them to cover your essential expenses

(16:20):
allows you to keep more assets invested, which can help
keep you up help keep you up with inflation. Let's
talk about tax liabilities. R mds. Requirementium distribution rules generally
require the owners of non okay so non wroth iras.

(16:45):
This can be a problem if the additional income and
the associated tax liability is not needed at that time.
And I get this question all the time. Well, I
got to take r m ds, but I don't need
the money. Well, from that set, you have to take
the money, which means you're reducing that asset, and you

(17:06):
might just waste the money. By requiring you to take
the distribution and decrease your retirement savings, RMD rules can
make planning for income needs later in retirement much more difficult.
Tax efficiency is important for everyone, and I would argue
that's at any age. It can mean the difference between

(17:28):
reaching your goals and falling short on them. So which
income annuity is right for you? Well, you could do
a spe A DA so SPIA automatically is going to pay.
I'll talk about it a SPIA in a minute. So

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a DADIA deferred income anuity versus a SPIA single premium
and media annuity. The best choice between these two depends
on variety factors, including who you want to cover, your
time horizon, and the potential for beneficiary protection. So who

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might benefit from a SPEAR. These are people who are
in or nearing retirement and need guaranteed income soon. Income
payments are generally fixed and are calculated at the time
of purchase based on the income auction that you select.
Deferred income annuities or for people with more time until

(18:32):
retirement than who have more flexibility. In many instances, you
can make additional purchase payments into the contract, which will
increase the guaranteed income amount for a future date if
income is not needed immediately. A DEIA typically provides higher
income payments than a SPEAR because it has more time

(18:54):
to vest those deposits. Timings another one, income begins within
twelve months after the purchase payment is made. On a speA,
income does not begin until at least thirteen months after
the last purchase payment, and that depends on the company.

(19:17):
Some benefits Some spias may offer inflation protection or the
ability to withdraw a portion of the contract, which may
impact your innuity payments. Somedas may offer features like inflation protection,
the ability to change the payment start date, and the

(19:40):
payment acceleration, although these features may impact your innuity payments
because depending on this, some of them may have fees,
but it does depend on the carrier. The benefit of
a fixed income annuity is that some risks such as
longevity risk, mark volatility, and sequence of returns are transferred

(20:03):
to the insurance company. However, once the contract is purchased,
you generally cannot cancel your contract and there is no
contract value to take withdrawals from, so it's important to
have other liquid assets in place, and there are provisions
in place to double check for this before the time

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I purchase. So let's talk about some objections I get
for annuities. Annuities are too expensive, so my response to
that would be fees are part of any financial product,
but annuities provide benefits that many other vehicles can't match,
like guaranteed income for life or protection from market downturns.

(20:51):
And I can always run a side by side comparison
of an annuity versus a traditional drawdown strategy. That's easy.
What about the argument I've heard annuities are too complicated.
There are many types of annuities out there. Yes, so
they can be confusing, but most clients don't need to

(21:13):
know all the mechanics and or the details like I do.
We can talk about predictable income, tax deferral, legacy planning, etc.
Whatever falls under your criteria or need. Think of an
annuity as like a monthly paycheck or a personal pension

(21:35):
that you cannot outlive. I can make an annuity for
as short or as long a period as you want.
It just depends how you want to flex that money.
A lot of people say, well, I don't want to
lock up my money. So many annuities have liquidity features.

(21:57):
Many modern annuities include free withdraw provisions. Some companies ten
percent after one year and every year following after your anniversary.
Some companies will say if you don't take a ten
percent withdraw in the first year, but you do in
the second year, they would let you withdraw up to

(22:18):
twenty percent. There are also annuities that have nursing home
or confinement waivers that would allow you more access to
your money if you meet certain criteria i e. You
go into a nursing home or an assisted living facility.
Does depend on the contract. They're not all the same,

(22:40):
and it can't be a short term skilled nursing visit
that you would recover from. There are also options for
return to premium options out there. Now there's sometimes a
fee for that because nothing's free, but you can also
have that and or or if you were to die tomorrow,

(23:03):
usually that asset would transfer to a named beneficiary. So
those are just some ways I can show you how
annuities can be both safe and or flexible. But that
really knocks down the whole liquidity questions that I get

(23:26):
regarding your money being locked up. How much of your
portfolio do you want to protect from risk? That would
probably be my first question. That's usually what drives people's
track to go pick up an annuity, so don't forget.
I give monthly virtual meetings regarding Medicare. I do two

(23:50):
different companies every month. One's normally well Mark, the other
ones United Healthcare. In one meeting, I cover Medicare supplement
plans with a standalone drug plan, and that meeting is
sponsored by well Mark, United Healthcare is my other plan
that I do. I cover Medicare Parts C. I'll talk
about Medicare advantage plans and the four parts of Medicare

(24:14):
and discuss all the benefits and services of that type
of platform. Some of my upcoming dates are going to
be July fifteenth and seventeenth, August fourteenth and August nineteenth,
and my dates in September will be September sixteenth and
September eighteenth. You can call our office at five six

(24:38):
three three three two two two zero zero for the
zoom meeting codes and additional dates and times. You're also
welcome to email me at craigat Craigshillig dot com and
that's my name, cr Aig at Craig S C h

(25:01):
I L l I G dot com. I'd be happy
to send you the virtual zoom link meeting codes. This
is Craig Schillig with Safe Money.