What Do Annuities Actually Do?

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This is good Truth Network welcome to finishing well brought to you by Cardinal guy.certified financial planner long shot best-selling author and financial planner helping families finish well for over 40 years finishing well will examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Medicare IRA long-term care life insurance and investments and taxes. Now let's get started with finishing well and I love these shows such site. One study on how fun is that they show is actually what do annuities actually do and so if you'd known me as hundreds pointed out so wonderfully. I didn't even know how to spell annuities two years ago. I still don't really have no concept of what they were, what they did but this show is about what they are. It is about what they actually knew what kind of tool. This is the screwdriver is a can opener you know what what what kind of tool is this.

And so you know is I was thinking about and I never thought about applying the Scripture this way is a God guy just gave it to me as I was thinking about it is now in James chapter 2 and says faith without works.

You know is dead and then it goes on to talk about an individual.

You know, somebody that's starving to death on now and I wish him well and say while pray for you, but they don't actually know try to get them some food as you walk away from us.

Like the prodigal not excuse my good Samaritan story about always be bought by Meme parade form. One guy actually stopped in and did something and so faith is good.I have faith. I'm not gonna run out of money in retirement. But here we get enough opportunity for my perspective. Knowing little bit more about annuities. I did two years ago and on whether they actually do to provide that kind of faith to go. I really don't have that worry because I know that I have the right tool for the job. I have no I can't open it open my can. It's hard to do the buck knife you. We have people most of the people that come to us if I just come up with an age that is very common its people turn 65, just there either retired or not, or think about or been retired for little while but is a common age, and people at that point generally have some retirement savings.

Many of them.the lion share of their retirement savings is in 401(k) or an IRA and they've got a hunk of money they been accumulating it over years. A lot of them are very Shocked that they've accumulated this amount of money just like all of it there and what they've done is they've had mostly invested in stocks typically and they've been through a couple market downturns and they have lived to tell the tale community just so their account went down one year and went down substantially and that made it back the next couple years and then went off to great new heights. A lot of them forget that they're adding to it every year through their contributions and their employer contributions, which really makes the investment side of those things look a lot better.

And so here they are right retirement and they got this big hunk of money and they're usually pretty proud of and you know it looks big to them because it's a lot of times all they got. And then we present them with the problem which they kind of arty know is now we need to live on that money for the rest of her life. Okay now now were going to retire over to retire at some point when we do retire when I can be making income anymore to be earning Social Security give people a lot of counseling on that now. We got this retirement savings, which for many people is like a said the lion share of their savings and we process to produce an income and with a large sum of money. It's pretty easy to produce an income for a while but at what age do you run out of money if you start drawing down principles so when you ask what do annuities do what they can do and what they do for many of our clients is on a portion of their money as they provide guarantees that there never can have a stock market losses is not a good down from year to year from anything other than withdrawals and it also they have the advantage if it's not retirement money of tax deferral so they don't have to. But, like if you have money in the bank and earns interest and then that interest is credited whether you draw it out or not you pay taxes on the growth with an annuity you can leave the savings in their leave their earnings in their you don't pay taxes to a drawn out so you got tax deferral and then the third thing that you have is you've got a guarantee of an income for life like at any point you can turn on an income on the annuity and the insurance company will guarantee you that that check will keep coming into you or your spouse for as long as either one of you is alive.

There's a lot of nice features in there but it was still worth talking about what they are. So what are they really do mean I want to answer the question that's in the title is what annuities actually do and what I'm doing an answer that is they provide an income starting at an age where you pick which could either be right now if you're willing to wait every year you wait, the incomes can be larger but starting at an age that you pick as, interesting you said that his people know get older and they are in there making those investments into their 401(k) right and at some point in time when that stops they're not seeing the growth in person right there no longer my commute right now this thing on is that this is kind of working in the backwards of of what that is in that the longer you leave it in there.

The more income that that's going to increase that will absolutely and then you push you to be older so the insurance company the Baxley annuity knows that you know if you put an annuity on a 73-year-old man he's gonna live less years than the 66-year-old man. On average, so, so every year you wait to get interest earnings that you don't pay tax on and you become one year older so that the guarantee that they can make is better because you have a shorter average life expectancy even though 73-year-old man might lived 200. That's the risk that there your transferring to the insurance company so try to put this simple is you got guarantees with an annuity that you can't get out of other investment products and so seldom do we put all or most of people's money all into an annuity or annuities. We don't typically do that once in a while we do. And that's requested of us sometimes, but most of the time we spread their money around the start first with the Social Security and then look at taxation. The third phase by the other withdrawals are to make on the Social Security so Social Security can do the majority of their income for a while and if they can live off of that less desirable and then back in. We can defer a lot of the stuff slow to grow even more up into their 70s before we start pulling money out of this but many people need some money out of these retirement savings accounts to supplement the Social Security right away. Some people need the most they can get out of it right now to live, combined with the so security people are all over the place and that and so that's our first goal with people is is that we need to get you the money that you need to live and then we need to show you how much taxes you pay is only the net money that you can spend and then we want to assure that and that might be some of those people were going to put almost all their money in an annuity simply because never put all of it, but we should put a lot of it in there just because of current company is then going to guarantee an income to these people, no matter how long they live and that maybe what they need because they don't need the uncertainty. They don't need to say stock market for many people that we work with.

They don't really need any income other retirement savings during the middle 60s. They're going to take Social Security when they retire and they can do fine. Just off of that and maybe some of the nonqualified savings part-time work people are all over the place. But we have people that don't need to make withdrawals in the mid-60s later 60s maybe all the way up through the early 70s.

So this is going be something and with retirement money. You gotta start taking withdrawals at 72, so a lot of people will plan around that age. And if we got some years until then, we want to invest their money and take some risks. We wanted to invest part of their money.

They a lot of them have all their money in stocks and they want to get away from that now that the retire because they don't want to watch retirement dreams evaporate bad stock market run like we had back in March or that that's in no way to live your retirement and so what we'll do is we'll take part of their retirement savings maybe half their retirement savings and will put into annuities. So one of these annuities actually do for them.

They guarantee an income and they guarantee no losses of money and the longer they wait to take that income. The more it's going to be once they started it's guaranteed for life.

So I'm I know if you like me or Gandhiji that sounds just like my Social Security. That's the longer I wait to take it, the more I did it and know I get it and it doesn't run out until I die, I mean Social Security is is you know, I realized that like oh Social Security. That's how that works. You know how cool is that I get through the same thing once a public program and the other ones a private one that you set up a lot of the same way semi-when you mention Social Security. We have some people that are like 64 1/2 turn 65's are coming into us. There gonna retire soon and set things up and they discover that there gonna be best to wait till 70 to take Social Security for them. Now they need something to live on. Between now and 70 when they take it so will start pulling money out of retirement savings to create a monthly income for them to live. And then we have the guarantee we tell you exactly what that Social Security's can be. So sometimes we use Social Security as the annuity in the planning and then delay delay that just depends on the people and their situation. But the whole point that I was getting at here is what annuities do is they allow us to take risks with the money that we have invested so that once we take like half your money or 60% or 40% and lock it down and annuities with all these guarantees and lifetime income guarantees put that together with Social Security you know you're all right then we can take some risk calculated risk with the rest earmarked and very happy and I went.

It's clear that and in not experienced this inside knowing and I made this advice to close relative, and watched what happened. You know, because here's somebody that I was really concerned would run out of money and was like that was a concern as I looked at her situation to go out.

What we do and actually what you set up for her was more of an accumulation right yet annuity and so when we come back here.

There's more to this story, yet break that down. Talk about the types of things. So we come back.

What really do actually annuities different state, you know, I should mention this is a mean finishing well, a certified financial planner on file and run to bicarb. Hans and I would love to take our show on the road to your church, Sunday school, Christian or civic group. Here's a chance for you to advance the kingdom through financial resources and leveraging Hahn's expertise and qualified charitable contributions veterans aid and attendance of IRA Social Security care and long-term care. Just go to card�, Contact Tom to schedule a live recording of finishing well, your church, Sunday school, civic group contact on the Cardinal guide.com that's Cardinal guide.com welcome back to finishing well certified natural planner Honda shot out to buy Cardinal guide.com today show is what do annuities maybe that's a new word for you were certainly new word for me two years ago when what do annuities really do one of the tools in Hans's toolbox at at and so there isn't just one kind of annuity is there. There's there's lots of there are in their unit we use them as tools in retirement planning.

I want you to look at them is just an alternative place to put your money.

Or, to put party mean, obviously, people need to stay invested. If they've been invested, they need to stay invested in stocks and bonds. If they've been in on their whole career in the filter 401(k) that way then we generally recommend that they keep some of their money in that, with all its uncertainty and most people have a desire that way we don't really tell people what to do, but we would generally gonna take people into retirement and recommend that they get much more conservative in their allocations okay and we do that by showing them and doing a risk profile.

Analysis of asked him a bunch of questions and then calculating where they are to be on the risk on the wrist chart and then we actually show them where they are on the wrist chart with her current investments and quickly people want to get into more fixed income stuff and more conservative investments and as you age, that number, the percentage of risky stuff is going to go down.

You just don't want to be 80 years old and worried about what stock market is doing and you don't really want to be bet your income for your 80s and that either spouse is so the way we just guarantee your future is we use annuities and there's really of fixed annuities.

There's three types of there's there's immediate income annuities. There's deferred income annuities and there's accumulation. Those are really three different types of fixed annuities. There's also many different tithers variable annuities and we don't offer too many variable annuities to retired people just because when you get into a variable annuity you lose one of the key benefits you. She's the guarantee loose the guarantee of principal. Your money is invested a lot in stocks and you have some guarantees from the insurance company. But if the stock market goes way down, so does your value in your annuities so were not for the most partially on the show today were not talking about talking about fixed annuities and of the fix. The first one immediate income annuities. You know what that means is if you have a hunk of money which most people do in an IRA or in a savings that's not an IRA and they want to essentially buy a Social Security check starts next month. That's what you do if you had $100,000 and you were 65 years old and you want to know how much income will that pay me for life is just try to make it simple 700 bucks a I'm just I'm way to simplify and don't consider this a quote but I'm about right. Male or female can be a little more for males than it is females because females tend to live longer, but you would you would be buying a $700 monthly income for the rest your life and if you live to 73 nuclear foot effectively say that you, you didn't do too well on that bet because it only collected from it for eight years. If you live 200 you beat the house and essentially you've collected $700 a month way more than your hundred thousand dollars is 11 and what does happen. Out of curiosity, so you put hundred thousand dollars in this annuity you died the next month.

What happened, you will most of those are going to come with a 10 year period certain, so your heirs are going to get the 700 bucks a month for the next 10 years, as you did make 10 year you can buy a 20 year period, certain you can go with a no. Certain so you could and we have single people do this better people single with no kids and they don't want they don't really not that worried about the remainders they want to get the largest possible amount than that would be a pure annuity. So in that case did nobody get anything you might get 750 bucks a month like that where 780 so I'm just the 700 bucks a month with me. Assuming a 10 year period certain, or if you are a married couple wanting this you might only get 640 a month. There's no. Certain because it's good to keep in the 640 a month until the second one of you guys enough. One person dies, the money keeps coming to the second one for a long life that that's the way to get you the most amount of money right now on the principal sum is called an immediate income annuity also called a single premium immediate annuity to have number of different words but we have somebody that is not as concerned about loss of principal.

As that's concerned there with an early death, and they want to get maximum income for their lump sum there you go. We we actually don't sell that many of those okay what we typically sell are the deferred income annuities and what a deferred income annuity is is an annuity where the income doesn't start right away is deferred at least a year and there's not really that much advantage to buy it and start the income in the year but if you go several years out.

I say several in mean four 567-8910 years we would take $100,000 a mean you know in seven, eight years. We can grow 100,000 and 260 or hundred and 70 and annuity value, and so so will have a larger amount and then you're seven years older so were to have a higher calculation on that and you might be able to take the same hundred thousand dollars by waiting seven years.

You know you might be able to get 9000 and 10,000, 11,000 a year for life at age 73 or for a couple a couple might be able to get like a little bit less, but then it covers the couple on that amount as long as one of July so it's really a way to buy a future income that's essentially what you doing is like a Social Security check. Once it starts and you're not locked into that deferral. So if you know we can sit out and show you what income it would pay you in six years, seven years eight years. So when you actually get there. You could say no I don't want take the income you I will wait another year so I can get this amount. I will wait another two years because I'm doing okay here. My other money I'm spending last for whatever. So the longer you deferred that mortgage can be and then some people never take the income of those and they just leave it there is a savings account.

Then they pass away, and then a large check of their heirs to the spouse or whomever, so it it.

These annuities are really tools so the deferred income annuity is a tool that we use to create unknown income starting at a future date, which gives us more latitude if were managing your money. Let's just say we left half your money in the account were gonna buy stocks and bonds. According to the percentages of the wrist that she wanted and were effectively taking some risk and were trying to grow this amount for an unknown future needs or for immediate income needs and whatever system account is growing and soap so we got that we have a risk of loss. We have risk of the you may live a long life. We have a risk that you may live a short life. I mean there's a lot of unknowns about how your retirements can play out.

And then there unknowns with your money, especially in the investment market so what annuities do for us as financial planners, and for you as the client is they give us some certainty on the income side of the equation that we know we've got this amount in this income that we can draw on no matter what, and they give us the.

The flexibility to invest them except how absolutely, absolutely.

There's 1/3 time. Right when there is an SE accumulation annuity. They're not that much different than deferred income annuities except in the way their design.

They are designed to give you the best possible accumulation that you can get and then the way you get the money is just her withdrawal about lifetime withdrawals just withdrawals.

And that's actually the relative that that's what she bought was an accumulation annuity that was designed and she's paid in interest rate on that every year is based upon the performance of the stock index the monies not actually invested in stocks is at the insurance company and the principles guaranteed that the insurance company has himself covered that if the index goes up substantially. Then you get a substantial deposit of interest in your account service designed and made most effective for accumulation. It also does not have a charge of the future income payout. So on that annuity. I was just talking about the deferred income annuity you're paying within the annuity is a fee for the guaranteed lifetime income component and you don't have that an accumulation is just designed for what it says accumulate and then it allows you to draw out 10% of the value penalty free every year and I think in the case of this person that we are talking about that had a 20% cumulative feature to it, meaning that she didn't draw it out 10% one year. The next year she could drop 20% and it's it's designed to those products are designed for liquidity accumulation and the best possible return they could be put in there.

So in order to use those for people that don't want to be in the stock market. Think I want their cake and eat it too. They want to guarantee a principal they want to get some benefit of the stock market returns that I want to pay the price which is future market losses plus I can get the money as they needed, but in most cases, what happens if that person passes away just as good payout.

The cash value of the policy really in both the second one and the third one in the deferred income annuities and the accumulation either one of those last two that I talked about whatever money is left in the account is going be paid to the beneficiaries, when they got so in the example I gave the person that bought it at 65 wait until 73 started making withdrawals and then they died at 76.

They only taken three years of withdrawal so there's still going to be a substantial payout at their death of what's left in the account now and in the accumulation annuity were just assuming they've taken nothing and then they pass away, just the whole amount goes to the fishers. What I came what annuities do today course this is all in the income side) retirement income of the seven worries which clearly I think is often one of the biggest wars people have is my gonna run out of money so you can find out more about this from Hans's book the complete cardinal guide to planning for and living retirement and you can find a course@cargillguide.com as well as tell you.

Just ask Hans was book to be happy to send it to your report late, obviously were to talk about one tooling in the toolbox tonight and there's different tools that meet different needs and their very customized to you, your spouse, your help all these things your social security income. All fit into the equation and well worth the time you know of the plan went to Gladwell's thankfulness and thanks we hope you enjoyed finishing well brought you by cardinal guide.com visit cardinal guide.com for free downloads of the show previous shows on topics such as Social Security, Medicare and IRAs, long-term care, life insurance, investments and taxes as well as cons best-selling book the complete cardinal guide to planning for and living in retirement and the workbook once again for dozens of free resources past shows to get Hans book go to cardinal guide.com if you have a question, comment or suggestion for future shows. Click on the finishing well radio show on the website and send us a word. Once again, that's cardinal guide.com cardinal guide.com this is the Truth Network