RJS 6-7-25

Episode Transcript

Speaker 1 (00:00):
Good morning. Do all. Craig Schillig 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,

(00:20):
like using annuities as safe money harbors or 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

(00:40):
do those via zoom. I give two every month, or
you can email me at Craig at Craigshillig dot com
and that's my name, cr Aig at cr Aig scchi
lll ig dot com. A few of my upcoming dates

(01:04):
for meetings are going to be June seventeenth and June nineteenth,
July fifteenth and July seventeenth, and then my August dates
are the fourteenth and the nineteenth. Let me know if
you need more information on that. June is designated as

(01:27):
a National Annuity Awareness Month by the Coalition for Annuity
Awareness This month is focused on educating consumers about the
role and benefits of annuities, to encourage consumers to consider
them for meeting their financial goals and seeking professional advice

(01:48):
for implementation. Let's talk about how an annuity might help
your retirement goals, and please remember nobody likes annuities. They
like annuities do so why would I consider a fixed
indextinuity sometimes called an FIA. Instead of being directly invested

(02:11):
in the market, Fixed indextenuities give you the opportunity to
pursue additional asset growth beyond a guaranteed rate by providing
interest credits based in part on the performance of an
external market index. Your money will be protected from market

(02:33):
downturns and you will never earn less than zero In
exchange for this protection, any growth will be subject to
a limiting mechanism also known as a cap spread in
or a participation rate, which basically means that you can
only earn so much if the account does thirteen percent.

(02:58):
Even on most aggressive caps are going to be probably
between three and six percent at most, and that's maybe
with or without a fee. In addition to the growth
potential and protection from market volatility. Fixed index annuities provide

(03:22):
the opportunity to receive a retirement paycheck that can last
a lifetime. That is arguably the number one benefit of
all annuities. And I'll just throw something out. Every so often,
I'll have a client come in who's got an annuity
that is, you know, ten twelve years old, and they've

(03:44):
had it and depending on when they bought into the market,
determines what their rate is at the end of that period.
Between twenty eighteen and really up till the last quarter
of last year twenty twenty four, the market has done

(04:05):
remarkably well. This year, it's done well, but it's been
very volatile. You can't really compare this year to twenty eighteen,
and it's a lot different if you're only forty or
fifty compared to you being in your seventies. So sometimes
I get people to say, well, this wasn't a good

(04:25):
deal because I only made you know, three or five
percent over a ten year period. Well, during the down markets,
you didn't lose any money. So you have to take
that into consideration there, because if you would have had
that in straight equities or money or mutual fund accounts,

(04:48):
if you came into my office the end of April,
your account would have been fifty percent less than it
was in March, so just keep that in mind. Other
features and benefits annuities may provide, either optional or built in,
include premium bonuses, enhance liquidity, a death benefit, and much

(05:10):
much more. It makes sense that people may be apprehensive
to purchase something they may not fully understand. But if
you're looking for a way to supplement your retirement portfolio
with a product that can help lead you towards the
happy and secure retirement you dream of, contact your financial

(05:31):
professional today. After a thorough discussion about the pros and
cons of each option, you will be more prepared to
make a confident and informed decision. You may just find
out that a fixed indexinuity is right for you. Fixed
indexinuities were introduced in nineteen ninety five. These innovative products

(05:52):
were designed to offer greater interest earning potential than traditional
fixed income alternatives, while providing protection from the risk of
our little market. This combination of potential and protection has
made fixed indexinuities one of the most popular types of

(06:14):
fixed annuities on the market today. According to a survey
from the Center for retirement research at Boston College. While
seventy six percent of respondents believe it's valuable to own
a guaranteed lifetime income product and half are willing to
buy one, only twelve percent actually own one. This suggests

(06:39):
that people may not be deterred by lack of interest,
but by lack of familiarity with annuities and how to
buy them. To determine if a fixed indexinuity is right
for you, it's simple. It's important to have full knowledge
of how they work, how they may fit into your
overall retirement, and you do need to understand some of

(07:02):
the common misconceptions about these unique financial products. That would
be a good step for your direction. So let me
talk about some myths that are out there. I have
an article here about the five fixed index anuity myths

(07:23):
that are busted. Annuities are full of hidden charges. Annuities
are not tax efficient. Annuities can't keep up with inflation.
Annuities are e liquid. Fixed index annuities are investments. So
let's talk about myth one. First, annuities are full of

(07:43):
hidden charges, like mutual funds or any managed product. The
indices used in index interest crediting strategies may include management fees.
There may also be caps, participation rates, and spreads that

(08:04):
limit the interest credited and allow insurance companies to provide
the guarantees that those contracts provide. Any and all fees
associated with annuities should be fully disclosed by your financial
professional and the insurance company that issues the contract. If
you choose to add a writer or other optional features

(08:26):
to the policy, there's often a charge in exchange for
that added benefit. Withdrawal charges may also be incurred, but
only if you surrender the contract during the withdrawal charge
period or withdraw money beyond the amount allowed in the

(08:49):
contract without a charge. Withdrawal charges. So most contracts today
will give you a ten percent right a withdrawal, usually
after the first year, so on the twelfth or thirteenth month,
and every year after that. Some newer contracts today. If
you don't take ten percent in the first year, but

(09:12):
you need some money in the second year, some contracts
today will let you take twenty percent in the second year.
Now the third year we go back to ten. But
some contracts are offering that type of flexibility. So not
all companies are the same, not all annuities are the same,
So keep that in mind. Let's talk about the myth

(09:35):
that annuities are not tax efficient. Annuities are long term,
tax deferred products and can be a valuable solution for
those looking to grow their retirement savings. Annuity earnings will
grow on a tax deferred basis until you begin taking
withdrawals or surrender the annuity. Over time, you will have

(09:57):
the potential to build more retirement savings then you would
have been able to had your earnings been taxed as income.
You may recall I did a comparison while back in
another show about CD versus an annuity, and that has
to do with taxable interest growth versus tax deferred growth. Remember,

(10:23):
tax deferred always wins. So if CD is offering three
percent and annuity is offering three percent, that CD is
gonna send you a ten ninety nine in January the
following year for that prior year of tax year, you're
gonna have to pay income on that interest. So if
they're paying you three percent, your net on that might

(10:45):
be one, five, one seven, depending on your tax bracket.
Where the interest in the annuity that's tax deferred, there's
no ten ninety nine created. Hence you're gonna have more
money at the end of the rainbow. Remember I said again,
death and tax is the only certainties. Yeah, keep that

(11:07):
in mind. So another myth annuities can't keep up with inflation.
Many annuities offer increased income payout rates with optional income
writers as you age. These increases can help keep pace
with the rising costs of goods and services. The higher
your age, the higher the payout. So this is certainly

(11:32):
true when we're talking about income nuity. So may I've
talked about dias in the past. So using a deferred
incommunuity also called ADA, as your last line of defense
or a hedge during a down market cycle can be
a huge asset in your overall portfolio. I've spoken in

(11:56):
the past about how an income anuity needs. Sometimes it
needs some time to age like a fine wine. Then
they'll really start to pay out. So remember life insurance
pays a death benefit upon death. The older you are,
the more the premium costs for life insurance. Annuities pay

(12:17):
you more money the older you are, So the longer
you keep an annuity and the older your age, the
more a payout that can be created from that contract asset.
So keep that in mind. Annuities and life insurance have
an inverse relationship even though they are manufactured by the

(12:43):
same type of company. They just kind of do opposite things. Okay,
Another myth. Annuities are i liquid. In many cases, deferred
annuities allow you to withdraw up to a specific, specific
percentage of the contracts accumulated value each year during the

(13:04):
withdrawal charge period without any charges. And again this is
that sometimes up to ten or twenty percent, depending on
the contract and the company. Once the withdrawal period has expired,
funds maybe withdrawn without any charges. Keep in mind, however,

(13:25):
fixed index annuities are designed to help meet your needs
for long term savings and income. Some companies today will
even let you tap into some of that capital money
that you've put into a SPIA to access it. So
there's some companies today. You come to me and you
want to buy a SPIA. SPIA is an acronym for

(13:48):
single premium and media annuity. So you give me a
check for fifty thousand dollars and the annuity company says
they will pay you a hypothetic it's called it five
hundred bucks a month every month for a period of time,
depending on how you take that asset. Most companies, when

(14:13):
you write them to check for fifty, that fifty is
then gone. Now you can have the income. Now, if
you're dead, your heirs can get the residual of that
income or a death benefit. But there's usually no additional
capital to tap. Some companies today will let you tap
a portion of that capital that you've already provided. Now

(14:36):
understand that's going to reduce your future monthly payouts. And
people usually do it monthly because that's how people budget.
But I say monthly all the time. You can still
you can get any annual check, You can get a
semi annual check, you can get a quarterly check. Most
people budget on a thirty to forty five day period.

(14:58):
Therefore they want monthly checks, and that's okay. But keep
that in mind because that's newer, younger annuity companies. And
when I say the word younger, that's kind of misleading.
A younger annuity company may only be twenty or thirty
years old, not fifty, one hundred, or a couple hundred

(15:21):
years old, depending on the company. So but newer innovative
annuity companies have seen the need for newer consumers want
newer options, and that's fine, so we can talk about
that another myth. Fixed indextinuities are investments. Fixed indextinuities are

(15:44):
insurance products that are designed to help you manage certain
financial risks associated with retirement, such as volatile markets, following
interest rates, and longevity. I don't know if you're going
to die at age seventy nine. I don't know if
you're going to live to ninety nine. You could live
to one hundred and nine. They do not directly participate

(16:09):
in any stock or equity investments. Remember the beauty of
fixed indextinuities and all annuities are. Their contracts are guaranteed.
It doesn't matter what's going on in Wall Street, it
doesn't matter who's in the White House, it doesn't matter
what the economy is doing, what the GDP says. It's

(16:31):
a guaranteed contract. The money will be there. Here's some
attractive features of annuities, growth potential and principle protection guaranteed returns.
Fixed indextinuities can provide a guaranteed interest rate, meaning clients
know how much their investment will grow over time. This

(16:54):
eliminates the uncertainty associated with other investment options. Inflation protection,
interest credited to annuities is locked in and compounds over
the years. This can help keep pace with inflation. Unlike
fixed income investments that may lose purchasing power fixed payments.

(17:17):
Once an income stream is turned on, annuities offer guaranteed
payments at regular intervals, ensuring a steady income stream regardless
of market fluctuations. This can help retires budget their expenses
more efficiently. Annuities have longevity protection that can be structured

(17:39):
to provide income for life, protecting against the risk of
outliving one's savings. This is particularly important for predictable partners
who want to ensure financial stability in their later years.
An annuity relationship can continue beyond the grave. Spousal continuation

(18:03):
is a key legacy feature and ensures that a surviving
spouse named as the beneficiary can continue to enjoy the
benefits of an annuity without having to cash it out.
Some insurance carriers and annuity products even extend legacy features

(18:24):
to non spouse beneficiaries. Annuities can help manage unexpected medical
costs and promote financial security. The cost of care in
a nursing home for just a few months, for example,
can be financially devastating. Some annuities give clients access to
their money without a penalty if they're admitted to a

(18:47):
care facility or diagnosed with a terminal condition. Modern day
annuities offer options to access additional funds due to needing
custodial care or law long term care needs. Annuities also
can be a good tool in Medicaid planning. In some cases,

(19:08):
the media annuities may help an ill spouse qualify for
Medicaid eligibility to pay for long term care. Three key
and potentially overlook tax benefits of fias. Most clients are
probably familiar with four one ks and iras, but there
are other tax advantage retirement products that can be purchased

(19:32):
with non qualified money. A fixed indexinuity funded this way
combines growth potential and protection from market downturns with tax
benefits that can complement other financial vehicles. Here are three
tax benefits of fixed indextinuities. No contribution limits, tax deferred growth,

(19:55):
and favorable tax treatment for retirement income. While qualified plans
like four to one ks and iras offer tax advantages,
they also cap how much money can be contributed each
year without irs and posed contribution limits on non qualified funds.
Fixed index annuities may appeal to clients who have maxed

(20:19):
out their annual four one k and IRA contributions. Tax
deferred growth with interest credits tied to the performance of
a stock market index. Fias give clients the potential to
benefit from index gains without investing directly in the market.
The growth within the FIA is not taxed until it's withdrawn,

(20:43):
similar to retirement saving vehicles such as four one ks
and non roth iras. Because fias can also help protect
retirement savings from market downturns, there's less downside risk than
with four oro on k ira assets that are invested
directly in the market. There are no additional tax benefits

(21:07):
to purchasing a fixed index ainuity as an IRA, you
still have to follow the IRA rules favorable tax treatment
for retirement income. Withdrawals from qualified for one ks and
iras are fully taxable. However, clients only pay taxes on

(21:28):
interest earned in their FIA funded with non qualified money.
Since its income may consist of interest in the client's
original premium, only a portion of FIA distribution may be taxable.
This feature can help clients use non qualified FIA income

(21:48):
in conjunction with fully taxable withdrawals from other sources to
help lower their overall tax burden in retirement. And that's
a key point there to remember. A lot of people
think their income tax rate will go down in retirement.
In a lot of cases that that's not necessarily true

(22:10):
because now they have no more deductions, they're not working,
the house is paid for, the kids have left the nest.
If you don't have earned income, you can't buy an IRA,
so in some cases your tax basis will go up.

(22:30):
So a couple reminders, FIA is funded through a rollover
from a tax qualified vehicle or subject to the same
tax rules as IRA or FORUR one case like a
four one K in an IRA and FIA may be
subject to federal and state income tax, and except under
certain circumstances, will be subject to IRS penalty if payments

(22:54):
start before that annuity owner reaches age fifty nine and
a half, So keep that in mind. Withdrawals that exceed
the free withdrawal amount allowed maybe subject to a withdrawal
charge or a possible market value adjustment, which could result
in the loss of principle with their tax benefits and

(23:18):
ability to provide growth potential and protection from market downturns.
Fias can play an important role within a retirement savings plan.
They can also complement other sources of growth potential and
retirement income, including stocks, bonds, and mutual funds held in
a taxable brokerage account, savings and a tax deferred account

(23:41):
like a four one K other tax advantage vehicles such
as roth IRA. Using a mix of these tools and
staying current on tax changes for the year can be
vital to helping clients manage risk and provide growth potential
before and after retirement. In my next show, I'm gonna

(24:05):
talk more about annuities because this is an annuity month.
I'll talk a little bit about spias, and I'll get
into some of the aspects of safe money strategies, and
I'll talk more about spias and fias and fixed income annuities.

(24:28):
One more item. Remember nobody likes annuities. They like what
annuities do. Don't forget. I give monthly virtual meetings regarding Medicare.
I give two different I talk about two different companies
every month, and one meeting I'll cover Medicare supplement plans
with a standalone drug plan. That meeting sponsor by well

(24:49):
Mark United Healthcare. As a sponsor for my other virtual meeting,
I focus on the Medicare advantage plan known as Medicare
Parts C, and I cover the benefits of that platform.
You can call our office at five six three three
three two two two zero zero for the zoom meeting
codes and additional dates and times. You're also welcome to

(25:11):
email me at Craig at Craigshilig dot com and that's
my name, 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
zoomlink meeting codes. This is Craig Shillig with saved money