Safe Money - 5-4-24

Episode Transcript

(00:00):
Good Saturday morning to all on thisfirst Saturday in May twenty twenty four.
Dick sheilligear and this is safe Money. We are here every Saturday our listeners
about keeping money safe in today's veryunsafe world. This being May, I
want to remind all of you thatthere are only one hundred and twenty days

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remaining to the thirtieth annual Run withCarl. Run with Carl is on Labor
Day, September two, So takeadvantage of that early registration fee. Get
registered for Run with Carl. Dothat today, talking about a new month,
I want to remind every one aboutour virtual community meetings here coming up

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here on May twenty first and Maytwenty third, the concentrate on Medicare.
On Tuesday, May twenty first,we talk about the basics of Medicare and
then focus on the Medicare supplement plansthat are available. We call there are
ten Medicare supplements and we get tochoose one of these Medicare. We get

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to choose one of these ten Medicaresupplement plans. So that's our topic of
presentation on Tuesday May twenty first.Then two days later, on Thursday,
May twenty third, we talk aboutthe basics of Medicare and then focus on
the alternative to original Medicare, andthat alternative is Medicare Parts C. That's

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the advantage plan, and in particular, what we believe is the more competitive
of the Medicare advantage plans, andthat plan is the AARP Medicare Advantage Plan.
Now AARP is not the insurance company. Insurance company is United Healthcare.

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But United Healthcare accepts the logo andthey pay for the logo from AARP allowed
to use the AARP on their Medicareadvantage plan. But keep in mind the
insurance company is United Healthcare. So, folks, if you are aging into
Medicare, turning age sixty five andinitially becoming eligible for Medicare, I know

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you are being inundated with solicitation requestsfrom lots of companies and lots of products.
How do you make sense of itall? Well, be one of
our attendees that are Medicare information meetingsand be able to say, now,
I understand the choices I have forMedicare. Again, if you are aging

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into Medicare or helping someone who isaging into Medicare, I know you will
be confident in your understanding of medicareas a result of participating in these informational
meetings Again Tuesday May twenty first andThursday May twenty third, call us an
advance called Craig at six three threethree two twenty two hundred to determine how

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you register for these meetings and participatein these meetings virtually. It's all about
keeping our valued retirement assets safe intoday's very unsafe world. In planning for
retirement or continuing to plan for retirementwhen we are retired, we often hear

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and read about the four percent rule. What is the four percent rule?
Well, if you are nearing retirementor recently retired, you may wonder what
I can achieve this four percent rule, And you know what the four percent

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rule is, simply a guideline.The US inflation rate is at three point
four percent, compared to three pointone percent last Monk month and four point
nine percent last year. This ishigher than the long term average of three
point two percent. The US inflationrate is the percentage in in which a

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chosen basket of goods and services purchasedin the United States increase in price over
a year. Inflation is one ofthe metrics used by the Federal Reserve to
gauge the health of the economy.Since twenty twelve, the Federal Reserve has
targeted a two percent inflation rate forthe US economy and may change may make

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changes to monetary policy if inflation isnot within that range. So a notable
time for inflation was in the earlynineteen eighties. During the recession. Inflation
went as high as fourteen point ninepercent during the nineteen eighties. We've heard

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about different guidelines in planning for retirement. One of these guidelines is the four
percent rule, the potential for savingsto last thirty four years if your retirement
nest egg earned four percent each year. The four percent rule is a guideline
for retirement. When we retire atsixty two, we add thirty four years

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if we're using the four print fourpercent rule, and then our retirement asked
us would support us until age ninetysix. The question is when the question
is where can you obtain a fourpercent interest earning for a period of thirty
four years? So the four percentrule is a guideline. I would like

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to present a new guideline to considerin planning for retirement, and this new
guideline is the split annuity strategy.Now coming back before we go to the
split annuity strategies, coming back tothe four percent rule. How does the

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guideline of the four percent rule work? Well, it works like this.
Let's say you retire. Your retirementnest egg is one million dollars, so
you would withdraw forty thousand dollars thefirst year. In subsequent years, you
would adjust your withdrawal for inflation tokeep up with the rising living costs.

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So if the inflation rate is threepercent in year one, then you would
withdraw forty one two hundred dollars inyear two, and this would repeat year
after year after year. Inflation adjustmentswill lead to higher annual withdrawals over time.
However, your retirement portfolio may beearning investment return turns at the same

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time, which would help balance theseincreases and make your portfolio last longer.
Hypothetically, if inflation is three percentannually and your annual return is five percent,
your savings would last almost thirty fouryears. Using the four percent rule.

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For comparison, if you started withan initial withdrawal rate of five percent
or six PERCENTNS, your savings wouldlast about twenty five years or twenty years
respectfully. Of course, in thereal world, no one can predict the
rate of inflation or their investment returns. The four percent rule was developed during

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the nineteen nineties by looking at actualmarket data for different retirement years. The
study found that a four percent inflationadjusted with raw rate was sustainable over at
least thirty years in the worst casemarket situation. Subsequent research has found that

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higher withdrawal rates may be may besustainable depending on factors, depending upon such
factors as asset allocation, inflation,and market valuations at the time of retirement.
On the other hand, some analystssuggests that even four persent could be

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too high. Whatever the initial withdrawalrate you choose, it can be modified
over time. For example, itmay not always make full adjustments for inflation,
or you may take higher withdraws whenmarket returns are higher and lower withdraws
and returns are lower. An appropriatestrategy will depend on your personal situation,

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including your portfolio's value, your otherincome sources, your retirements men, your
time frame, and your risk tolerance. You may benefit from a professional analysis,
although there is no assurance that workingwith a financial professional will improve investment
results. A professional can evaluate yourobjectives and available resources and help you consider

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appropriate long term financial strategies, includingyour withdrawal of strategies. All investments are
subject to market fluctuations, risk,and potential loss of principle. When sold,
investments may be worth more or lessthan their original cost. US Treasury

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securities are guaranteed by the Federal governmentas to the timely payment of principle and
interest. The principal value of Treasurysecurities fluctuates with market conditions. If not
held to maturity, they could beworth more or less than the original amount
paid. Asset allocation and diversification aremethods used to help manage investment risk.

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They do not guarantee a profit orprotect against investment lost. Rebalancing involves selling
some investments in order to buy others. Selling investments may be a taxable account
that could result in a tax liabilityas well. Now, I'd like to

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share with you an alternative to thatfour percent investment rule as a guideline.
And then alternative is our split annuitystrategies. Now, there is no insurance
company that offers a split annuity,but there is a concept or an idea

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of taking a sum of money andsplitting it between between one or more annuities.
For example, let's take one hundredthousand dollars, that's a retirement account.
If we split that one hundred thousanddollars into two annuities. We would
take one annuity, which would bean immediate annuity, and place twenty thousand,

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five hundred dollars in that immediate annuity. Now, we would spend down
that immediate annuity over five years orsixty payments, and that would result in
a gross income of three hundred andfifty four dollars per month. Now,
because this is an immediate annuity,and of course we're spending on principle and

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a little bit of interest every monthof that five year period, but the
value after five years, the valueof this immediate annuity would be spent down
to zero. We would have paida little more then we put into it.
We put twenty thousand. We puttwenty thousand, five hundred dollars into

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this immediate annuity, and it paidout sixty times three hundred and fifty four
dollars, So it paid out alittle more than what we put into it.
But the point is is that aftersixty payments. After sixty months,
the value would be down to zero. Now what do we do now,

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Well, for income purposes, rememberwe start out with one hundred thousand dollars
and we put twenty thousand, fivehundred dollars into this immediate annuity. So
the balance of the funds are seventynine thousand, five hundred dollars. So
we put that money into a fiveyear tax deferred index annuity. Now the

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index annuities we have today, Ihave a company that is paying a thirty
five percent bonus on my money placedin that annuity. So if I take
thirty five percent of seventy nine thousand, five hundred dollars, the amount of
premium in that fixed index annuity atthirty five percent, that will give me

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an additional twenty seven thousand, eighthundred and twenty five dollars. So now
I would have a total of onehundred and seven thousand, three hundred and
twenty five dollars in this fixed indexannuity. So the one hundred thousand dollars
that we started out with, wehave exceeded that in that first year.

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Remember, out of that one hundredthousand dollars, we put twenty thousand,
five hundred into an immediate annuity thatpays three hundred and fifty four dollars a
month four sixty months. But thebalance of the money, seventy nine thousand,
five hundred dollars, received a thirtyfive percent bonus. So that's a

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terrific bonus. That means that thatfive year fixed index annuity would start off
with one hundred and seven thousand,three hundred and twenty five dollars, so
that succeeded the initial investment that wehave. So this split annuity concept,
my gosh, is a concept thatshould be considered. It should be considered

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as an alternative, for as analternative to that four percent investment rule.
Now I can do that with nonqualified money as well as qualified money.
Remember the difference between the two.Qualified money is anything but part of a
pension plan or a retirement plan Afour oh one K and IRA a four

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to oh three B that would bequalified. Anything that represents qualified money is
can be used for these for theseannuities. Now for non qualified money,
the huge benefit of this split annuityarrangement is this is the tax advantages the

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exclusion ratio. Remember the exclusion ratio, which still exists today, applies to
money in The exclusion ratio says thatany money received from an immediate annuity that
represents return of principle is excluded fromreporting for tax purposes. So out of

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this twenty five hundred dollars placed inthis immediate annuity that we're going to spend
over a period of sixty months willspend down, So ninety six percent of
that three hundred and fifty four dollarsis non reportable for tax purposes. So
about four and a half percent isonly reportable for tax purposes. So that's

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a huge huge benefit. Now,if I increase the amount of that split
annuity to one two hundred thousand dollarsasset, and I put two hundred thousand
dollars into a split annuity, thenthat two hundred thousand dollars I would place
thirty nine thousand, four hundred andthirty dollars into a five year immediate annuity

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that would pay seven hundred dollars amonth sixty times for a period of five
years. So ninety four percent ofthat seven hundred dollars is non taxable if
this was non qualified money. Now, if I increase that to five hundred

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thousand dollars. If I have afive thousand dollars asset and I would place
one hundred and eight thousand dollars intoa five year non qualified immediate annuity,
then almost ninety nine percent of thatmonthly income of eighteen one eight hundred and

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six dollars would be non reportable fortax purposes. My gosh, that's a
tremendous benefit. If you like payingtaxes, if you enjoy paying taxes,
then this strategy is not a partof your consideration. But if you'd like

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to minimize tax payments, boy,there is no better way to minimize tax
payments than the use of these splitannuity strategies, and especially with the non
qualified split annuity strategy. Because thenon qualified has the greatest amount of exclusion

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for that immediate annuity, the deferredannuity will continue to be income tax deferred.
You will not pay any or notreport any income or on the interest
earned on the deferred side until youbegin making with raws. When you begin
making with raws, then those areraws would be taxable at the rate of

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tax that you're in. But again, I want to repeat that the strategy
of using the split annuity is tremendousfrom a tax perspective for both qualified and
non qualified money. It has agreater greater significance with qualified money. I

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said that wrong. There's a greatersavings from the non qualified split annuity than
there is from the qualified split annuity. So again, if I take a
five hundred thousand dollars out of that, and that's non qualified money, I
would out of that five hundred thousanddollars, I would place one hundred and
eight thousand dollars into a five yearimmediate annuity. This immediate annuity would pay

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eighteen hundred dollars a month for aperiod of sixty months or for a period
of sixty payments. But out ofthat eighteen hundred dollars, ninety nine percent
of that is non reportable for taxpurposes. Now you have some tax benefits
if this is qualified money, butit has much greater impact for non qualified

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funds. So I asked you totake a look at that listeners the split
annuity strategy. We have information onthat split annuity strategy. So if you'd
like to have information on that,call me at five sixty three three three
to two twenty two hundred or youcan email me too as go to my

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website. Go to dickshillig dot comand scroll over to the icon for contact
information. Pick up my phone numberor pick up my email address from that
icon and drop me an email.Tell me about your situation, and I'll
be happy to respond to you byemail telling you how this exclusion ratio quote

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impact you. As a huge,huge impact, I would take advantage of
it, certainly, certainly take advantageof it. Reminder that our May community
meetings are coming up here on Maytwenty first. That's a Tuesday, May
twenty first and Thursday, May twentythird. These meetings focus on Medicare.

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On Tuesday, May twenty first,we talk about the basics of Medicare and
then we focus on the ten medicCare supplement plans that are available. Remember,
you get to choose one of thoseten Medicare supplement plans. Now prescription
drug plans. My gosh, thereare over eighteen prescription drug plans available in

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this Medicare region. You get topick one of those prescription drug plans.
So if you choose original Medicare,remember that's the three card system. You
have your Medicare card, you haveyour Medicare Supplement card and you have your
prescription drug card. That's the threecard system. And that's one choice would

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you have when you are eligible forMedicare. The second choice that you have
is that you have the second choicesbeing the Medicare advantage plans. And there
are eight advantage plans in these Medicareregions. And we believe that the more
competitive of the Medicare advantage plans isone offered by United Healthcare, and that

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is called the AARP Medicare Advantage Plan. It's called the AARP Medicare Advantage Plan.
We believe that it is the morecompetitive of the Medicare advantages available in
these regions. Now, AARP isnot the insurance company. The insurance company
is United Healthcare. United Healthcare isthe largest provider of Medicare products in this

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country. And United Healthcare offers amore competitive of the advantage plan, and
that advantage plan is THEAAERP Medicare AdvantagePlan. So if you'd like to have
some additional information on that, pleasecall us at five six three three three

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two twenty two hundred. Call usto enroll and to receive information or instructions
on how to participate in these virtualcommunity meetings. When we offer the virtual
community meetings, you stay in yourown home, you use your own computer
equipment, and then using that computerequipment, you tune into the Medicare advantage

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plan that we offer on May twentyfirst and May twenty third. So in
order to do that, you callus call Craig at five six three three
three two twenty two hundred, orgo to my website. Go to Dickshillig
dot com, scro all over tothe contact icon and get information on how

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to participate in these meetings. I'msure you will find these meetings very,
very worthwhile and be one of thoseattendees in the past who have said,
boy, now I understand the choicesI have with Medicare, and my gosh,
when we have ten Medicare supplements andwe have eighteen prescription drug plans,

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and we have eight advantage plans,and you get to choose only one of
each of those. If you're anoriginal Medicare, you choose a Medicare supplement
and you choose a Medicare prescription drugplan. That's original Medicare. That's what
we call the three card system.You have your Medicare card you have your

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Medicare Supplement card and you have yourMedicare Advantage card. The alternative to original
Medicare is the Advantage plans, andwe offer information on the Advantage plans on
Thursday May twenty third at ten o'clockin the morning. When you have an
advantage plan, you have what wecall the one card system. You only

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have a single card that represents yourmedical coverage card as well as your prescription
drug card. There are pros andcons to each of these alternatives. We'll
be happy to share with you whatthose pros and cons are. Feel free
to participate in these Medicare meetings onceagain. Call us at five sixty three

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three three two twenty two hundred,or email me by going to my website.
Go to tikshilling dot com, scrollover to the icon, the contact
icon, and pick up my emailaddress and send me a note by email.
That's about all I have for youtoday. Have a great, great
weekend, good day,