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Transcript:

Welcome everyone to it’s time to retire, a podcast, giving you insights and examples to help you strategize your retirement. My name’s Jesse Cunningham, the fifth and then the studio. We have my father Jesse the fourth thanks for being here, dad. You’re welcome. Beautiful Day. Thanks for the invite. And it’s a beautiful day. Beautiful Spring Day in Maryland. The trees are blossoming. So we have an article here by Forbes, by a Bob Mcdonald who was the CEO of all the odds. Yeah,

yeah. He’s been around a long time. But yeah, it’s a very large company. So the article was published April 8th, 2019 is a very fresh and it’s called exposing the dirty little secret about retirement planning. So I’m in the article, it goes over a lot of things, but it really hits on one of the most, the biggest concern for a retiree is running out of money in retirement. Right then? Yes, absolutely. We, we feel that, we see that all the time. So someone gets to the end of the rainbow of their working career and you have what you have. So if their number one concern is running out of money, then how to, how do you address that? Let’s just go backwards a little bit and think about it. If you’re, you’re retired and you thought all your financial plans, we’re going to work and you find out instead of retiring at 65 or 67 you find that at 75 you’re going to run out of money.

How would you feel? You know, if you had more month than money, it’s not a good feeling. So how do you bridge that gap? You know, it’s very important and you can’t open up a periodical, the news or radio without hearing lifetime income similar to what so security is, so security’s a lifetime income for hoping and white. So once that gets turned on, it’s there for life. Yeah. Yes. So very similar to say a pension. Yeah. Pension. So that, that is true. If someone does have a pension or a guaranteed source of income, it’s, it’s nice to be able to fall back on that. And hopefully they have some sort of what cost of living adjustment to it. Yeah, that’d be nice. And I know, you know a lot, a lot of planners have different approaches and we’ll talk about inflation and, and those are all valid points.

But I like to keep things real simple and you know, inflation. Okay, so inflation is this percent or that percent. But what if your basic needs, your basic foundation of bills in your lifestyle or not met? You don’t really care about inflation at that point. That’s true. That’s true. And the article it says, nothing has crueler than having no more money in retirement because when it happens, there are so few options available to rectify the situation. It goes on to say, can you imagine how it would be to retire at 62? I’m relying on a seemingly good plan only to discover at age 75 that your plan is run out of money. So, um, he goes on to say no one product or approach. We’ll work on its own. And I think that’s, that’s a really good point. That’s so important because there’s so many different ideas out there.

But, uh, what I like seeing, and I do this for mom and myself and our own life, let’s take care of the three legged stool. Let’s know for a fact that the basics, the bills that health insurance, all your lifestyle is paid for. How would you feel if you knew you had a check coming in that would take care of that for the rest of your life? Then the other products that you may get from a financial advisor investments or what have you come into play that may have a certain amount of risk. But I, I like talking about guaranteeing a source of income income. Annuities are a good way to do that. You need to have a source of monies in the bank for emergencies and fun in the bank. The bank channel is great, great with that. But you know, just think about in your own life if you knew everything was taken care of, and then on this side you had other investments where you could absorb some risk, but you knew the basics were paid for for the rest of your life. Husband, wife, or as a single person. Right, right, right. So there’s a way for people who don’t have it

pension or guaranteed source of income. And even if they do, they can supplement it with their own kind of pension plan, a guaranteed source of income through an income annuity is what you’re saying.

Yes. And you’ll hear people on their radio or what have you talk about private pension plan. It’s not a pension, it’s an annuity issued by of the life insurance company guaranteed and they’re very safe. So they’re just saying as far as getting a monthly check, you could call it a private pension, call it whatever you want. It’s guaranteed monies the rest of your life and insurance companies with properly structured annuity or the only uh, investment concept out there that guarantees that.

That’s a good point. So we’re getting to the meat and potatoes. If someone’s concerned about running out of money, one way to offset that concern is to create your own guaranteed source of income through an annuity. Could be, it could be. And that is an agreement between the consumer and a life insurance company such as Ali odds. This person was used to be a CEO of [inaudible] and they offer annuities. Um, tell us a little bit about how income annuities work. Well, it’s, it can be complex, you know, blind. It’s basics.

You know, being independent. I can go to nationwide, any company out there and they all have different bells and whistles. You know, what is the situation? How old is a person, what’s their longevity, how, how healthy, or do they have health problems? Can they put aside a certain amount of money in versus putting in it and CD, let’s say, and make them 1% and get taxed on it. Can they put these monies with a reputable insurance company? You’ll leave it alone for five or 10 years and then let that income rider buildup. There’s different types of income riders and they usually charge about 1% fee. I have some, I’ve seen some as low as 0.6. Oh, so the fee to have that benefit of a guaranteed income, the rest of your life insurance company, Sharon’s companies are always to make their, their, their revenue, right?

The reps get paid, but an insurance company takes your hundred thousand hours or whatever, 500,000 or 50,000 and they’re holding it and they’re, they’re bundling it with all their billings of assets. There were making money, but they have to guarantee in this state that you live in, that they will pay you per the contract. You have to play by the rules for the rest of your life. Right. Now, one of the things about annuities is they’re not 100% liquid day one, right? That’s right. So that’s one of the rules. I think we should hit on that. Um, just as a CD has rules where, you know, you can’t touch the CD for x amount of years. Yes. And annuity has some rules associated with it as well. Can you hit on that? Exactly. And I tell people, as long as you play by the rules, it can be a very good, uh, technique.

Um, for instance, playing by the rules, you go ahead and say you don’t need the money. You don’t need to touch it because you have monies in other buckets if you will, or banks or accounts, other liquid assets. But you can usually access 10% free withdrawal every year. No questions asked. Right. Okay. There’s surrender charges. The way you lose money in a concept like this as if you don’t play by the rules, someone didn’t explain it to you properly. I do a lot of reviews, been doing this 30 years, we’ve done a lot of reviews for people with different types of annuities are products and a lot of times people don’t know what they bought. So as long as you know, you can take out 10% free withdrawal every year. And most of the time our clients say, well I don’t need it. I say, but it’s there anyway.

Right. What’s the biggest concern? What’s the biggest concerns? The biggest threats to their money’s usually people will say it’s the market. Okay. And it’s health. If you’ve ever known anyone that’s gone down the path and nursing home or this or that, and they need to come up with a lot of money cause they can’t plead poverty. Right. And it can’t hide their monies. The better structured annuity products will allow you if there’s a terminal illness or a chronic illness. Oh, you take out all the money, no questions asked. Some of them even have a different type of rider that, let’s say you were receiving $600 a month as a lifetime income and you became chronically ill or needed really a high level of skilled nursing. Some companies will double that from 600 to 1200 now again, it can be confusing, but you have to read the contract. You have to sit down with someone who knows what they’re talking about and he’s a straight shooter. Cause I’ve heard people say that, you know, that’s kind of like longterm care insurance is not, but it’s a benefit. If it was 600 a month coming to you and now it’s 1200 okay, that’s a benefit.

It’s a good benefit. In the article it says annuities can be a good option for retirement plan seeking income, but not just any annuity will do. And he says for a variety of reasons, too complicated to detail in this article. Insurance companies offer more benefits than a buffet. In other words, it’s endless. Every company tries to outcompete the other company and offer a better bell or a better whistle to, to, you know, try to get more clientele. So they’re always competing. And that’s the nice thing about capitalism. We do get things for the benefit of the consumer in my opinion because they are competing. But at the end of the day, the consumer has options with humongous companies. For instance, we mentioned nationwide, Allianz, what does another big name, Aig, no,

so many out there and insurance companies, they have to have a dollar for dollar. Every reserve backed up. And you know, you go back to the depression, people couldn’t get their money’s out banks but they could get their monies out. Life insurance plans. And uh, something else we didn’t touch on is what if you’re a husband and wife? Some of them in that type I picked for your mother and myself, have joint pay payouts. That’s very important. And what that means is if the husband passes away because women usually outlive it and that these are longevity, a annuity concepts, whereas people are living longer, right? So if the husband passes away first, then that same income goes to the wife for the rest of her life. So that payout would be a little less, but it will be for two lives versus one. And then people may say, well, what if there’s $50,000 left in there at the end of the rainbow in the cash value accumulation? Well, that goes to the kids and we make sure we do all the beneficiaries and then we help with their state planning issues there, but the joint versus a single apps, and that’s an important issue in some companies or much better on joint. Some companies are better, their sweet spot is singles between 50 and 70 they’re all different. And that’s why we always recommend seeing are independent to really get all the different options out there.

Right. So you have an option to go with an independent agent or a captive agent or there’s plenty of options.

Yeah. Pacific life is an example of very fine company and allow bankers used Pacific life

and they’re good, they’re good. But we have them in every one else. So I’m not familiar with the joint annuity. How does, so you have husband, wife, they purchase an annuity. Say they put half a million dollars into it, why would you do joint over just a single um, annuity?

Right, right. Well we look at it, you think, okay, the man worked at, that’s just use an example. Lockheed Martin and he picked the option on his pension that he’s getting 100% a larger amount and then punk death, his wife gets nothing. Or maybe he’s just, he’s picking a smaller amount and then his wife gets 30% I’ve seen all different ways, right? Well with a joint income annuity, if you want joint payouts, I’ll use again, my mom, me, you know, instead of I want it in my heart and every being, you know, at fiber in my, my, my, my body, my soul, I want to know that my wife has a lifetime income for the rest of her life is something happens to me. Of course I have life insurance, but it’s an emotional thing. It’s a tool. It’s a tool whether you’re giving an insurance company 50,000 or like you said, half a million. Then we’ve had high income people say, why wouldn’t everyone do this? Right? So it’s, it just depends on your situation. But if it’s joint in, let’s say the spouses not in good health, you probably wouldn’t do a joint.

Okay, I see. So it’s situational and I think too, to your question, why wouldn’t everyone do this? It depends on the person. So you may have more upside potential if you were to do something else aside from an annuity. So an annuity is a very conservative product in nature. Yes. So with that, you may have options that have more potential. But if you want to guarantee, I propose there’s, there’s not better guarantees you can get aside from a life insurance or an insurance company. That’s what they’re in the, in the market for the guarantees, we guarantee an income. This is what we do at guaranteed this. Whereas if you have your money elsewhere, there may not be guarantees. It depends on your goals and there can be a blend of all these things and that’s what we hit on in the beginning. Annuities are great, but you know, they’re not perfect for everyone that are good for some people. It depends on how old you are, what your goals are in a blend of, you know, conventional invest in annuities, life insurance, disability insurance, all these different things add up to a good three legged stool

you were hitting on. That’s right Jesse. And you know, you look at it is peace of mind. I’ve heard people call it sleep insurance. We insure our homes, we insure boats are cars. Why shouldn’t we have a portion of our retirement insured? And think of it this way on the three legged stool, if you know the bedrock is paid for for the rest of your life. Okay. And you know that those monies will come in forever for husband and wife aren’t just, you know, sing, whatever situation. How easy is it to you for you to adjust then your lifestyle when you know that it’s guaranteed income rather than hoping it will. Right. You know, there’s a difference between, I know so. And I hope so. Right, right.

I know. So money and I hope so. Money, there’s a big difference. We were just talking to someone yesterday and with the use of an income annuity that they’re deferring for as many years as they can. That’s another big point. Annuities are able to be deferred if you can push back turning on the income. So there’s a button you press on the annuity. Once you press that button in the income starts. You can’t reverse that.

Right? Well, there’s some riders that you can and that’s why they are complex and I eat, breathes this stuff in and you look at the fine print. Um, the, the, the most recent one that mom and I did, we can’t stop it. They can’t stop, came to start but used to be, you’re exactly right. Jesse used to be, once you turn it on, that’s it.

Okay. So I defer to you obviously on this topic, but once we did turn that income on and they’re able to defer it as long as possible and, and that’s a nice thing. You can turn it on today or you can wait as long as possible as your income allows you. If you wait longer, that income source will be larger. And we told her the only way you know with this income, but it’s not going to work out is if you drastically change your lifestyle, if your expenses all of a sudden goes from 40 to 80,000 and that’s no fault to the plan.

That’s just the lifestyle change. I can tell you, I have sat down with many, many people and you can just see in their face that the calm and the peace when they get it, that this is a guaranteed you can’t outlive income, whatever else is going on their life. They know that this is a rock bed and all the other ancillary investments they have add to that. But you’re exactly right. And um, what if someone has this IRA and it’s an annuity at 70 and a half, you know, the tax man comes to them and they have to take a requirement. I’m just distribution, right? Right. Well, if they have an income rider on there, sometimes I’ll tell them, just take a 10% free withdrawal out. It satisfy your distribution so you don’t get penalized, but allow the rest of the income rider to keep growing. So there’s different strategies within that. And I’m doing that with a lady, a client that actually is a in New Mexico. She moved out there and uh, helping her with that concept, take the minimum distribution, but let’s allow the rest of it to build up. Awesome.

So a lot to unpack here. So this article was by Bob Mcdonald, the former CEO of Allianz life. If you have someone helping you with your retirement, maybe just ask them what is an income annuity all about and they’ll know about it and they’ll talk you through the process. It’s, it’s, it can be fairly simple and it can go all the way down to the very complicated. Um, but at the core, it’s a guaranteed income the rest of your life. So consider incorporating, incorporating that into your plan. Everyone’s unique. Um, definitely consult with a professional. Um, Dad, do you want to hit on anything else before we exited?

No, it’s beautiful out there today. I think I’m going to do efficient this afternoon fishing. All right, so this was Jesse with it’s time

to retire. If you enjoyed this and had some value out of it, please like it, share it and tell a friend. And, um, we look forward to talking to you soon.