This is the Truth Network. Welcome to Finishing Well, brought to you by CardinalGuide.com with certified financial planner Hans Scheil, bestselling author and financial planner, helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes.
Now, let's get started with Finishing Well. Welcome to Finishing Well with certified financial planner Hans Scheil. And today's show, one of my all-time favorites, how does lifetime income annuity fit into a financial plan? And so, you know, there's this amazing story. It really is an amazing story in the Bible of the two spies that disagreed with everybody and said that they could go into the promised land.
So they had tremendous faith, right? That, wait a minute, God's on our side. If God's with us, who can be against us? And so what Moses did back then was he promised Caleb that when they went into the promised land, he would give them Hebron, which is one of the most big, beautiful areas in all of Israel. and so in Joshua chapter 14 you know here's Caleb now he's 85 right and he says and behold I'm this day 85 years old and I'm as strong today as I was in the day that Moses sent me in in other words he he's ready to essentially turn on the income of his annuity saying Moses promised me this land I'm 85 it's time to cash in why because he still has things to do because apparently he had the faith at 85 that he still had that he had back in the day when he was sent to the promised land 40 years before that when he was 40 and so you know i i think that that is one of the beautiful things about what we're talking about today is to have the faith that oh yeah i've got things to do and i've got income that i'm going to need to do them and so what a strategy you know this whole idea of having these annuities.
So Hans?
Okay.
So most of the time when people purchase annuities from us and we recommend them and they purchase them, they're part of a larger financial plan. When I say most of the time, it's not always, but our belief in annuities is that you don't put all your money in an annuity. You don't even put all your money that you have in the stock market in an annuity, you're going to put a sufficient piece that you want to protect. But more importantly, we want to create an income stream that you can't outlive.
So let me give you, we have four examples in the video, and I'm going to go through them real quickly. I mean, we've got Laura, who's 61, and Eddie, who's 58, and Eddie plans to retire at his full retirement age, 67, which is nine years from now. We put $110,000 of premium into this annuity, and he's going to start the income for both of them at his age, 67, which is nine years from now, for about $1,500 a month, which is $18,000 annually and that income or that 18,000 annually is going to last as long as Laura and Eddie do. And they don't both have to be alive as long as one of them is alive.
So if Eddie passes away at 75 and Laura lives to 95, they're going to be sending $18,000 checks to Laura for, you know, probably 30 or 40 years.
So just the understanding, once you start the income, it's guaranteed to last the rest of your life, the rest of both of your lives.
So the next example, we got Caroline, who's 66, and Johnny, who's 68. And they put in a $300,000 premium, which was not all of their IRA money. It wasn't even close, but it was Roth IRA money that they put into this.
So not only are they going to have an income for life, but they're going to have a tax-free income for life. And what this is going to do for Caroline and Johnny, they plan to start the income in 2031, which is five years from now. It's going to start at $31,22 monthly or $37,000 a year. for the couple, and it's going to last as long as just one of them does.
So, again, Johnny dies at 80. Caroline lives to 92. Caroline's getting checks for basically 30 years. Yeah, it's almost like, and, you know, you mentioned this years ago, and I still love it, that in its own way, it's like Social Security, right? You put in all this money all these years, and it's like the premium that you're talking about.
We put in this money, and then it creates a lifetime income. The rest of your life, you're going to get a check from Social Security, as the case may be. And in this case, they put in this money, and they're going to continue to get this income every single month. And if they live to $120, it's still coming in. It absolutely is.
We don't want to illustrate 120 just because it's a bit of a pipe dream, you know, to live that point. But the insurance company is they're taking the risk here is they're going to keep sending checks as long as one of you is living. And when you bring up Social Security, when you have a couple collecting two Social Security checks and then one of them dies, the survivor lives on with the larger of the two checks, but the smaller check stops.
So they're going to suffer a loss of income. With this annuity income on a couple, it's not going to go down when the first one dies. It's going to continue on at that same level as long as the survivor lives.
So that's an added benefit at that point that they don't have a loss of income.
Now, I want to give an example of a single. And these are all real cases. We did financial planning for Marge at 72. and she put a $700,000 premium into this thing. And she's starting the income in 2027.
So as soon as her birthday passes, so this is less than a year, and she's going to start an income of $5,396 monthly or roughly a year And it going to go on for the rest of her life Now if Marge were to pass away in the next you know 10 years or five years or eight years there going to be a sizable principal left in here that'll go to her heirs. But she's not really that concerned about that. What she's concerned about is just having an income. She lives into her 90s or beyond. I mean, she's got this income guaranteed.
So this is just a part of the financial plan for her. And the last example, we got Ann, who's 63, and David, who's 69. These people have a large amount of assets, you know, and they really don't have an income problem because they've got so much in assets that they hired us for tax planning. and we didn't just meet them and we've been working with them for four or five years but we just went to them because the stock market has done so well and most of their money is in stocks and we thought why not take some of that money off the table and purchase this annuity and then everything's guaranteed so you can't lose it so if the stock market retreats this piece of it is guaranteed and then have the ability to start an income. They're going to start the income in 2033.
And, you know, it's basically $105,700 annual income for life for the two of them. And Ann's just 63. They were very pleased with this and just the certainty that it creates.
So those are our four examples, I want to go back and talk to you a little bit about annuities and about the product, but I just wanted to give you a taste of how we're going to make this real through examples.
So the first point I want to make is that an annuity is insurance. It's not an investment.
So don't compare these annuities and the returns that you get on them to investments, because investments have risk. And we're not recommending that you put all your money that's invested in an annuity. We're just talking about part of your money. And most people that have money invested, they have part in equities or stocks and part in bonds, like a lot of them, 60-40, 70-30. and what we're talking about with this annuity money is to take and compare it to bonds, which bonds are yielding now 4% to 5%.
They're not making like 22% like the stock market has made in some years. Does that make sense, Robbie? Oh, absolutely. Yeah, I mean, I love the way you put it, that it's not an investment. It's an insurance policy.
But, you know, to me, it's kind of the income insurance policy. Like you're absolutely going to have an income for the rest of your life, which just gives you a sense of security. That's why I guess they call it Social Security. But there's a lot of security in the idea of these annuities. I mean, the insurance company, like if we go down to Ann and David, where they're signing over $801,000 to the insurance company.
Well, the insurance company is investing that money in bonds, okay, a whole bunch of bonds. And so they're not putting it in stocks. And they can't put it at risk because they have to guarantee everything in these.
So, and what the insurance company is doing is they are going to pay out according to how long you live.
So if somebody starts this, starts the income, and then they pass away fairly quickly, both of them, or within a few years, well, then the insurance company hasn't had to pay out much in that income. And the remaining balance is going to go to their heirs. And it's not really going to look like a very good investment in that situation. OK, it's not going to be a terrible investment, but it's not necessarily going to be that good. If the people live, the second one to die lives about 15 years.
Well, again, it's going to be a so-so investment because you're just basically, you know, going to pay out. They put in eight hundred and one thousand and then they're going to get back, you know, maybe nine hundred thousand or a million or one point one. I mean, somewhere in there, they're going to get back more than they put in or they and their heirs combined are going to get back more than they put in. But that's not really why people are buying it. People are buying it because they don't know how long they're going to live.
They don't know how long the second one of them is going to live as a widow or widower beyond the first one. And they just want to guarantee that they have a paycheck. for as long as they live. And people are concerned about running out of money, living to an old age. This annuity provides that protection for them.
So it's an insurance policy. Absolutely.
Well, this would be a good time to remind you that this show is brought to you by Cardinal Guide, cardinalguide.com. And if you go to cardinalguide.com, you're going to see the seven worries tabs there, which today's worry is income. And so this annuity would be a way to help you with that. If you go to that tab, you're going to see a beautiful video with all these examples that Hans just gave with all sorts of numbers and show notes. It's all there at cardinalguide.com.
Again, under the income tab there, as well as, of course, Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement, a workbook that goes with that. Of course, the famous Contact Hans and Tom page, which, you know, obviously they have so many different kinds of this product. It's unbelievable. And they can custom build one for your situation. Again, the Contact Hans and Tom page at CardinalGuide.com.
So we'll be right back with a whole lot more on how does lifetime income annuity fit into a financial plan. Investment advisory services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency.
Welcome back to Finishing Well with certified financial planner Hans Scheil And today show again one of my favorites how does lifetime income annuity fit into a financial plan And boy, does it. I'm so glad. Yeah, so let's look at, like, I went over Caroline and Johnny's example. Caroline's 66, Johnny's 68. They put $300,000 into this thing.
They're going to start the income in 2031, which is five years from now. And Caroline, if Caroline lives to age 80, and assuming Johnny's already passed away, this thing has paid an internal rate of return of 4.2%. Caroline lives to 85, it's 4.9%. Caroline lives to 90, it's 6.4%. caroline lives to 95 it's 7.3 percent has been the internal rate of return on this thing so it really only becomes a a very good investment if you live a long time okay yes it's not a poor investment if you live a short life because you've had the peace of mind to spend your money it's just an average investment you know like i said Johnny passes away.
Caroline lives to 85. They've netted 4.9% return on their money over the whole life of the thing, which is good. It's not great. It's not bad either. But one of them lives into their 90s.
This becomes a very good financial decision.
So the numbers are simpler. Like margins are not quite as good. Marge is the 72-year-old widow that put $700,000 of this dollars into this thing. She's starting the income pretty quickly in 2027. And if she lives to 80, she's only made 3% return on her investment.
And actually, if she dies at 80, some of that 3% is created by the principal going to her heirs, because there will still be some money left in the annuity. She lives to 85. it's a 3.6% return. She lives to 90, it's a 6% return.
So you can see that this is just providing a nice peace of mind for her. And she has half her money in equities and half her money in bonds and annuities. She's at a 50-50 allocation.
So just giving you some examples on that, the returns are generally in the fours if people live what is a short life expectancy for two people, the 80 or 85, and they jump pretty quickly into the high fives and 6%, and some even 7% if people live well into their 90s.
So it really justifies these things in quite a nice way. Yeah, and Marge's example, you pointed out that her heirs would receive, you know, an additional amount of what the principal balance would be, which leads back to the point of, you know, these have, I'm trying to the beneficiaries on them.
So, you know, if you are, if both people pass away, whatever money's in there, it's not loss. It's still continued to receive interest and will go to your, go to your heirs similar to an IRA or whatever, right? Yeah.
Well, I'm just looking at Mark. she puts in 700 grand right for her. She did put that in here. And then very quickly, she's drawn 65 grand a year. And so you do that for eight years and die.
I mean, we haven't paid her out, but 600,000 and it's made some interest along the way.
So, you know, I mean, her heirs are probably going to get, if she died right at 80, a couple of hundred thousand dollars remaining of that $700,000, and that all equates to 3%, which is a pretty low return, but people buy annuities and die young. I mean, the insurance company can't be paying them a huge return as well. But how quickly the return or the internal rate of return improves. If she lives to 90, it goes from 3% to 6%. and there will be nothing for the heirs when she dies at 90 because the insurance companies paid out all the principal the principal's exhausted but they're still sending 65 000 annual checks to her right up until she dies and the effect of all of that is six percent return on her money okay yep now what i want to point out with annuities is we use them as a substitute for bonds and asset allocation.
So a lot of people that do plans with us, you know, say they're going to go with a 60-40, 60% in equities or stocks, 40% in fixed income. We might take the 40% and split it. We might put 20% actually directly into bonds or a portfolio of bonds, and then we're going to put 20% into one of these annuities that's going to produce a guaranteed income.
So we're going to use annuities in a lot of situations as a substitute for bonds. Makes sense.
Now, we can create an income that you can't outlive, and this is the only product that can do that. I mean, we can do all kinds of projections of how long a portfolio will last based upon performance of the stock market, how long you live, what interest rates do, what inflation. but it's still a portfolio. When you run out of money, you run out of money if you live too long. And an annuity provides you some insurance against that.
You just cannot outlive the income of this. It's going to keep coming as long as you're alive.
So and the other point that I wanted to make on this is it needs to be part of a larger financial plan. That's what I opened up with is when we sell annuities to people, we're not just selling them an annuity all by themselves. Typically, we're getting a whole financial plan that we're creating, and this is the income piece with just part of their money.
Now, a couple other points I want to get on this specific product is the income doubles if either one of the couple or Marge, and she's alone if she has a chronic illness.
So if she needs long-term care, that $64,000 annual income becomes $128,000 annual income while she being treated for a chronic illness Pretty nice huh Wow yeah absolutely I mean just huge if you need it right Oh, it is. And the only piece I don't like about it is people relying on it because that doubling for chronic illness only lasts as long as the cash value lasts.
So if Marge buys this, starts taking out the $65,000, but doesn't need it for chronic illness until she's 90, there's no cash value left in there at 90, so it won't double. It only doubles when there's cash value inside of the policy.
So Marge also has long-term care insurance that she bought from us.
So this is just kind of a nice add-on. We already talked about the cash value and death benefit. with these things is you don't like Caroline and Johnny do not need to start their income in 2031. That's just the plan five years from now. If they get to 2031 and they decide, hey, we don't need the money yet.
Our other investments have performed well. They can wait till 2032, 30. They can wait till some point later, start the income, and then the income will be much more.
So the longer the wait the more you get and conversely if in 2028 or 2029 they say we're sick of waiting we need the money we want to start the income now they could start it now and then she's they're just going to get less for life okay and that would that would come in really handy i would think against the widow tax so to speak right that you don't turn on the income until one of you actually does go and then turn it on. Sure. Or if your investments have performed well. I mean, we're setting this up and we're doing this with a bond allocation and then we wait five years and maybe the investments have performed extremely well and then we could say, well, we can just pull this income out of the extremely well investments. We can let this delay longer, okay?
And then the shorter thing is the same thing, is what if the investments perform poorly? Then we could start this income earlier just because we don't want to sell investments for income in a down market.
So you have a lot of flexibility with these. We're just showing you, for instance, the income amount does not change for any reason. I mean, it just is if you buy one of these things, once they start the income, it's going to continue at that same amount until the second one is gone, if you're buying it as a couple. But that also could be a negative for inflation, is that some people look at these and say, what good is it going to do me 20 years from now to have this income when it hasn't been adjusted for inflation?
Well, it's going to do you a lot of good, because income is income. But what I'm going to say is that's why you have your money, other money invested in stocks, is we're going to start spending that money to account for inflation. And if there is a weakness in these things, all by themselves, they don't deal with inflation well. Right. But it certainly does, you know, bode well when you put it together with Social Security, which does, you know, take into inflation.
So it continues to go up. And if you've got the annuities, you do have that little bit of hedge against it, right? Yeah.
People just like this, where it's, you know, where they can take a chunk of their money, set it aside, and we can show them you wait five years or you wait three years. or you wait seven years, we can pick a point in the future, start the income, and it's a known amount right from today. And it's a financial planner's dream to be able to plug that into the software because everything else in the software is just a projection. I mean, it just is. If this happens and this happens and this happens, you get this.
With this thing, it's a certainty. and we like that when we're anything that we can show certain is is helpful and believe me when it comes to income certainty is good so this would be a good time to remind you that our show is brought to you by cardinal guide cardinalguide.com and if you go to cardinalguide.com you're going to see uh the seven worries tabs which today's worry would be income and uh if you go there you're going to see the video we referred to and the show notes and the board and all that goes with that and of course at Hans's book is also at the website the Complete Cardinal Guide to Planning for and Living in Retirement and of course my favorite because I just love these annuities if you contact Hans or Tom at the contact Hans or Tom page it's all there at cardinalguide.com great show Hans thank you and God bless you the opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Investments involve risk, and unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results.
Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation. Finishing Well is designed to provide accurate and authoritative information with regard to the subject covered. Investment advisory services offered through Brookstrone Capital Management, LLC, abbreviated BCM, a registered investment advisor.
BCM and Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. We hope you enjoyed Finishing Well, brought to you by CardinalGuide.com. Visit cardinalguide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Han's best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement, and The Workbook.
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