January 26, 2022 • 45 mins
Woah! There's another part?! Woah! End of this season? I'm afraid so. We are wrapping up our final episode of Season 5 with finishing out our Annuities section. We talk about things that you may not expect when considering them. What happens if I'm collecting and I pass? Where does the money go? What if I'm already involved in it and want to change? What if I want to get started?
Join us for our Season finale of Season 5!
And yes. There's dad jokes.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Chris Holling (00:00):
This is the truth about investing back to basics
podcast where we want to helpyou take control of your
personal finance and long terminvestments. If you're looking
for a way to learn the why andhow of investing, then you found
the right place. Thank you fortaking the time to learn how to
(00:23):
better yourselves. That's okay.
I forgive you for not havingnear the quality of sense of
humor as I do. As refined as Iam.
Sean Cooper (00:40):
Refined, Yes,
Chris Holling (00:41):
yeah, that's that's not, okay. Whatever. Hi.
Sean Cooper (00:45):
I think the mustache speaks to that.
Chris Holling (00:48):
You can't you can't hear the mustache though.
So I have to emulate my, myexcellent riff refinery.
Sean Cooper (00:59):
I feel like now you need to share a picture with our
listeners.
Chris Holling (01:03):
Jeez, yeah, yeah.
Go go to go to our page. I'll,I'll share a picture today. I
actually that's what I need. Ineed somebody to request it. I
don't even care who it is. Justbe like, Hey, where's my
picture? There we go. And andthen that will prompt a fine
handlebar mustache picture.
Sean Cooper (01:23):
Indeed, very fine.
Indeed.
Chris Holling (01:25):
If nobody requests it, then that's, that
shows how little anybody caresabout a good refined mustache.
Okay, no, I'm straighteningthings out. Thank you. Hi.
Hello, everyone. Welcome back,ladies and gentlemen, to another
episode of The Truth aboutinvesting back to basics. My
name is Chris Holling.
Sean Cooper (01:45):
And I'm Sean Cooper.
Chris Holling (01:46):
And today we are continuing out our annuities
section we we talked on that.
Last I almost said last chapter.
I don't know why this lastchapter of our life. Last, the
last episode, we were talkingabout annuities, the different
types, the different ways thatyou can utilize them if it's
(02:06):
your thing, if it's good foryou. And today we wanted to
touch on I, from what I recall,we just wanted to talk about
things to watch out for. I thinkpitfalls is the word that we
used. And I I mean, I guess Idon't I don't even know what to
(02:27):
watch out for. Because when wetalked about it. Last chapter, I
talked about how I except forwhen we discussed it, I'd been
familiar with some of it indiscussions with other people.
But I'd never had a opportunityposed to do it myself or someone
saying, hey, this would be agood chance for you to look into
something. So I haven't evenlooked at a form where I could
(02:48):
go. Oh, look at that. That seemsweird. So what what types of
things do you do you think thatwe should be watching out for I
think that's what we're talkingabout, just like commandeered
this conversation without givingSean a chance to tell us what
we're actually going to talkabout. So this is what we're
talking about.
Sean Cooper (03:05):
No, that was a big part of it. We were also going
to talk about some of the placeswhere they they tend to make
sense where people typicallyutilize them.
Chris Holling (03:14):
Oh, sure.
Sean Cooper (03:14):
Because we touched very briefly on both of those
last week when we talked aboutthe different types, but not to
any great detail. So I waswanting to cover those two
subjects a little bit morethoroughly. So people have a
better idea of what they'relooking for.
Chris Holling (03:30):
Okay.
Sean Cooper (03:31):
So in terms of
Chris Holling (03:32):
Do you want to start with one? Or which
Sean Cooper (03:34):
Yeah, let's start with when they make sense,
Chris Holling (03:36):
okay.
Sean Cooper (03:37):
might make sense anyway. Because it's going to
vary person to person. So thereare two basic reasons why people
might utilize an annuity, thefirst is going to be the
guarantee. So they don't wantjust to have their money in the
market at risk. They want someform of guarantee, guaranteed
(03:57):
growth. And that's one of thefirst reasons people might
utilize an annuity. So we talkedabout a fixed annuity and fixed
indexed annuities, both of thoseare going to have some form of
minimum growth rate that isguaranteed by the insurance
company,
Chris Holling (04:14):
which just to kind of jump in for a second in
case this this listener herethat's catching us right now, in
case you've never listened toany of our our previous episodes
before. First of all,congratulations on diving into
the deep end. But also the somereason that somebody might be
interested in some of thatconsistent, but more
(04:35):
conservative growth would be tobattle something like inflation,
which we've covered in a earlierepisode, if you want to go and
check out inflation is a realsimple reason why somebody might
want to at least match what'sgoing on in the world around
them. Didn't mean to completelycommandeer that from you. I just
wanted to mention that.
Sean Cooper (04:54):
You're alright.
Yeah, they they want to havesome form of growth but without
the the risk tied to the markets
Chris Holling (05:02):
right
Sean Cooper (05:03):
so, because the market is actually going to be
typically over the long term bea better offset to inflation
than
Chris Holling (05:14):
sure,
Sean Cooper (05:14):
most fixed rates of return. But yes, it still
provides that to a certaindegree and without the risk
associated, or at least not thesame level of risk.
Chris Holling (05:24):
Sure.
Sean Cooper (05:26):
Whereas a variable annuity, again, people can still
buy it for the guarantee. Buttypically speaking, you're going
to have to pay extra to put aguaranteed rider on top of the
variable annuity. So it's nottypically standard with the
contract. But that is one of thefirst reasons people might
purchase an annuity of any kind.
So and then the other would bethe guarantee. And this is still
(05:55):
that first concept and ofguarantees, but the other end of
it would be guaranteed incomefor life to offset basically the
opposite of life insurance,where you're actually offsetting
longevity risk. And so thatwould be the the, not the
accumulation phase, but thedistribution phase, the income
(06:16):
phase, where you actuallyannuitize the contract. And if
you were to take a lifetimestream of income, the insurance
company is going to guarantee itfor your life. So you're
purchasing it for the guaranteeon the income side, to offset
some of your longevity risk. Orpotentially, you know, a joint
(06:39):
joint income or income plusperiod certain, again, to offset
some longevity risk, if you takeit just for a period certain, or
you take a lump sum, or youchoose to take the cash flow at
your discretion, that's notgoing to be provide the same
type of guarantee, at least notfor your entire life, the period
(07:01):
certain would provide aguarantee, but only for the
period that you select. Soagain, it's it's purchased for
the various guarantees that youcan build into it, or that it
comes standard with. The othermain reason people will often
look at annuities is for taxdeferral. So obviously your
(07:24):
retirement accounts 401k, IRAs,403B's, etc. Those are going to
have some sort of form of taxbenefit, either when you make
your deposits or when you takeyour withdrawals. But they also
grow tax deferred with anannuity because they are viewed
by the IRS as a retirementvehicle. They also grow tax
(07:46):
deferred, there's no taxadvantage when you deposit the
money, but the funds still growtax deferred, which can provide
a benefit. Net over the longterm that you're invested, it
can also provide some form oftax benefit on the income phase,
(08:07):
if you annuitize. So again,assuming you don't take a lump
sum, you don't pull the moneyout at your discretion, you
actually take some form ofeither period certain or life
income, that when you annuitize,the contract is slightly more
(08:27):
tax favorable in that instead ofrecognizing all of the gains
when you take your money outinitially. So the capital gains
being the the first portion thatyou withdraw, and all of it
being capital gains, it'sactually distributed
proportionate to the cost basis,and the capital gains as you
(08:50):
take the income so it getsspread out over the period that
you're taking the withdrawals.
So that can be somewhat taxadvantage as well.
Chris Holling (09:02):
And, and maybe maybe I'm misunderstanding the
way you're describing this, butwhen you're talking about that,
and you're talking about pullingfrom the capital gains, first,
does that have? How do I how doI word this? It? Does that
mostly affect the process ofsay, say while you're gathering
(09:26):
from an annuity and you passaway, then that amount gets
passed on, through you and yourwill to your heirs at that point
or why? Why? Why does it matterthat it's pulling from your
capital gains first, if if thenumbers are all kind of the
same? I see
Sean Cooper (09:44):
you're mixing a few different you're mixing a few
different things here. So firstoff, I want to address the the
beneficiary side of things. Soif you've annuitized an annuity
contract, there, for the mostpart are not going to be any
beneficiaries.
Chris Holling (09:57):
Oh, okay. Okay. I didn't know that.
Sean Cooper (09:59):
It provides income for your life. Unless you've
selected a period certain, orsome kind of joint life, if
you've selected an income streamjust for your life alone, it
doesn't matter how much money isleft in there. The annuity
company essentially keeps it ifyou die early.
Chris Holling (10:19):
Okay, yeah, no,
Sean Cooper (10:20):
which, yeah, so, so not like life insurance,
we're not dealing with thebeneficiaries, for the most
part. Now, if you pass away,before you've even started
taking income, or you've, youknow, taken if you have taken
income, but at your discretion,so there's still money in a,
like a separate account, thenthat might pass to a
(10:40):
beneficiary, or like I said,when it's still accumulating
that'll pass to pass to abeneficiary. But if you've
already elected to annuitize,the contract in retirement, and
you elected your life only, thenthere's no beneficiaries at that
point.
Chris Holling (11:01):
Okay. No, that's, that's important to know, I
just, I had absolutely no idea.
Sean Cooper (11:04):
Yeah.
So in terms of the capitalgains, so if, if you were to
take, let's say, you starttaking withdrawals at your
discretion, so you don'tannuitize you just say, Hey, I'm
going to take this much thisyear, and next year, I'm going
to take some out, or I mightnot, they're going to assume
you're taking capital gains.
First,
Chris Holling (11:27):
okay,
Sean Cooper (11:28):
there are a number of other investments out there
that are going to be the samewith stocks, for example. So
investing in equities, dependingtypically speaking with your,
whatever platform you're usingto trade, you can choose your
(11:48):
tax treatment. So LIFO, last infirst out or FIFO, first in
first out. And you can choosewhich which securities you're
selling first, are you sellingthe ones that you purchased? So
if you own, you know, 1000shares of Apple and you sell 10?
(12:14):
Are you selling the shares? Oryou sell 100? Whatever? Are you
selling 100 shares that youpurchased in, you know, night
2000? Are you selling the sharesthat you purchased in 2015?
Oh, just as an example,
Chris Holling (12:32):
the difference between the two of those
purchase prices,
Sean Cooper (12:35):
correct? Exactly, because the ones that you
purchased earlier, would mostlikely have the most capital
gains
Chris Holling (12:44):
sure
Sean Cooper (12:44):
on them. So you can, so when you're trading
securities, you can elect howthat affects it, like, are you
going to sell the last ones thatyou purchased, or the first ones
that you purchased, you canelect that with the annuity, if
you just start pulling money atyour own discretion, they're
going to assume everything youpull initially is capital gains,
until you get back to your costbasis. However, if you
(13:08):
annuitize, they automaticallyassume a proportionate amount.
So let's say 50%, say 60% of theaccount is capital gains. And
the other 40 Is your cost basis,the money that you put in, so
you withdraw $1,000 600 of thatis going to be capital gains,
and 400 of that is going to becost basis, where in the form if
(13:33):
you've annuitize. So you get$1,000. Every year, whatever it
may be, whatever percentage iscapital gains, that's what you
recognize as capital gains,whereas if you just start
pulling money out, it doesn'tmatter if 60% or cap of your
overall account is capitalgains, they're going to assume
until you pull all the capitalgains, it's all capital gains.
Chris Holling (13:58):
Okay.
Sean Cooper (14:00):
And when you pull out cost basis, there's no tax
liability for that.
Chris Holling (14:04):
Okay.
Sean Cooper (14:05):
So that's why having that ratio there, as
opposed to just all capitalgains up front can be
advantageous?
Chris Holling (14:13):
Sure.
Sean Cooper (14:14):
Because you're spreading out you're spreading
out the tax burden over time,potentially reducing your your
net income, your annual income,so that you stay in lower tax
brackets, things of that nature.
Chris Holling (14:27):
Okay. Okay, yeah, I could do that.
Sean Cooper (14:30):
So it's not huge, but it can help depending on
your situation. So those butthose are the two biggies.
Number one, you might buy anannuity for the guarantee.
Number two, you might buy it forthe tax deferral, and the tax
deferral tends to be a lotbigger draw for those who have
already capped out theirretirement accounts. And they
have a lot of assets. So thereare a lot of income so they're
(14:55):
in a much higher tax bracket,
Chris Holling (14:57):
which is why this conversation tends to
happen at the same In Time islife insurance.
Sean Cooper (15:03):
You're talking about like whole life insurance.
Yeah. Yeah.
Chris Holling (15:06):
Right. Cuz that's, that's what we discussed
previously, as we discussed thatnormally when you start to hit
that bracket is when whole lifeinsurance starts to become a
more common conversation.
Sean Cooper (15:15):
Correct
Chris Holling (15:15):
And you are maxing out a lot of your assets.
Okay. Got it
Sean Cooper (15:18):
you got it
Chris Holling (15:19):
I'm following I'm with you.
Sean Cooper (15:20):
Yep. Now the guaranteed side of it that could
be appealing to anybodypotentially all it all depends
on your, you know, willingnessto assume risk and your
financial ability to assumerisk. That sort of thing. So,
yep. But those are the those arethe two biggies.
Chris Holling (15:37):
Okay. That makes sense. Well, then, then, what
about, what about pitfalls? Ijust like saying the word that's
that's mostly why I'm saying.
What about
Sean Cooper (15:47):
It's a good word
Chris Holling (15:48):
What about the pitfalls? the pit off despair!
Do you like that? That was apretty good impression
Sean Cooper (15:55):
No, that was a good. It was good one. Have you
read the book?
Chris Holling (15:59):
You know, I haven't actually is it? Is it
good? Is it different?
Sean Cooper (16:03):
Oh, yes, it is. Oh, it is? The movie does a very
good job of following it. Andthey are both hilarious. The
book has an entire, like, extrachapter on the pit of despair,
though.
Chris Holling (16:20):
Oh, cool. Okay.
Yeah.
Sean Cooper (16:21):
Yeah. So like when Indigo and Fezzik go into the
pit of despair. There's like anentire chapter about them going
in?
Chris Holling (16:30):
Oh, wow.
Sean Cooper (16:30):
Yeah.
Chris Holling (16:32):
I'll have to check it out,
Sean Cooper (16:32):
I won't ruin it for you. But yeah,
Chris Holling (16:34):
I'll look into that. Maybe, maybe our maybe our
next venture. Our next podcastis going to be Movie Reviews.
Sean Cooper (16:46):
We'll probably have about 100 times more followers
for that.
Chris Holling (16:50):
Yeah. And then that way, we'll have 100
followers.
Sean Cooper (16:58):
Alright, so pitfalls, pitfalls, pitfalls. I
like the word because it, itdescribes it because they're,
you know, they're somethingpotentially unseen that you need
to watch out for. And that'swhat we're gonna help you do is
uncover em so you you can seehim?
Chris Holling (17:17):
It's a trap.
Sean Cooper (17:20):
It's a trap.
Chris Holling (17:22):
Sorry. movies.
Sean Cooper (17:23):
We switched to another movie? Yes. Okay, so
first off, as we've mentioned,annuities are designed to be
retirement vehicles. That is howthe IRS views them. So any
withdrawals taken prior to age59. and a half typically will
result in some tax consequencesand penalties, just basically
(17:46):
the same way your retirementaccounts work the IRS is giving
you some tax benefit for, youknow, in this case, tax deferral
for investing in yourretirement. And if you don't use
it for your retirement, they'retaking that benefit away and
assessing a penalty. It'sbasically what it boils down to,
but it's something to be awareof.
Chris Holling (18:06):
Okay.
Sean Cooper (18:08):
Additionally, annuity companies typically
have, in some cases, some ratherlengthy surrender periods to
prevent you from taking anythingmore than just a small
percentage, most of them willhave some kind of liquidity in
the first few years of say,maybe 10% annually, but some of
them lock it up completely. Andthe penalties or the surrender
(18:31):
periods can be anywhere fromthree and I've seen up to 15
years.
Chris Holling (18:37):
Oh, wow, okay.
Sean Cooper (18:38):
Yeah. And typically, that's right, around
seven to nine years, but yeah,three, three to 15 years,
depending on the type of annuitythat you're purchasing. And the
penalties typically start outaround can be upwards of 9%. So
if you withdraw funds thatexceed whatever minimum small
(19:01):
liquidity feature they have,they will assess a penalty in
potentially around 9% of yourtotal withdrawal.
Chris Holling (19:11):
Okay, wow,
Sean Cooper (19:12):
so you definitely want to understand the surrender
periods and the surrenderpenalties, that of the annuity
that you are purchasing.
Chris Holling (19:22):
Sure.
Sean Cooper (19:23):
And, again, it goes back to the concept this is
they're designed to be aretirement vehicle. So if you're
putting your money into anannuity, it it's designed to be
in there long term. So thesurrender period shouldn't be an
issue, but it is something youshould definitely be aware of,
because they can ding you reallyhard.
Chris Holling (19:44):
Yeah, we can see that.
Sean Cooper (19:48):
On the outside of that, some of the pitfalls to
watch out for a more specific todifferent types of annuities.
So, for example, we talked alittle bit about fixed index
annuities previously. And thefact that they're the index that
you're tied to the your growthassociated with that index is
(20:10):
limited or hampered by caps,participation rates, or spreads.
They basically handicap yourgrowth prospects. So you want to
fully understand what caps,participation rate,s or spreads
or any newfangled concontraptions they've derived
(20:33):
might be tied to your growth.
And make sure you understandthat and apply it when you're
assessing the growth prospectsof that index annuity. And if
you you want more examples ofthat, jump back to last week, I
actually, we go through somespecific examples to give you an
idea of what that does.
Chris Holling (20:57):
Right. So it's nothing unexpected, per se, but
it's just making sure thatyou're you're looking into what
that range is and how that faresfor you. Right?
Sean Cooper (21:07):
Correct. Yeah, you you want to make sure you
understand that with an A fixedindexed annuity. If you're tied
to like the s&p 500, forexample, you're most likely I've
never seen a fixed indexedannuity that allows you to get
the full upside of whateverindex you're tied to.
Chris Holling (21:25):
Sure
Sean Cooper (21:25):
there's always some type of restriction so that the
annuity company can essentiallymake money.
Chris Holling (21:32):
Right?
I mean, they forgot to offsetthat somewhere if there's a for
when they have their their lowertimes. It doesn't suprise me.
Sean Cooper (21:40):
Correct, yeah, with a fixed annuity, it's
straightforward. They're gettinga fixed rate from someone else.
And they're offering you a lowerfixed rate. It's pretty, pretty
straightforward. They're they'rethey're taking the spread. With
an index annuity, it's a littlebit more convoluted. And they
either cap your your rate ofreturn, put on a participation
(22:02):
rate. Or they again, take aspread, like I talked about in
the fixed annuity.
Chris Holling (22:08):
Right.
Sean Cooper (22:09):
Yep. And then on variable annuities, the biggest
thing you want to be mindful ofare the fees. So when I'm
talking about fees, a variableannuity is going to have its own
fee. So the annuity contractitself will have a fee. Any
(22:30):
riders so guarantees, otherfeatures that you tack on are
probably going to have their ownfees. And then your separate
account, your sub accounts inthe variable annuity, whatever
you invest in, those will havetheir their own internal
expenses.
Chris Holling (22:49):
And then, and then they'll have their fees to
explain to you how the feesworked. And then the
Sean Cooper (22:56):
right, the point being, these can actually add up
to be being fairly substantial.
We're talking in the range ofthree to 4%. Potential
Chris Holling (23:04):
Oh wow,
Sean Cooper (23:05):
yeah, it's it's not a small, insignificant amount
that you can just ignore. There,there are some annuity contracts
out there that have become muchmore fee conscious. Most of
them, a lot of them do not haveriders associated. So if you're
buying it for the guarantee,that's if you're buying in a
(23:27):
variable annuity for theguarantee, most likely, you're
going to have some pretty heftyfees. It's it depends on the
type of guarantee, it depends onthe type of variable annuity,
but for the most part, you'regoing to be on the higher end of
fees. If you're buying it forthe tax deferral, then you can
potentially purchase a variableannuity contract that has some
lower fees. Either way, youstill want to be cognizant of
(23:51):
what your total fee is. Becauseit's going to greatly hamper
you, potentially greatly hamperyour return. And if you did
purchase a guarantee, again,you're paying for that
guarantee. So it's going to beeven more expensive. But it also
means it's going to be that muchharder to receive a step up in
basis like we talked about lastweek.
Chris Holling (24:13):
Right?
Sean Cooper (24:14):
Yeah. To give you an idea, let's say you're, you
know, you got the low end 3% forthe annuity itself, and the the
riders that you tacked on andthen 1% for the underlying
investments.
Chris Holling (24:32):
Okay.
Sean Cooper (24:34):
If you have a 3% guarantee on that contract, that
means the market has to returnat least 7% in order for you to
receive a step up in basis.
Chris Holling (24:47):
Wow,
Sean Cooper (24:47):
because you have to overcome the fees of the
contract,
Chris Holling (24:50):
right
Sean Cooper (24:51):
The fees of the underlying the sub accounts that
you're invested in, and then youhave to beat your guarantee. In
order for you to To get a stepup in basis as opposed to just
receiving that guarantee.
Chris Holling (25:04):
Right? That's a that's a lot of extra work.
Sean Cooper (25:09):
Yeah. So and then if you take into account the
fact that most annuitycompanies, insurance companies
that offer annuities also haveinvestment restrictions, say
around only allowing you an80/20 allocation. So 80%
equities 20% fixed income. Ifyou look historically, at the
rates of return of those of an80/20 allocation, your odds of
(25:34):
receiving a step of basis ofexceeding that 7%, or
approximately 47%. In any givenyear.
Chris Holling (25:41):
Oh, geez.
Sean Cooper (25:42):
So you're less than 50%?
Chris Holling (25:44):
Yeah, which is an F in case in case nobody
listening to this has evergotten one of those in school?
It'd be an F. Okay, so in casecase, you're curious, Sean, I
know you, you probably don'tknow what happens below that,
like 92% In your world, butthat'd be an F.
Sean Cooper (26:03):
Thanks. Thanks. Um, yeah, so and then the thing is,
if you, let's say, so in thefirst year, that's basically
what your odds are. If you'restuck in that 80/20 allocation,
now, if you have a little bitmore free rein, you can go more
aggressive, it will actuallyimprove your odds of receiving
that step up. Obviously, ifyou're if your fees are lower,
(26:24):
that's going to improve yourodds of receiving that step up
as well. But if you miss thetarget in that first year, so
you receive the guaranteed rate.
Now in the following year, youhave to not only surpass the
fees of the contract the fees ofthe internal expens of the sub
accounts, the internal expensesof the sub accounts. And the
guarantee in that year, you alsohave to make up whatever you
(26:47):
missed the guarantee buy in theprior year, in order to receive
a step up mathematically. Soanytime you miss, your odds of
receiving a step up goingforward are reduced.
Chris Holling (27:06):
Wow, okay.
Sean Cooper (27:08):
If we look at the higher end expenses, I've seen
expenses as much as 4%, plushigher expense sub accounts. So
if you look at potentiallyneeding a total return of 9%, to
receive a step up, and your oddsof doing so with an 80/20
(27:29):
portfolio, roughly 38% In anygiven year. Now, that's not to
say that it can't happen. That'snot to say that there aren't
good variable annuity contractswith good guarantees out there.
But you have to understand whatwhat your total expenses are.
And not just the the ones thatare clearly disclosed in the
(27:52):
annuity contract, but understandthe internal expenses, the fees
of the extra riders that you'retacking on all of that. Because
the more expenses you tack on,the more guarantees the more
whistles and bells, the moreexpensive it gets, the more
likely that all you'repurchasing is the guarantee.
Chris Holling (28:15):
Right
Sean Cooper (28:15):
You're basically losing the variable side of it
unless you happen to invest in abanner year. So the point is,
understand it going into it
Chris Holling (28:28):
sure
Sean Cooper (28:29):
know what it is you're purchasing and why you're
purchasing it. If you'repurchasing it for the variable,
the upside growth, then be verycognizant of those fees. If
you're purchasing it just forthe guarantee, then you might
not be as worried about those,those total fees.
Chris Holling (28:46):
Right.
Sean Cooper (28:49):
Let's see here. Any questions on any of that so far?
Chris Holling (28:55):
No, I don't think so. I mean, it's, it's similar
to things that we've talkedabout before, not not specific
to this, this item, but lots ofjust make sure you're doing your
your reading and your researchand in what you're going over,
because, you know, sometimessomething that might look like a
good deal might be kind of awash, especially if you need to
do extra things to it, likeyou're talking about with the
(29:15):
variable and it's yeah, that'sit all. It all makes sense, I
think.
Sean Cooper (29:19):
Yeah. Okay. Then the last thing that I would add
to all this is something wetouched on before and that is
when you actually start to takeyour withdrawals. And if you
elect some kind of lifetimeguaranteed income, then you do
so at the cost of having littleto no flexibility with your
(29:42):
withdrawals. So in the case ofannuitization, you're going to
receive a specific amount basedon whether you did it for your
life, your life and a spouse, oryour life in a period certain
etc. They're going to do themath on your life expectancy and
say okay, well provide you withthis amount of income based on
the the rate of growth that wecan assume on our end. And the
(30:07):
only the only reason that incomeis going to change is if you've
elected a some kind of inflationprotected protection or a
reduced payout for yoursurvivors. So you assume that,
you know, after I pass away,some of our expenses are going
to go away. So my spouse canlive on a little bit less than I
did. So you elect a reducedpayout for for your spouse,
(30:30):
which gives the two of you alittle bit higher payout while
you're still alive. But thoseare the only real reasons why
that monthly income would changeoutside of that you really have
given up your flexibility onyour income stream. So you
you've you've given up controlof your money to the annuity
(30:53):
company in exchange for thatguaranteed income for your life
or whatever you've elected.
Chris Holling (31:00):
I can see that. I mean, that's that's also part of
the reason why it made me thinkof the reverse mortgage last
time when we talked about it.
And I know that that's not whatwe're discussing. But when I
when I referenced it in theprevious episode is what made me
think of it because it's, it'ssimilar to that because people
are hinging on on that oftenwhen they are utilizing it.
Sean Cooper (31:21):
Correct. Yeah. So again, it's a trade off. And
it's based on what's importantto you what risks you're willing
to take on. If you do, if youhave annuitized it and you
something comes up and you needmore money, there's no way
around it, you have to take moremoney out of your annuity,
(31:45):
there's a very good chance thatif you do so it will completely
blow up your benefit your yourlifetime income, it'll end up
resulting in a recalculation ofit. And it'll often be down to
whatever your your balance,it'll be recalculated based on
your your balance at that time,after you've taken the
(32:06):
withdrawal, as opposed toanything else. So it most of the
time when that happens, it's avery ugly recalculation, at
least in my experience. So besure that you can handle
additional income needselsewhere outside of the
annuity, if you're going to gothat route.
Chris Holling (32:29):
Then that being said, if somebodies listening to
this, and they're they'reinvolved in an annuity, like
they're already collecting on anannuity right now, and they're
saying, Oh, I haven't consideredthese things before. And maybe I
don't want to be a part of itanymore. Is that something that
they can back out of? Or is it along process of recalculation
and stuff? Or how, how wouldthat work?
Sean Cooper (32:49):
It really depends on the stage they're in, they'd
have to, you know, if they'vealready started the income,
their options are prettylimited. At that point, they
have to basically go into theircontracts specifically, and do
the math to figure out what whattype of liquidity they can
(33:12):
generate, how much of a hitthey're going to take, if they
just decide to pull extra moneyout. Or surrender the contract
entirely. So it's going to be ona case by case basis. And
completely.
Chris Holling (33:24):
What about what about maintaining it and then
adjusting it like say you're,you're on a, a fixed, but then
you decide I'd rather bevariable? Is that just a matter
of, of them pulling a couple oflevers? Or does it? Does it also
cause different issues? Becauseit's a long term thing?
Sean Cooper (33:42):
Yeah, once you've annuitized it, you you can turn
off the income and hopefully getsome growth again, maybe. But as
far as changing your incomestream from them after the fact,
again, most likely, it's goingto be not working your favor.
Chris Holling (34:04):
Okay. I can see that. Just curious.
Sean Cooper (34:08):
Yeah. And then the other thing, unless you have
tacked on an additional rider,that has a death a death
benefit, or a some sort ofstream of income for someone
other than yourself, once youyou pass away. The contract,
(34:30):
like we talked about early,earlier, terminates, any funds
remaining. Any additionalbalance, typically was the
annuity companies ends upkeeping at that point.
Chris Holling (34:42):
And is that only done at the time of the
contract? Or can you can yousay, Oh, wait, by the way, I
need to add this person as mybeneficiary.
Sean Cooper (34:49):
Benefit. Again, you're
Chris Holling (34:53):
mixing things?
Sean Cooper (34:54):
Yep. Yeah. So yes you typically name a beneficiary
to your annuity contract,however, if you've started a
stream of income, a guaranteedstream of income for your life,
unless there is a specific deathbenefit rider on the contract,
(35:18):
or the contract has a built indeath benefit. Once you've
started that income, there is nobeneficiary for practical
purposes.
Chris Holling (35:28):
Okay.
Understood. That's why I'masking these things. Like I.
Because I think one of the bigthings that we try to cover in
this whole this whole season,process podcast, everything is,
you know, the, the more toolsfor the toolbox, and you talk to
a lot of people that say, Oh,well, clearly, I know the way,
this is the way, and we try toeducate people on on saying,
(35:52):
hey, you know, understand whatyou're, what you're doing,
understand what it is, and maybeit is best for you, maybe it's
not. And if you choose that youwant to get out of these things,
or you choose, you want to getstarted with these things, then
this is how to do it. I think wetry to cover all those things.
But that's that's why I'm askingthese questions, because these
are, these are things thatsounds like you have to sign
(36:13):
pretty large, lasting contracts.
Sean Cooper (36:16):
Correct,
Chris Holling (36:17):
to me means that it would be more complicated to
get out of, and that's that'swhy I wondered how easy that
was. Or not for that matter.
Sean Cooper (36:26):
Yeah. So the if you decided you want to wanted to
get out of annuity annuitycontract, your optimal window is
going to be after the surrenderperiod has ended. So you've
you've passed those however manyyears that is, but before you
annuitize, the contract,
Chris Holling (36:45):
okay?
Sean Cooper (36:47):
That would be your optimal window. Any, if you do
it before the surrender period,then you're going to get hit
with those surrender charges, ifyou take it out of an annuity.
So you instead of going, youknow, you surrender it and you
move it to a non qualifiedaccount, or you just take the
(37:08):
cash, in addition to anypotential surrender charge,
you're also going to get hit bythe IRS for taxes and penalties.
If you're pre if you're pre 59and a half after 59 and a half,
you could do so you can alsomove between annuities. So from
one annuity to another, it's a1035 exchange, I believe. So
that would allow you to avoidthe the IRS, the taxes and the
(37:31):
penalties from them, you'd stillhave to potentially deal with
the surrender charges from thethe annuity company. And then on
the income side, if you'veannuitized. That's when you face
all the potential recalculationsbased on balances and that sort
of thing. And, again, thatdoesn't tend to work in your
(37:52):
favor. And by by way of example,you going back to the
beneficiary concept, if saysomebody had $100,000, annuity
had grown to $100,000, theydecided to annuitize it in
retirement, so they're going totake income on it for the rest
of their life. And they electtheir life only. And the annuity
(38:13):
contract has no death benefitson it. If they died a month
later, so they took one month ofincome. The annuity company
keeps it
Chris Holling (38:24):
Wow. Okay,
Sean Cooper (38:26):
so yeah, there's a definite risk, you're buying it
to offset the chance that youwould otherwise outlive your
income. And that's the the riskthat the annuity company is
taking. So if your lifeexpectancy is 80, and you live
to be 105, they've said, Okay,we will guarantee to pay you
this amount every month untilyou die. So they've in that
(38:50):
scenario, they've paid you foran extra 25 years. So they've
probably come out way behind inthat scenario. But again, if you
died a month after annuitizingfor your life only. They keep it
they come out ahead and that'show it all balances out that's
why it's an insurance contract.
Chris Holling (39:08):
So if you only eat kale every day, then get an
annuity contract is that, isthat what you're saying,
Sean Cooper (39:15):
if you only eat kale every day, no you should
probably probably buy a lifeinsurance contract cause you're
going to die
Chris Holling (39:23):
I once had a patient that she's 104
completely with it able to stillwalk around with a cane which at
that age is is unheard ofespecially
Sean Cooper (39:34):
that's awesome
Chris Holling (39:35):
being cognitively there on top of all that, yeah,
and I remember asking her onetime like how do you how do you
do stuff like how are you theway that you are how do you
function so well when othersjust don't go Oh honey, the only
doctor I go see is Dr. Pepperthis lady pounded down five Dr.
(39:55):
Peppers a day and I'mconvinced the
preservatives in a Dr. Pepper
Sean Cooper (39:57):
Holy cow kept her alive this now keep in
mind everybody this is a this isan investing podcast and not a
nutrition and health that'sthat's it that made me think of
so if you're gonna play a game,you know, get some get some kale
and some Dr. Pepper and roll thedice and see how you do.
(40:21):
Or Don't,
Chris Holling (40:22):
Or don't just don't do that. I'm sorry, I took
us way off track.
Sean Cooper (40:28):
The only doctor I see is Dr. Pepper. That's
awesome.
Chris Holling (40:32):
Okay. What else what else we got that now that
I've completely derailed us.
Sean Cooper (40:38):
It's like an apple a day keeps not just a doctor,
but anyone away if you throw ithard enough.
Chris Holling (40:49):
Oh, I thought you were talking about like, Have
you sat next to Frank lately?
He's only eating apples for thelast 30 days and they are moving
through him.
Sean Cooper (40:59):
Oh, yeah.
Chris Holling (41:00):
I thought that was okay.
Sean Cooper (41:01):
My parents had a dog that anytime they they got
into the apple orchard, and theywould just eat all the apples
that had fallen on the ground.
Her breath would be so bad.
Anyway, yeah, we are way offbase. But that's that's all I
had to add to annuities. They
Chris Holling (41:20):
okay,
Sean Cooper (41:21):
there's there's reasons you might want to look
at them. And there's reasons youwant to be cautious and make
sure you know what you'resigning on to
Chris Holling (41:30):
That's totally reasonable. Got it?
Sean Cooper (41:33):
Yeah,
Chris Holling (41:33):
reasons.
Reasonable. Alright. That'sEnough. Okay, well, let's, let's
wrap this up. Thank you,everybody, ladies and gentlemen,
for joining us on wrapping upthis season of life insurance
and annuities. And the truthabout investing back to basics.
Oh, you know what, actually, we,we do have one more season. But
(41:55):
we might only have one moreseason. To be fair, we we've got
one more written out. And wedon't know exactly where it's
going to take us or what happensafter that. But we're, we're
working on it. And I'm amazedwe're, we're pushing through I'm
I'm kind of amazed how far we'vecome and in a way how fast it's
gone. In a weird, bizarre kindof way.
(42:18):
So
Sean Cooper (42:19):
yeah, no, that's true.
Chris Holling (42:20):
So coming up into the future, we're looking at
more long term stuff andincluding some, maybe some
social security, maybe someestate planning, maybe maybe
maybe some interesting stuff. Idon't know. It's more stuff I
have no idea about. But there'syour there's your information
for the future. So thank you,again for continuing to listen
(42:41):
to us and continuing to want totake the time to better yourself
on the truth about investing.
Back to Basics. My name is ChrisHolling.
Sean Cooper (42:49):
And I'm Sean Cooper,
Chris Holling (42:50):
and we will catch you next season. Podcast
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forward. This is going to be thesame disclaimer that you will
(43:12):
hear in each one of ourepisodes. We hope you enjoy it
just as much as we enjoyedmaking.
Sean Cooper (43:21):
All content on this podcast and accompanying
transcript is for informationpurposes only. Opinions
expressed herein by Sean Cooperare solely those of fit
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Chris Holling is not affiliatedwith fit financial consulting,
LLC nor do the views expressedby Chris Holling represent the
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(43:43):
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(44:06):
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(44:28):
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(44:50):
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Chris Holling (44:58):
Hey, did you know Sean, that there are a lot of
similarities between Iran andIraq but there is one. That's
it's very, very different. See,Iran has a fear of spiders,
whereas Iraq, they do not. So Iran. Phobia. Iraq No phobia
(45:26):
arachnophobia. Sean, come on. Ilaughed at that for like five
minutes yesterday.
Sean Cooper (45:37):
I'm sorry.
Chris Holling (45:38):
No You're not You're just you're just judging
me.
This is the truth about investing back to basics
podcast where we want to helpyou take control of your
personal finance and long terminvestments. If you're looking
for a way to learn the why andhow of investing, then you found
the right place. Thank you fortaking the time to learn how to
(00:23):
better yourselves. That's okay.
I forgive you for not havingnear the quality of sense of
humor as I do. As refined as Iam.
Sean Cooper (00:40):
Refined, Yes,
Chris Holling (00:41):
yeah, that's that's not, okay. Whatever. Hi.
Sean Cooper (00:45):
I think the mustache speaks to that.
Chris Holling (00:48):
You can't you can't hear the mustache though.
So I have to emulate my, myexcellent riff refinery.
Sean Cooper (00:59):
I feel like now you need to share a picture with our
listeners.
Chris Holling (01:03):
Jeez, yeah, yeah.
Go go to go to our page. I'll,I'll share a picture today. I
actually that's what I need. Ineed somebody to request it. I
don't even care who it is. Justbe like, Hey, where's my
picture? There we go. And andthen that will prompt a fine
handlebar mustache picture.
Sean Cooper (01:23):
Indeed, very fine.
Indeed.
Chris Holling (01:25):
If nobody requests it, then that's, that
shows how little anybody caresabout a good refined mustache.
Okay, no, I'm straighteningthings out. Thank you. Hi.
Hello, everyone. Welcome back,ladies and gentlemen, to another
episode of The Truth aboutinvesting back to basics. My
name is Chris Holling.
Sean Cooper (01:45):
And I'm Sean Cooper.
Chris Holling (01:46):
And today we are continuing out our annuities
section we we talked on that.
Last I almost said last chapter.
I don't know why this lastchapter of our life. Last, the
last episode, we were talkingabout annuities, the different
types, the different ways thatyou can utilize them if it's
(02:06):
your thing, if it's good foryou. And today we wanted to
touch on I, from what I recall,we just wanted to talk about
things to watch out for. I thinkpitfalls is the word that we
used. And I I mean, I guess Idon't I don't even know what to
(02:27):
watch out for. Because when wetalked about it. Last chapter, I
talked about how I except forwhen we discussed it, I'd been
familiar with some of it indiscussions with other people.
But I'd never had a opportunityposed to do it myself or someone
saying, hey, this would be agood chance for you to look into
something. So I haven't evenlooked at a form where I could
(02:48):
go. Oh, look at that. That seemsweird. So what what types of
things do you do you think thatwe should be watching out for I
think that's what we're talkingabout, just like commandeered
this conversation without givingSean a chance to tell us what
we're actually going to talkabout. So this is what we're
talking about.
Sean Cooper (03:05):
No, that was a big part of it. We were also going
to talk about some of the placeswhere they they tend to make
sense where people typicallyutilize them.
Chris Holling (03:14):
Oh, sure.
Sean Cooper (03:14):
Because we touched very briefly on both of those
last week when we talked aboutthe different types, but not to
any great detail. So I waswanting to cover those two
subjects a little bit morethoroughly. So people have a
better idea of what they'relooking for.
Chris Holling (03:30):
Okay.
Sean Cooper (03:31):
So in terms of
Chris Holling (03:32):
Do you want to start with one? Or which
Sean Cooper (03:34):
Yeah, let's start with when they make sense,
Chris Holling (03:36):
okay.
Sean Cooper (03:37):
might make sense anyway. Because it's going to
vary person to person. So thereare two basic reasons why people
might utilize an annuity, thefirst is going to be the
guarantee. So they don't wantjust to have their money in the
market at risk. They want someform of guarantee, guaranteed
(03:57):
growth. And that's one of thefirst reasons people might
utilize an annuity. So we talkedabout a fixed annuity and fixed
indexed annuities, both of thoseare going to have some form of
minimum growth rate that isguaranteed by the insurance
company,
Chris Holling (04:14):
which just to kind of jump in for a second in
case this this listener herethat's catching us right now, in
case you've never listened toany of our our previous episodes
before. First of all,congratulations on diving into
the deep end. But also the somereason that somebody might be
interested in some of thatconsistent, but more
(04:35):
conservative growth would be tobattle something like inflation,
which we've covered in a earlierepisode, if you want to go and
check out inflation is a realsimple reason why somebody might
want to at least match what'sgoing on in the world around
them. Didn't mean to completelycommandeer that from you. I just
wanted to mention that.
Sean Cooper (04:54):
You're alright.
Yeah, they they want to havesome form of growth but without
the the risk tied to the markets
Chris Holling (05:02):
right
Sean Cooper (05:03):
so, because the market is actually going to be
typically over the long term bea better offset to inflation
than
Chris Holling (05:14):
sure,
Sean Cooper (05:14):
most fixed rates of return. But yes, it still
provides that to a certaindegree and without the risk
associated, or at least not thesame level of risk.
Chris Holling (05:24):
Sure.
Sean Cooper (05:26):
Whereas a variable annuity, again, people can still
buy it for the guarantee. Buttypically speaking, you're going
to have to pay extra to put aguaranteed rider on top of the
variable annuity. So it's nottypically standard with the
contract. But that is one of thefirst reasons people might
purchase an annuity of any kind.
So and then the other would bethe guarantee. And this is still
(05:55):
that first concept and ofguarantees, but the other end of
it would be guaranteed incomefor life to offset basically the
opposite of life insurance,where you're actually offsetting
longevity risk. And so thatwould be the the, not the
accumulation phase, but thedistribution phase, the income
(06:16):
phase, where you actuallyannuitize the contract. And if
you were to take a lifetimestream of income, the insurance
company is going to guarantee itfor your life. So you're
purchasing it for the guaranteeon the income side, to offset
some of your longevity risk. Orpotentially, you know, a joint
(06:39):
joint income or income plusperiod certain, again, to offset
some longevity risk, if you takeit just for a period certain, or
you take a lump sum, or youchoose to take the cash flow at
your discretion, that's notgoing to be provide the same
type of guarantee, at least notfor your entire life, the period
(07:01):
certain would provide aguarantee, but only for the
period that you select. Soagain, it's it's purchased for
the various guarantees that youcan build into it, or that it
comes standard with. The othermain reason people will often
look at annuities is for taxdeferral. So obviously your
(07:24):
retirement accounts 401k, IRAs,403B's, etc. Those are going to
have some sort of form of taxbenefit, either when you make
your deposits or when you takeyour withdrawals. But they also
grow tax deferred with anannuity because they are viewed
by the IRS as a retirementvehicle. They also grow tax
(07:46):
deferred, there's no taxadvantage when you deposit the
money, but the funds still growtax deferred, which can provide
a benefit. Net over the longterm that you're invested, it
can also provide some form oftax benefit on the income phase,
(08:07):
if you annuitize. So again,assuming you don't take a lump
sum, you don't pull the moneyout at your discretion, you
actually take some form ofeither period certain or life
income, that when you annuitize,the contract is slightly more
(08:27):
tax favorable in that instead ofrecognizing all of the gains
when you take your money outinitially. So the capital gains
being the the first portion thatyou withdraw, and all of it
being capital gains, it'sactually distributed
proportionate to the cost basis,and the capital gains as you
(08:50):
take the income so it getsspread out over the period that
you're taking the withdrawals.
So that can be somewhat taxadvantage as well.
Chris Holling (09:02):
And, and maybe maybe I'm misunderstanding the
way you're describing this, butwhen you're talking about that,
and you're talking about pullingfrom the capital gains, first,
does that have? How do I how doI word this? It? Does that
mostly affect the process ofsay, say while you're gathering
(09:26):
from an annuity and you passaway, then that amount gets
passed on, through you and yourwill to your heirs at that point
or why? Why? Why does it matterthat it's pulling from your
capital gains first, if if thenumbers are all kind of the
same? I see
Sean Cooper (09:44):
you're mixing a few different you're mixing a few
different things here. So firstoff, I want to address the the
beneficiary side of things. Soif you've annuitized an annuity
contract, there, for the mostpart are not going to be any
beneficiaries.
Chris Holling (09:57):
Oh, okay. Okay. I didn't know that.
Sean Cooper (09:59):
It provides income for your life. Unless you've
selected a period certain, orsome kind of joint life, if
you've selected an income streamjust for your life alone, it
doesn't matter how much money isleft in there. The annuity
company essentially keeps it ifyou die early.
Chris Holling (10:19):
Okay, yeah, no,
Sean Cooper (10:20):
which, yeah, so, so not like life insurance,
we're not dealing with thebeneficiaries, for the most
part. Now, if you pass away,before you've even started
taking income, or you've, youknow, taken if you have taken
income, but at your discretion,so there's still money in a,
like a separate account, thenthat might pass to a
(10:40):
beneficiary, or like I said,when it's still accumulating
that'll pass to pass to abeneficiary. But if you've
already elected to annuitize,the contract in retirement, and
you elected your life only, thenthere's no beneficiaries at that
point.
Chris Holling (11:01):
Okay. No, that's, that's important to know, I
just, I had absolutely no idea.
Sean Cooper (11:04):
Yeah.
So in terms of the capitalgains, so if, if you were to
take, let's say, you starttaking withdrawals at your
discretion, so you don'tannuitize you just say, Hey, I'm
going to take this much thisyear, and next year, I'm going
to take some out, or I mightnot, they're going to assume
you're taking capital gains.
First,
Chris Holling (11:27):
okay,
Sean Cooper (11:28):
there are a number of other investments out there
that are going to be the samewith stocks, for example. So
investing in equities, dependingtypically speaking with your,
whatever platform you're usingto trade, you can choose your
(11:48):
tax treatment. So LIFO, last infirst out or FIFO, first in
first out. And you can choosewhich which securities you're
selling first, are you sellingthe ones that you purchased? So
if you own, you know, 1000shares of Apple and you sell 10?
(12:14):
Are you selling the shares? Oryou sell 100? Whatever? Are you
selling 100 shares that youpurchased in, you know, night
2000? Are you selling the sharesthat you purchased in 2015?
Oh, just as an example,
Chris Holling (12:32):
the difference between the two of those
purchase prices,
Sean Cooper (12:35):
correct? Exactly, because the ones that you
purchased earlier, would mostlikely have the most capital
gains
Chris Holling (12:44):
sure
Sean Cooper (12:44):
on them. So you can, so when you're trading
securities, you can elect howthat affects it, like, are you
going to sell the last ones thatyou purchased, or the first ones
that you purchased, you canelect that with the annuity, if
you just start pulling money atyour own discretion, they're
going to assume everything youpull initially is capital gains,
until you get back to your costbasis. However, if you
(13:08):
annuitize, they automaticallyassume a proportionate amount.
So let's say 50%, say 60% of theaccount is capital gains. And
the other 40 Is your cost basis,the money that you put in, so
you withdraw $1,000 600 of thatis going to be capital gains,
and 400 of that is going to becost basis, where in the form if
(13:33):
you've annuitize. So you get$1,000. Every year, whatever it
may be, whatever percentage iscapital gains, that's what you
recognize as capital gains,whereas if you just start
pulling money out, it doesn'tmatter if 60% or cap of your
overall account is capitalgains, they're going to assume
until you pull all the capitalgains, it's all capital gains.
Chris Holling (13:58):
Okay.
Sean Cooper (14:00):
And when you pull out cost basis, there's no tax
liability for that.
Chris Holling (14:04):
Okay.
Sean Cooper (14:05):
So that's why having that ratio there, as
opposed to just all capitalgains up front can be
advantageous?
Chris Holling (14:13):
Sure.
Sean Cooper (14:14):
Because you're spreading out you're spreading
out the tax burden over time,potentially reducing your your
net income, your annual income,so that you stay in lower tax
brackets, things of that nature.
Chris Holling (14:27):
Okay. Okay, yeah, I could do that.
Sean Cooper (14:30):
So it's not huge, but it can help depending on
your situation. So those butthose are the two biggies.
Number one, you might buy anannuity for the guarantee.
Number two, you might buy it forthe tax deferral, and the tax
deferral tends to be a lotbigger draw for those who have
already capped out theirretirement accounts. And they
have a lot of assets. So thereare a lot of income so they're
(14:55):
in a much higher tax bracket,
Chris Holling (14:57):
which is why this conversation tends to
happen at the same In Time islife insurance.
Sean Cooper (15:03):
You're talking about like whole life insurance.
Yeah. Yeah.
Chris Holling (15:06):
Right. Cuz that's, that's what we discussed
previously, as we discussed thatnormally when you start to hit
that bracket is when whole lifeinsurance starts to become a
more common conversation.
Sean Cooper (15:15):
Correct
Chris Holling (15:15):
And you are maxing out a lot of your assets.
Okay. Got it
Sean Cooper (15:18):
you got it
Chris Holling (15:19):
I'm following I'm with you.
Sean Cooper (15:20):
Yep. Now the guaranteed side of it that could
be appealing to anybodypotentially all it all depends
on your, you know, willingnessto assume risk and your
financial ability to assumerisk. That sort of thing. So,
yep. But those are the those arethe two biggies.
Chris Holling (15:37):
Okay. That makes sense. Well, then, then, what
about, what about pitfalls? Ijust like saying the word that's
that's mostly why I'm saying.
What about
Sean Cooper (15:47):
It's a good word
Chris Holling (15:48):
What about the pitfalls? the pit off despair!
Do you like that? That was apretty good impression
Sean Cooper (15:55):
No, that was a good. It was good one. Have you
read the book?
Chris Holling (15:59):
You know, I haven't actually is it? Is it
good? Is it different?
Sean Cooper (16:03):
Oh, yes, it is. Oh, it is? The movie does a very
good job of following it. Andthey are both hilarious. The
book has an entire, like, extrachapter on the pit of despair,
though.
Chris Holling (16:20):
Oh, cool. Okay.
Yeah.
Sean Cooper (16:21):
Yeah. So like when Indigo and Fezzik go into the
pit of despair. There's like anentire chapter about them going
in?
Chris Holling (16:30):
Oh, wow.
Sean Cooper (16:30):
Yeah.
Chris Holling (16:32):
I'll have to check it out,
Sean Cooper (16:32):
I won't ruin it for you. But yeah,
Chris Holling (16:34):
I'll look into that. Maybe, maybe our maybe our
next venture. Our next podcastis going to be Movie Reviews.
Sean Cooper (16:46):
We'll probably have about 100 times more followers
for that.
Chris Holling (16:50):
Yeah. And then that way, we'll have 100
followers.
Sean Cooper (16:58):
Alright, so pitfalls, pitfalls, pitfalls. I
like the word because it, itdescribes it because they're,
you know, they're somethingpotentially unseen that you need
to watch out for. And that'swhat we're gonna help you do is
uncover em so you you can seehim?
Chris Holling (17:17):
It's a trap.
Sean Cooper (17:20):
It's a trap.
Chris Holling (17:22):
Sorry. movies.
Sean Cooper (17:23):
We switched to another movie? Yes. Okay, so
first off, as we've mentioned,annuities are designed to be
retirement vehicles. That is howthe IRS views them. So any
withdrawals taken prior to age59. and a half typically will
result in some tax consequencesand penalties, just basically
(17:46):
the same way your retirementaccounts work the IRS is giving
you some tax benefit for, youknow, in this case, tax deferral
for investing in yourretirement. And if you don't use
it for your retirement, they'retaking that benefit away and
assessing a penalty. It'sbasically what it boils down to,
but it's something to be awareof.
Chris Holling (18:06):
Okay.
Sean Cooper (18:08):
Additionally, annuity companies typically
have, in some cases, some ratherlengthy surrender periods to
prevent you from taking anythingmore than just a small
percentage, most of them willhave some kind of liquidity in
the first few years of say,maybe 10% annually, but some of
them lock it up completely. Andthe penalties or the surrender
(18:31):
periods can be anywhere fromthree and I've seen up to 15
years.
Chris Holling (18:37):
Oh, wow, okay.
Sean Cooper (18:38):
Yeah. And typically, that's right, around
seven to nine years, but yeah,three, three to 15 years,
depending on the type of annuitythat you're purchasing. And the
penalties typically start outaround can be upwards of 9%. So
if you withdraw funds thatexceed whatever minimum small
(19:01):
liquidity feature they have,they will assess a penalty in
potentially around 9% of yourtotal withdrawal.
Chris Holling (19:11):
Okay, wow,
Sean Cooper (19:12):
so you definitely want to understand the surrender
periods and the surrenderpenalties, that of the annuity
that you are purchasing.
Chris Holling (19:22):
Sure.
Sean Cooper (19:23):
And, again, it goes back to the concept this is
they're designed to be aretirement vehicle. So if you're
putting your money into anannuity, it it's designed to be
in there long term. So thesurrender period shouldn't be an
issue, but it is something youshould definitely be aware of,
because they can ding you reallyhard.
Chris Holling (19:44):
Yeah, we can see that.
Sean Cooper (19:48):
On the outside of that, some of the pitfalls to
watch out for a more specific todifferent types of annuities.
So, for example, we talked alittle bit about fixed index
annuities previously. And thefact that they're the index that
you're tied to the your growthassociated with that index is
(20:10):
limited or hampered by caps,participation rates, or spreads.
They basically handicap yourgrowth prospects. So you want to
fully understand what caps,participation rate,s or spreads
or any newfangled concontraptions they've derived
(20:33):
might be tied to your growth.
And make sure you understandthat and apply it when you're
assessing the growth prospectsof that index annuity. And if
you you want more examples ofthat, jump back to last week, I
actually, we go through somespecific examples to give you an
idea of what that does.
Chris Holling (20:57):
Right. So it's nothing unexpected, per se, but
it's just making sure thatyou're you're looking into what
that range is and how that faresfor you. Right?
Sean Cooper (21:07):
Correct. Yeah, you you want to make sure you
understand that with an A fixedindexed annuity. If you're tied
to like the s&p 500, forexample, you're most likely I've
never seen a fixed indexedannuity that allows you to get
the full upside of whateverindex you're tied to.
Chris Holling (21:25):
Sure
Sean Cooper (21:25):
there's always some type of restriction so that the
annuity company can essentiallymake money.
Chris Holling (21:32):
Right?
I mean, they forgot to offsetthat somewhere if there's a for
when they have their their lowertimes. It doesn't suprise me.
Sean Cooper (21:40):
Correct, yeah, with a fixed annuity, it's
straightforward. They're gettinga fixed rate from someone else.
And they're offering you a lowerfixed rate. It's pretty, pretty
straightforward. They're they'rethey're taking the spread. With
an index annuity, it's a littlebit more convoluted. And they
either cap your your rate ofreturn, put on a participation
(22:02):
rate. Or they again, take aspread, like I talked about in
the fixed annuity.
Chris Holling (22:08):
Right.
Sean Cooper (22:09):
Yep. And then on variable annuities, the biggest
thing you want to be mindful ofare the fees. So when I'm
talking about fees, a variableannuity is going to have its own
fee. So the annuity contractitself will have a fee. Any
(22:30):
riders so guarantees, otherfeatures that you tack on are
probably going to have their ownfees. And then your separate
account, your sub accounts inthe variable annuity, whatever
you invest in, those will havetheir their own internal
expenses.
Chris Holling (22:49):
And then, and then they'll have their fees to
explain to you how the feesworked. And then the
Sean Cooper (22:56):
right, the point being, these can actually add up
to be being fairly substantial.
We're talking in the range ofthree to 4%. Potential
Chris Holling (23:04):
Oh wow,
Sean Cooper (23:05):
yeah, it's it's not a small, insignificant amount
that you can just ignore. There,there are some annuity contracts
out there that have become muchmore fee conscious. Most of
them, a lot of them do not haveriders associated. So if you're
buying it for the guarantee,that's if you're buying in a
(23:27):
variable annuity for theguarantee, most likely, you're
going to have some pretty heftyfees. It's it depends on the
type of guarantee, it depends onthe type of variable annuity,
but for the most part, you'regoing to be on the higher end of
fees. If you're buying it forthe tax deferral, then you can
potentially purchase a variableannuity contract that has some
lower fees. Either way, youstill want to be cognizant of
(23:51):
what your total fee is. Becauseit's going to greatly hamper
you, potentially greatly hamperyour return. And if you did
purchase a guarantee, again,you're paying for that
guarantee. So it's going to beeven more expensive. But it also
means it's going to be that muchharder to receive a step up in
basis like we talked about lastweek.
Chris Holling (24:13):
Right?
Sean Cooper (24:14):
Yeah. To give you an idea, let's say you're, you
know, you got the low end 3% forthe annuity itself, and the the
riders that you tacked on andthen 1% for the underlying
investments.
Chris Holling (24:32):
Okay.
Sean Cooper (24:34):
If you have a 3% guarantee on that contract, that
means the market has to returnat least 7% in order for you to
receive a step up in basis.
Chris Holling (24:47):
Wow,
Sean Cooper (24:47):
because you have to overcome the fees of the
contract,
Chris Holling (24:50):
right
Sean Cooper (24:51):
The fees of the underlying the sub accounts that
you're invested in, and then youhave to beat your guarantee. In
order for you to To get a stepup in basis as opposed to just
receiving that guarantee.
Chris Holling (25:04):
Right? That's a that's a lot of extra work.
Sean Cooper (25:09):
Yeah. So and then if you take into account the
fact that most annuitycompanies, insurance companies
that offer annuities also haveinvestment restrictions, say
around only allowing you an80/20 allocation. So 80%
equities 20% fixed income. Ifyou look historically, at the
rates of return of those of an80/20 allocation, your odds of
(25:34):
receiving a step of basis ofexceeding that 7%, or
approximately 47%. In any givenyear.
Chris Holling (25:41):
Oh, geez.
Sean Cooper (25:42):
So you're less than 50%?
Chris Holling (25:44):
Yeah, which is an F in case in case nobody
listening to this has evergotten one of those in school?
It'd be an F. Okay, so in casecase, you're curious, Sean, I
know you, you probably don'tknow what happens below that,
like 92% In your world, butthat'd be an F.
Sean Cooper (26:03):
Thanks. Thanks. Um, yeah, so and then the thing is,
if you, let's say, so in thefirst year, that's basically
what your odds are. If you'restuck in that 80/20 allocation,
now, if you have a little bitmore free rein, you can go more
aggressive, it will actuallyimprove your odds of receiving
that step up. Obviously, ifyou're if your fees are lower,
(26:24):
that's going to improve yourodds of receiving that step up
as well. But if you miss thetarget in that first year, so
you receive the guaranteed rate.
Now in the following year, youhave to not only surpass the
fees of the contract the fees ofthe internal expens of the sub
accounts, the internal expensesof the sub accounts. And the
guarantee in that year, you alsohave to make up whatever you
(26:47):
missed the guarantee buy in theprior year, in order to receive
a step up mathematically. Soanytime you miss, your odds of
receiving a step up goingforward are reduced.
Chris Holling (27:06):
Wow, okay.
Sean Cooper (27:08):
If we look at the higher end expenses, I've seen
expenses as much as 4%, plushigher expense sub accounts. So
if you look at potentiallyneeding a total return of 9%, to
receive a step up, and your oddsof doing so with an 80/20
(27:29):
portfolio, roughly 38% In anygiven year. Now, that's not to
say that it can't happen. That'snot to say that there aren't
good variable annuity contractswith good guarantees out there.
But you have to understand whatwhat your total expenses are.
And not just the the ones thatare clearly disclosed in the
(27:52):
annuity contract, but understandthe internal expenses, the fees
of the extra riders that you'retacking on all of that. Because
the more expenses you tack on,the more guarantees the more
whistles and bells, the moreexpensive it gets, the more
likely that all you'repurchasing is the guarantee.
Chris Holling (28:15):
Right
Sean Cooper (28:15):
You're basically losing the variable side of it
unless you happen to invest in abanner year. So the point is,
understand it going into it
Chris Holling (28:28):
sure
Sean Cooper (28:29):
know what it is you're purchasing and why you're
purchasing it. If you'repurchasing it for the variable,
the upside growth, then be verycognizant of those fees. If
you're purchasing it just forthe guarantee, then you might
not be as worried about those,those total fees.
Chris Holling (28:46):
Right.
Sean Cooper (28:49):
Let's see here. Any questions on any of that so far?
Chris Holling (28:55):
No, I don't think so. I mean, it's, it's similar
to things that we've talkedabout before, not not specific
to this, this item, but lots ofjust make sure you're doing your
your reading and your researchand in what you're going over,
because, you know, sometimessomething that might look like a
good deal might be kind of awash, especially if you need to
do extra things to it, likeyou're talking about with the
(29:15):
variable and it's yeah, that'sit all. It all makes sense, I
think.
Sean Cooper (29:19):
Yeah. Okay. Then the last thing that I would add
to all this is something wetouched on before and that is
when you actually start to takeyour withdrawals. And if you
elect some kind of lifetimeguaranteed income, then you do
so at the cost of having littleto no flexibility with your
(29:42):
withdrawals. So in the case ofannuitization, you're going to
receive a specific amount basedon whether you did it for your
life, your life and a spouse, oryour life in a period certain
etc. They're going to do themath on your life expectancy and
say okay, well provide you withthis amount of income based on
the the rate of growth that wecan assume on our end. And the
(30:07):
only the only reason that incomeis going to change is if you've
elected a some kind of inflationprotected protection or a
reduced payout for yoursurvivors. So you assume that,
you know, after I pass away,some of our expenses are going
to go away. So my spouse canlive on a little bit less than I
did. So you elect a reducedpayout for for your spouse,
(30:30):
which gives the two of you alittle bit higher payout while
you're still alive. But thoseare the only real reasons why
that monthly income would changeoutside of that you really have
given up your flexibility onyour income stream. So you
you've you've given up controlof your money to the annuity
(30:53):
company in exchange for thatguaranteed income for your life
or whatever you've elected.
Chris Holling (31:00):
I can see that. I mean, that's that's also part of
the reason why it made me thinkof the reverse mortgage last
time when we talked about it.
And I know that that's not whatwe're discussing. But when I
when I referenced it in theprevious episode is what made me
think of it because it's, it'ssimilar to that because people
are hinging on on that oftenwhen they are utilizing it.
Sean Cooper (31:21):
Correct. Yeah. So again, it's a trade off. And
it's based on what's importantto you what risks you're willing
to take on. If you do, if youhave annuitized it and you
something comes up and you needmore money, there's no way
around it, you have to take moremoney out of your annuity,
(31:45):
there's a very good chance thatif you do so it will completely
blow up your benefit your yourlifetime income, it'll end up
resulting in a recalculation ofit. And it'll often be down to
whatever your your balance,it'll be recalculated based on
your your balance at that time,after you've taken the
(32:06):
withdrawal, as opposed toanything else. So it most of the
time when that happens, it's avery ugly recalculation, at
least in my experience. So besure that you can handle
additional income needselsewhere outside of the
annuity, if you're going to gothat route.
Chris Holling (32:29):
Then that being said, if somebodies listening to
this, and they're they'reinvolved in an annuity, like
they're already collecting on anannuity right now, and they're
saying, Oh, I haven't consideredthese things before. And maybe I
don't want to be a part of itanymore. Is that something that
they can back out of? Or is it along process of recalculation
and stuff? Or how, how wouldthat work?
Sean Cooper (32:49):
It really depends on the stage they're in, they'd
have to, you know, if they'vealready started the income,
their options are prettylimited. At that point, they
have to basically go into theircontracts specifically, and do
the math to figure out what whattype of liquidity they can
(33:12):
generate, how much of a hitthey're going to take, if they
just decide to pull extra moneyout. Or surrender the contract
entirely. So it's going to be ona case by case basis. And
completely.
Chris Holling (33:24):
What about what about maintaining it and then
adjusting it like say you're,you're on a, a fixed, but then
you decide I'd rather bevariable? Is that just a matter
of, of them pulling a couple oflevers? Or does it? Does it also
cause different issues? Becauseit's a long term thing?
Sean Cooper (33:42):
Yeah, once you've annuitized it, you you can turn
off the income and hopefully getsome growth again, maybe. But as
far as changing your incomestream from them after the fact,
again, most likely, it's goingto be not working your favor.
Chris Holling (34:04):
Okay. I can see that. Just curious.
Sean Cooper (34:08):
Yeah. And then the other thing, unless you have
tacked on an additional rider,that has a death a death
benefit, or a some sort ofstream of income for someone
other than yourself, once youyou pass away. The contract,
(34:30):
like we talked about early,earlier, terminates, any funds
remaining. Any additionalbalance, typically was the
annuity companies ends upkeeping at that point.
Chris Holling (34:42):
And is that only done at the time of the
contract? Or can you can yousay, Oh, wait, by the way, I
need to add this person as mybeneficiary.
Sean Cooper (34:49):
Benefit. Again, you're
Chris Holling (34:53):
mixing things?
Sean Cooper (34:54):
Yep. Yeah. So yes you typically name a beneficiary
to your annuity contract,however, if you've started a
stream of income, a guaranteedstream of income for your life,
unless there is a specific deathbenefit rider on the contract,
(35:18):
or the contract has a built indeath benefit. Once you've
started that income, there is nobeneficiary for practical
purposes.
Chris Holling (35:28):
Okay.
Understood. That's why I'masking these things. Like I.
Because I think one of the bigthings that we try to cover in
this whole this whole season,process podcast, everything is,
you know, the, the more toolsfor the toolbox, and you talk to
a lot of people that say, Oh,well, clearly, I know the way,
this is the way, and we try toeducate people on on saying,
(35:52):
hey, you know, understand whatyou're, what you're doing,
understand what it is, and maybeit is best for you, maybe it's
not. And if you choose that youwant to get out of these things,
or you choose, you want to getstarted with these things, then
this is how to do it. I think wetry to cover all those things.
But that's that's why I'm askingthese questions, because these
are, these are things thatsounds like you have to sign
(36:13):
pretty large, lasting contracts.
Sean Cooper (36:16):
Correct,
Chris Holling (36:17):
to me means that it would be more complicated to
get out of, and that's that'swhy I wondered how easy that
was. Or not for that matter.
Sean Cooper (36:26):
Yeah. So the if you decided you want to wanted to
get out of annuity annuitycontract, your optimal window is
going to be after the surrenderperiod has ended. So you've
you've passed those however manyyears that is, but before you
annuitize, the contract,
Chris Holling (36:45):
okay?
Sean Cooper (36:47):
That would be your optimal window. Any, if you do
it before the surrender period,then you're going to get hit
with those surrender charges, ifyou take it out of an annuity.
So you instead of going, youknow, you surrender it and you
move it to a non qualifiedaccount, or you just take the
(37:08):
cash, in addition to anypotential surrender charge,
you're also going to get hit bythe IRS for taxes and penalties.
If you're pre if you're pre 59and a half after 59 and a half,
you could do so you can alsomove between annuities. So from
one annuity to another, it's a1035 exchange, I believe. So
that would allow you to avoidthe the IRS, the taxes and the
(37:31):
penalties from them, you'd stillhave to potentially deal with
the surrender charges from thethe annuity company. And then on
the income side, if you'veannuitized. That's when you face
all the potential recalculationsbased on balances and that sort
of thing. And, again, thatdoesn't tend to work in your
(37:52):
favor. And by by way of example,you going back to the
beneficiary concept, if saysomebody had $100,000, annuity
had grown to $100,000, theydecided to annuitize it in
retirement, so they're going totake income on it for the rest
of their life. And they electtheir life only. And the annuity
(38:13):
contract has no death benefitson it. If they died a month
later, so they took one month ofincome. The annuity company
keeps it
Chris Holling (38:24):
Wow. Okay,
Sean Cooper (38:26):
so yeah, there's a definite risk, you're buying it
to offset the chance that youwould otherwise outlive your
income. And that's the the riskthat the annuity company is
taking. So if your lifeexpectancy is 80, and you live
to be 105, they've said, Okay,we will guarantee to pay you
this amount every month untilyou die. So they've in that
(38:50):
scenario, they've paid you foran extra 25 years. So they've
probably come out way behind inthat scenario. But again, if you
died a month after annuitizingfor your life only. They keep it
they come out ahead and that'show it all balances out that's
why it's an insurance contract.
Chris Holling (39:08):
So if you only eat kale every day, then get an
annuity contract is that, isthat what you're saying,
Sean Cooper (39:15):
if you only eat kale every day, no you should
probably probably buy a lifeinsurance contract cause you're
going to die
Chris Holling (39:23):
I once had a patient that she's 104
completely with it able to stillwalk around with a cane which at
that age is is unheard ofespecially
Sean Cooper (39:34):
that's awesome
Chris Holling (39:35):
being cognitively there on top of all that, yeah,
and I remember asking her onetime like how do you how do you
do stuff like how are you theway that you are how do you
function so well when othersjust don't go Oh honey, the only
doctor I go see is Dr. Pepperthis lady pounded down five Dr.
(39:55):
Peppers a day and I'mconvinced the
preservatives in a Dr. Pepper
Sean Cooper (39:57):
Holy cow kept her alive this now keep in
mind everybody this is a this isan investing podcast and not a
nutrition and health that'sthat's it that made me think of
so if you're gonna play a game,you know, get some get some kale
and some Dr. Pepper and roll thedice and see how you do.
(40:21):
Or Don't,
Chris Holling (40:22):
Or don't just don't do that. I'm sorry, I took
us way off track.
Sean Cooper (40:28):
The only doctor I see is Dr. Pepper. That's
awesome.
Chris Holling (40:32):
Okay. What else what else we got that now that
I've completely derailed us.
Sean Cooper (40:38):
It's like an apple a day keeps not just a doctor,
but anyone away if you throw ithard enough.
Chris Holling (40:49):
Oh, I thought you were talking about like, Have
you sat next to Frank lately?
He's only eating apples for thelast 30 days and they are moving
through him.
Sean Cooper (40:59):
Oh, yeah.
Chris Holling (41:00):
I thought that was okay.
Sean Cooper (41:01):
My parents had a dog that anytime they they got
into the apple orchard, and theywould just eat all the apples
that had fallen on the ground.
Her breath would be so bad.
Anyway, yeah, we are way offbase. But that's that's all I
had to add to annuities. They
Chris Holling (41:20):
okay,
Sean Cooper (41:21):
there's there's reasons you might want to look
at them. And there's reasons youwant to be cautious and make
sure you know what you'resigning on to
Chris Holling (41:30):
That's totally reasonable. Got it?
Sean Cooper (41:33):
Yeah,
Chris Holling (41:33):
reasons.
Reasonable. Alright. That'sEnough. Okay, well, let's, let's
wrap this up. Thank you,everybody, ladies and gentlemen,
for joining us on wrapping upthis season of life insurance
and annuities. And the truthabout investing back to basics.
Oh, you know what, actually, we,we do have one more season. But
(41:55):
we might only have one moreseason. To be fair, we we've got
one more written out. And wedon't know exactly where it's
going to take us or what happensafter that. But we're, we're
working on it. And I'm amazedwe're, we're pushing through I'm
I'm kind of amazed how far we'vecome and in a way how fast it's
gone. In a weird, bizarre kindof way.
(42:18):
So
Sean Cooper (42:19):
yeah, no, that's true.
Chris Holling (42:20):
So coming up into the future, we're looking at
more long term stuff andincluding some, maybe some
social security, maybe someestate planning, maybe maybe
maybe some interesting stuff. Idon't know. It's more stuff I
have no idea about. But there'syour there's your information
for the future. So thank you,again for continuing to listen
(42:41):
to us and continuing to want totake the time to better yourself
on the truth about investing.
Back to Basics. My name is ChrisHolling.
Sean Cooper (42:49):
And I'm Sean Cooper,
Chris Holling (42:50):
and we will catch you next season. Podcast
disclaimer disclaimer. Thedisclaimer following this
disclaimer is the disclaimerthat is required for this
podcast to be up and running andfully functioning and moving
forward. This is going to be thesame disclaimer that you will
(43:12):
hear in each one of ourepisodes. We hope you enjoy it
just as much as we enjoyedmaking.
Sean Cooper (43:21):
All content on this podcast and accompanying
transcript is for informationpurposes only. Opinions
expressed herein by Sean Cooperare solely those of fit
financial consulting LLC unlessotherwise specifically cited.
Chris Holling is not affiliatedwith fit financial consulting,
LLC nor do the views expressedby Chris Holling represent the
views of Fit financialconsulting LLC. This podcast is
(43:43):
intended to be used in itsentirety. Any other use beyond
its author's intent distributionor copying of the contents of
this podcast is strictlyprohibited. Nothing in this
podcast is intended as legalaccounting or tax advice and is
for informational purposes only.
All information or ideasprovided should be discussed in
detail with an advisor,accountant or legal counsel
prior to implementation. Thispodcast may reference links to
(44:06):
websites for the convenience ofour users. Our firm has no
control over the accuracy orcontent of these other websites.
advisory services are offeredthrough Fit financial consulting
LLC an investment advisor firmregistered in the states of
Washington and Colorado. Thepresence of this podcast on the
internet shall not be directlyor indirectly interpreted as a
solicitation of investmentadvisory services to persons of
(44:28):
another jurisdiction unlessotherwise permitted by statute,
follow up or individualizedresponses to consumers in a
particular state by our firm inthe rendering of personalized
investment advice forcompensation shall not be made
without our first complying withjurisdiction requirements or
pursuant an applicable stateexemption. For information
concerning the status ordisciplinary history of a broker
(44:50):
dealer, investment advisor ortheir representatives. The
consumer should contact theirstate securities administrator.
Chris Holling (44:58):
Hey, did you know Sean, that there are a lot of
similarities between Iran andIraq but there is one. That's
it's very, very different. See,Iran has a fear of spiders,
whereas Iraq, they do not. So Iran. Phobia. Iraq No phobia
(45:26):
arachnophobia. Sean, come on. Ilaughed at that for like five
minutes yesterday.
Sean Cooper (45:37):
I'm sorry.
Chris Holling (45:38):
No You're not You're just you're just judging
me.
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