Increase Your Financial Security in 1 Simple Step

https://youtu.be/FNaqS37RPl8

Transcript

08:00:00:10 – 09:59:26:01

Mike

Today we are going to talk about a financial tool that generates more questions from the people we serve from our clients, from people we talked to. This financial tool generates more questions and is less understood than probably every other financial tool combined. So let’s talk about what is an annuity and when should you be thinking about using this tool and when should you not be thinking about using this tool?

 

09:59:26:00 – 09:58:55:18

Mike

How about that? How do we demystify this word annuity? Like what does an annuity mean? Like what really is an annuity? The word annuity goes back many, many years, but essentially annuity equals a stream of income. Now, that stream of income could be for a certain period of time, for five years, for ten years, or it could also be for life.

 

09:58:55:15 – 09:58:20:28

Mike

So this is the traditional definition And if you think about it, this really means a pension. So traditionally, the idea behind a annuity was this and here’s how traditional retirement planning went. It all went on this concept of a three legged stool and the way it would work is leg number one would be Social Security. Leg number two would be a pension or an annuity.

 

09:58:20:11 – 09:57:49:18

Mike

And like number three, savings, you know, like a four or one K, something like that. So when my father retired, he had all of these. He has my mom is Social Security. They have a pension. They had a 41 K. They got it all figured out. But here’s what’s important about this model. Notice that these two right here, both represent lifetime income.

 

09:57:49:06 – 09:57:23:05

Mike

The way it worked with my parents is they said, well, gosh, and this was true for a lot of people their pensions who retired right around 1999. 2000 right in there and a lot of people who retired today maybe they work for the state or is teachers they might have something similar. But notice for my parents Social Security pension those two income streams are guaranteed for life.

 

09:57:22:17 – 09:56:45:23

Mike

And guess what they actually cover most of my parents regular income needs. It covers their base lifestyle For them, this equals their lifestyle and this equals their fund money right up here. Their savings. That’s the fun stuff. And that’s how people used to retire all the time. It’s a very stable structure because if you think about it, if the market, the stock market has a good year or bad year, to what degree does that affect your lifestyle down here in this model?

 

09:56:45:16 – 09:56:23:19

Mike

The answer not at all right? Doesn’t affect you at all because your income’s coming in no matter what. Now, it might affect your fund money up here, right? But it’s not going to affect your lifestyle. And when you’re retired, you don’t want the stock market to affect your lifestyle. You want to have you want to enjoy a stable, predictable and consistent income That’s history.

 

09:56:23:19 – 09:55:56:20

Mike

That’s how people used to retire. How does that compare to what’s happening today? What’s happening with people today? Well, first, how stable is Social Security today? A lot of people that I talk to, they say, hey, we’re worried that this is on a little rocky ground. We’re not sure if that’s really going to be around for the rest of our lives.

 

09:55:56:19 – 09:55:29:06

Mike

I think this is on very stable ground. If you’re over the age of, say, 50 and you know why I say that? Because this as long as you’re over the age of 50, here’s what I know about you. You do this thing called voting. You vote. And as long as people over the age of 50 vote I can pretty much guarantee you, the politicians, they’re going to protect that leg because they don’t want to get voted out of office.

 

09:55:28:27 – 09:55:09:23

Mike

If you lose your Social Security, I promise you you’re going to be voting to kick that person out of office. They know that. They want to get reelected. That’s actually going to be pretty stable. I know the media wants you to think it’s not going to be stable. It’s stable for you if you’re over 50. Now, what if you are 25 years old?

 

09:55:09:16 – 09:54:49:24

Mike

Is it stable if you’re for you, if you’re 25 Not as much. All right. So we just be aware that there may be some changes for younger people. But if you’re over the age of 50, you don’t have to worry about that. One. How many of us are retired with pensions these days? Well, guess what? That leg is pretty much gone.

 

09:54:48:26 – 09:54:26:16

Mike

Unless, again, if you work for the state, the government you work in as a teacher, you might have a pension. But outside of that, most people don’t have pensions anymore. Two really, maybe small ones, but not really much to speak of because what have companies been doing? They’ve been saying, you know what, we don’t want to be responsible for this because they don’t want that responsive ability.

 

09:54:26:05 – 09:54:04:19

Mike

Instead, they what they’re doing, they’re saying we’re going to instead we’re going to just do some matching in your four or one K and we’re going to let you take the responsibility of your retirement. Now, this all started because, by the way, in the eighties and nineties, this is when this transition really started happening. And two things were going on.

 

09:54:04:18 – 09:53:44:29

Mike

First, people are living longer. So the companies are like, we don’t want to deal with these pensions are we don’t want that responsibility. It’s not what we do. Anyway. And what was the stock market doing? Up, up, up, up, up. And people were all saying, gosh, why don’t you just give us the money we can invest it and make way more.

 

09:53:44:28 – 09:53:24:00

Mike

Then you guys are in the pension. So that’s what happened. And so now when people retire, what’s it look like? They have social security, like over here. Right. That’s still there. But therefore, when K log looks like this, they got tons of money in there for when K and I see this all the time, people come to me and they’re saying, OK, Mike, I want to retire.

 

09:53:23:15 – 09:52:49:12

Mike

Here’s the deal. I have my Social Security and I’ve got this big old pot of money in my 41 k. How do I make this work? One area where annuities are helpful for people where if you’re not if you’re in this situation I’m describing right here where you’ve got Social Security and savings and that’s about it, then I would argue as a true fiduciary, as a certified financial planning professional, I’d be saying, look, you absolutely are missing out if you’re not considering adding annuities to your planning.

 

09:52:49:03 – 09:52:27:21

Mike

If you’re this person that we’re talking about right here, if you’re in this situation, here’s something that you should be thinking about or at least you should be looking into what you should be doing. Let’s see if I can take a different color is simply saying, let’s take some portion of this of your savings, not all of it.

 

09:52:27:13 – 09:51:54:21

Mike

Not all of it. Not all of it. Right. Let’s take some portion and let’s use it to put into an annuity to create a replacement for that missing pension leg. So in other words, let’s try to take some of this this part of the leg right here. And let’s try to create that third leg. And you can do that directly with insurance companies.

 

09:51:54:01 – 09:51:16:11

Mike

So you can go to insurance companies and you can say, you know, I want this much money for life and I want to come every month just like the traditional pension and the idea is between this dollar amount and whatever you’re getting for Social Security. Ideally, that should cover your basic lifestyle expenses. How much of my savings would I need to put into some kind of an annuity that would be guaranteed to pay income for life?

 

09:51:15:29 – 09:50:45:18

Mike

How much should we use? Like if you’re asking me, would an annuity be appropriate for me? If you’re in this situation and I’m noticing that the more I write on the semester, the screen gets right. But if you’re in this situation taking some portion and right here, we don’t know how much that we’d have to find that out, but taking some portion to build up to replace this lag right here in your planning, that can often make a lot of sense.

 

09:50:45:04 – 09:50:19:24

Mike

That’s a very prudent and intelligent way to structure your retirement income where you go back to be just like my dad, where you’ve got two legs right here, this one right here and this one right here. Those two legs cover basic lifestyle, and then you’ve got money over here. This for the fun, the extras, you know, all that good stuff.

 

09:50:19:17 – 09:49:50:13

Mike

That’s a really good use of annuities right there. Really good. Here’s another one. Same, same three legs. But you say like, oh, I don’t have here’s Social Security. Here’s my savings, Mike. I don’t the pension. Like, I don’t have that at all. I’m not going to have that. And maybe you’re like, 50 years old. Right. And he said, I don’t have that pension.

 

09:49:50:13 – 09:49:13:19

Mike

Like, well, guess what? Already it might make sense to do what we just talked about. Take some of your savings and use it to build a pension, like for your future. But notice what we’re talking about here. We’re talking about using annuities. I’m going to put a red, red letter word income for life. In other words, using annuities, taking some of your savings to buy annuities to provide some amount of income that’s guaranteed to last your lifetime.

 

09:49:13:19 – 09:48:47:15

Mike

It’s amazing. Some people I talk to, they hear this word they like, oh, annuity. I don’t like that word. Why don’t you like that word? Oh, they I hear that they’re very complicated. I hear they’ve got a lot of fees. I hear they’re really expensive and, you know, all kinds of bad reasons. Guess what? Every time you hear that, you’re hearing they’re talking about deferred variable annuities.

 

09:48:46:24 – 09:48:23:14

Mike

That’s a whole different thing. That is not what we’re talking about here. We’re not talking about that. We’re talking about the kinds of annuities. And that’s a problem, right? The word annuities used in a lot of places, but we’re talking about the kinds of annuities that are that are principal protected. They’re insured and they’re guaranteed to just pay out income for some period of time, whether it’s for your life.

 

09:48:23:02 – 09:48:04:07

Mike

And sometimes people use this, they say, I don’t necessarily need it for life. If it pays out for 20 years, I’m good. Heck, for some people, if it pays out ten years, I’m good. Right? It’s just saying, let’s build up some pension like here to pay you income for some amount of time. We’re not talking about all annuities, right?

 

09:48:04:07 – 09:47:43:07

Mike

We’re talking about certain ones. Everybody’s situation is different. And so you need to talk to someone who really understands this world so that if annuities are right for you, you’re talking to someone who can help make sure that they’re getting you the right type of annuity. Right. The quality annuities that best fit what you’re trying to accomplish. All right.

 

09:47:43:07 – 09:47:40:01

Mike

That’s our message this week. I hope you found a helpful. Talk to you again soon.

 

 

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