SAFE MONEY - 4-12-25

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 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

(00:22):
using 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 those via zoom every month, or

(00:44):
you can email me at Craig at Craigshillig dot com
and that's my name, cr Aig at cr Aig s
cchi l l ig d dot com. I'd be happy
to send you the zoom link meeting codes. Today I'd

(01:07):
like to discuss annuities and also to focus on the
month of April is known as Financial Literacy Month. I
have ten tips for financial for Financial Literacy Month. The
ten tips are create a budget, track your spending, be

(01:28):
smart about your debt, save for emergencies, save for the future,
live within your means, plan for big expenses, be mindful
of credit, educate yourself, and don't be afraid to ask
for help. Throughout the month of April, many organizations across

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the country celebrate Financial Literacy Month making smart choices about
managing their financial lives. So let's go back to my
top ten tips for financial Literacy Month. Create a budget.
Start by calculating your monthly income and expenses. Use this
information to create a budget that works for you. You

(02:15):
can do this simply on a legal pad, or there's
several different software items out there, even on your iPhone
you can do to start creating a budget. Track your spending.
Keep track of every dollar you spend to help you
stick to your budget. Be smart about debt if possible,

(02:37):
avoid taking on any debt. If you must take on debt,
be aware of interest rates and make sure payments fit
into your budget. You want to save for emergencies. You
want to set aside some money each month in case
of emergencies. Save for the futures. Start saving for retirement

(02:58):
as early as possible to give your money time to grow.
And when we're talking about time, you need to think
of twenty thirty, forty fifty years, not five and ten years.
Live within your means. Try to live within your means
by avoiding unnecessary expenses and making smart purchasing decisions. Plan

(03:23):
for big expenses, whether it's a down payment on a
house or a new car. Plan ahead for big expenses
by saving up and making informed decisions about financing options.
Be mindful of credit behaviors that lead to carrying monthly
balances and spending more than the otherwise would with cash

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or a debit card can lead to more financial problems
than if you avoided using credit altogether. Educate yourself, learn
about personal finance and investing so you can make informed
decisions about your money. Asking for help. Don't be afraid

(04:05):
to ask for help from a financial advisor or a
financial professional you know out there. Ask around. Everybody knows one,
get some referrals, Go talk to a professional. Are annuities
right for retirement? Planning for retirement requires careful consideration, especially

(04:30):
when it comes to securing a reliable income stream. Annuities
are often marketed as a safe and dependable option, promising
guaranteed payments for life. However, while they may seem appealing,
annuities can with complexities. Excuse me. Annuities can come with complexities,

(04:50):
high fees, and potential risks that can impact your long
term financial security. Understanding both the benefits and the drawbacks
of annuities is essential to making an informed decision about
your retirement strategy. An annuity is essentially an insurance contract.

(05:10):
The insurance company collects premium payments for a certain period
of time, they invest the money at a certain earning rate,
and then at some point they'll make monthly payments to
you for a certain period of time. The primary difference
between an annuity and a life insurance policy is that
annuity benefits are paid to you during your lifetime rather

(05:33):
than to your beneficiary after you've passed away. There are
different types of annuities for retirement, and differences between them
revolve around when benefits start and whether the earning rate
is the earning rates if they're fixed or variable. Essentially,

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this allows you to choose from four different combinations of
types of annuities. Media annuities, deferred annuities, fixed annuities, variable annuities.
So let's talk about immedia annuities first, sometimes called spios.
Your benefit payments begin almost immediately, typically you make a

(06:17):
large one time contribution or premium payment, and then within
most companies are going to be within twelve to some
maybe eighteen months, the insurance company would start paying you
benefits deferred annuities, on the other hand, or your benefit payments.
Your benefit payments don't begin for a while. Typically you

(06:39):
make a monthly, quarterly annual premium payments over several years. Now,
some of you may have deferred annuities that are five, ten, fifteen,
in some cases twenty five years old. With both immediate
and deferred annuities, you can choose between a fixed or
variable earnings rate. Now let's talk about fixed annuities. The

(07:01):
insurance company guarantees a certain interest rate on your money.
This provides a predictable income stream. However, depending on that rate,
it may not keep up with inflation over time. It
just depends. Variable annuities, your returns are based on the
performance of investments you select, such as mutual funds. This

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offers the potential for a higher RATEAR return, but also
comes with greater risk. In lieu of the higher RATEAR return,
you also do have a higher risk threshold in variable annuities.
Some concerns to consider while annuities can provide a steady
income stream, they come with certain dangers and complexities the

(07:45):
retirees must be aware of. A Couple of them are
over reliance on annuities. One of the primary dangers posed
by annuities is people's tendency to over rely on them
to meet their retirement needs. Your retirement cash flow needs
to meet your living expenses, which will increase with inflation

(08:06):
for as long as you live. Your retirement cash flow
must also grow with inflation, or your retirement lifestyle will
deteriorate if you don't keep up with inflation in retirement,
inflation will cause you to maybe be able to buy
less and less each year, as inflation can exorbably increase

(08:32):
the price for everyday items. Annuities come with a dazzling
array of options and combinations of start dates, earning rates,
and payment options. These complexities present challenges and risks that
retirees must manage. This issue becomes more acute for individuals

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aids fifteen above, who have less time to recover from
such financial setbacks, are often the preferred demographic for annuities,
leading to in some cases abuse or false promises. Depending
on the type of insurance contract, especially if it's not

(09:15):
appropriate for that given case. Many annuities provide fixed payments
which do not adjust for inflation. Over time, the purchasing
power these payments can decline, leading to a reduced standard
of living. Some annuities offer inflation protection, but this ticlarly
comes at the cost of a lower initial payments. Annuities

(09:39):
do have some liquidity constraints. There are surrender charges and
penalties for early withdrawal. Every contract is different, so you
have to understand the contract you're going in. In some cases,
that can limit your access to funds and emergencies. This
lack of liquidity can be significant drawback for retireing who

(10:00):
may need flexibility in accessing their savings. Annuities offered tax
deferred growth withdrawals or taxes ordinary income, which can be
higher than capital gains tax rates. If you would draw
funds before age fifty nine and a half, you may
be subject to a ten percent federal tax penalty, so

(10:22):
please keep that in mind evaluating annuities in your retirement plan.
Given complexities and potential pitfalls, it's crucial to carefully evaluate
whether an annuity aligns with your retirement goals and financial situation.
So consider some of these following steps. Assess your income needs,

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Understand the terms of the contract. Consult a professional advisor
to help you explain the contract to them, and in
some cases it may not be the right choice and
you may have to consider an alternative. Determine how much
income you'll need in retirement and whether annuities and annuities
fixed payments will be sufficient to cover those needs, considering

(11:10):
inflation and potential unexpected expenses. What we do in my
office a lot is sometimes we'll do a three or
a five year a media annuity. That way we can
adjust for inflation three or five years in the future.
Thoroughly review the annuity contract, paying close attention to fees,

(11:32):
surrender charges, and financial strength of the issuing insurance company.
Surrender charges are involved in all annuities, and that's because
you tell the insurance company you're going to give them
a chunk of money. They need to be able to
invest those in long term bonds in order to pay
you the crediting rates that they promise. So annuities like

(11:56):
CDs usually have a surrender charge based on a time period,
and it depends on the contract. Some can be as
low as three years Some can go out ten or
fifteen years, depending on the contract. Please talk to a

(12:17):
professional advisor. They can provide unbiased guidance on whether an
annuity is suitable for your situation. Explore other retirement income
strategies such as difviden pain stocks, bonds, or systematic withdrawal
plans from a diversified investment portfolio. I don't have a
problem with that, Just remember that when you're dealing with
an alternative, remember that there are market risks and inflation

(12:42):
risk involved with that decision. The beauty of annuities are
they're guaranteed. Annuities can offer a guaranteed income stream and retirement.
They do come with significant risk and complexities. It's essential
to thoroughly understand these and consider whether they align with

(13:02):
your financial goals and risk tolerance. Consulting with a trusted
financial advisor can help you make informed decisions and avoid
potential pitfalls associated with annuities. Now the majority have polled,
financial clients agree and financial advisors annuities make client retirements

(13:29):
less stressful. Market volatility, product complexity, and rampant misinformation all
drive the case for advisors helping clients get much needed
lifetime income As annuity sales continue to climb across the industry,
new research suggests professionals are finding an added benefit in

(13:52):
the products beyond income guarantees and downside protection. One they're
finding stronger client relationships. Because annuities can be complex, they
often require more in depth discussions with clients, which can
open opportunities for advisors to strengthen trust and engagement. The
findings also underscore the broader role annuities play in helping

(14:15):
clients navigate market uncertainty. Nine in ten advisors surveys said
annuities provide protection against volatility, while eighty six percent said
the products contribute to portfolio diversification. One piece of research

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from the Alliance of Lifetime Income found annuities can help
retires cope with anxiety brought on by inflation and rising
costs of living. Out of the thirty seven percent of
respondents who said they'd started claiming Social Security benefits, twenty
eight percent agreed it's wise to start early, as they

(14:59):
were concer learned about future payment cuts, social Security, getting depleted,
or dying before their retirement age. Still, adoption among clients
remains relatively muted, respondents to nationwide researches estimate that only
about twenty seven percent of their clients currently hold an annuity,

(15:22):
even though most said they would prefer that closer to
thirty eight percent did. Among the hurdles to wider usage
are client perceptions. While annuities have certainly come a long way,
sixty percent of advisors said clients view the products as
overly complex, while seventy eight percent reported that clients hold

(15:44):
negative preconceived notions about annuity products. More than half of
respondent said medias such as podcasts and television commentary, we're
contributing to client hesitancy. While it's fair for commenters. While
it's fair for commentators to discuss why annuities might not

(16:06):
be right for every investor, some investors may interpret that
as meaning they are not right for any investor, and
that is not true. Fifty four percent of surveyed participants
said they want more client ready materials explaining annuities as
guaranteed income option, while forty three percent that are looking

(16:27):
for content on how annuities can fit into broader financial
planning conversations. So let's talk about understanding the behavioral benefits
of annuities. Financial professionals tend to emphasize the strong quantitative
benefits and nuities provide, yet it's the emotional and behavioral

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benefits that often make them ideal for consumers. Demand for
annuities has been soaring as the result of a combination
of factors ranging from market dynamics to demographic trends and
product innovation. In fact, Limera projects sales will increase ten

(17:11):
percent from a year ago, which would surpass the three
hundred and fifty billion mark, further bolstering the growth of
the annuity market. Geopolitical instability and economic conditions make annuities
an attractive option for individuals looking to create more certainty

(17:32):
in their retirement. These factors, along with the proliferation of
financial product options and features, have made the retirement planning
landscape more complex for those in or nearing this next
phase of life. In addition, retirees face risk factors that
weren't present in their accumulation years, such as sequence of

(17:56):
return risks, inflation, and of course, longevity concerns, further complicating
the retirement landscape. Behavioral economists economics show that emotion often
influences our actions and in actions with respect to our finances,

(18:19):
even when that's at odds with our own best interest.
As a result, many retirees exhibit suboptimal behavior and don't
practice the prescribed approaches to systematic drawing down assets and retirement. Instead,

(18:40):
they constrain spending and may even continue to save. It's
the emotional and behavioral benefits of annuities that often make
these solutions the ideal choice for some consumers. This is
particularly important now as we see confidence waning in the
market when it comes to financial security in retirement. Confidence

(19:05):
in one's ability to live comfortably in retirement is declining.
According to a recent New York Life. Recent study New
York Life conducted in partnership with Mourning Console, in twenty
twenty three, sixty four percent of workers felt very or
somewhat confident, down from seventy three percent the prior year. Further,

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consumers are apprehensive about several factors impacting their retirement, including
prolonged high inflation, increasing costs of living, increasing volatile markets,
and more. According to the Greenwald Research Retirement Confidence Survey
of twenty twenty three, when it comes to spending in retirement,

(19:50):
contrary to economic theory, only a small minority of retirees
are Following the four percent withdrawal rule rate, retirees withdrawal
from savings and investments, while nearly a third don't take
money at all, according to the New York Life Research,
to manage higher costs of goods and services, retirees are

(20:12):
reducing discretionary spending or adjusting their spending rather than withdrawing
money from their savings. This is an overly conservative approach
that can impact their ability to enjoy their retirement years
that they've worked so hard to achieve. To help guide

(20:33):
how annuities may bring qualitative and emotional benefits on top
of quantitative ones, here are some key findings. Annuity owners
are happy and more confident than peers who don't own
an annuity. They're more confident that they will be able
to retire after anticipated retirement age ninety six percent of

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annuity owners versus sixty eight percent of non annuity owners. Secondly,
annuity owners are more confident that retirement savings will last
the rest of their lives. Seventy eight percent of annuity
owners say their varier somewhat confident versus sixty one percent
of non annuity owners. And Lastly, they're more satisfied with retirement,

(21:22):
seventy five percent of owners say very or somewhat satisfied
versus seventy one percent of non annuity owners. Annuity owners
make better financial choices in a few ways. They have
higher levels of spending, greater equity allocations, and they do
more buy and hold investing. Further, more than two thirds

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say it allows them to spend more on discretionary items
than they would have otherwise, and more than two thirds
say annuities allow them to take greater investment risks with
other assets than they otherwise would. In addition, eighty five
percent of annuity owners say ONNY annuity helps them budget

(22:08):
more effectively. Financial professionals can play a key role in
helping clients overcome suboptimal behaviors by recommending strategies that offer
an opportunity to generate consistent retirement income. Guaranteed income solutions
backed by highly reputable insurance companies and other insurance products

(22:33):
is part of a comprehensive retirement plan. Advisors can help
deepen clients understanding about the way annuities can play a
significant role in one's retirement satisfaction as a result of
the emotional and behavioral benefits they can provide. If we

(22:55):
go back a couple weeks ago April second or third, uh,
all of my annuity clients they didn't lose any money. Remember,
no one likes annuities. They like what annuities do. Again,
annuities are boring, they're not sexy. You don't talk about

(23:18):
them at cocktail parties. But everyone likes what annuities do.
If you need more help with that, or you want
to talk about that, let's get together and talk. I'd
be happy to show you different annuities strategies that can
probably help the current retirement strategy you have in place. Now,

(23:41):
don't forget. I give monthly virtual meetings regarding Medicare for
two different companies every month. In one meeting, I will
cover a Medicare supplement plan with a standalone drug plan.
That meeting is sponsored by well Mark. United Healthcare is
a sponsor. For my other virtual meeting, I focus on

(24:03):
the Medicare advantage plan known as Medicare Parts C, and
I cover the benefits of that platform in addition to
the four parts of Medicare. My upcoming meeting dates are
as follows. This week, it'd be April fifteenth and April seventeenth,

(24:26):
I'll be also talking on May tenth and May twenty second.
In June, I have meetings scheduled for June seventeenth and
June nineteenth, and then my July dates are July fifteenth
and July seventeenth. You can call our office at five

(24:50):
six 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 Craig at Craigshillig dot
com and that's my name, c R a I G
at c R a I G S c h I

(25:14):
L l I G dot com. I'd be happy to
send you the virtual zoom link meeting codes for those meetings.
This is Craigshillig with Safe Money.