Hello, Texas. Welcome once again to retire smart Austin with Phil Capriotti Senior. He is the founder of Empower Wealth and tax. I am your host, Mike spangle. Phil, how you doing this week? You’re looking good. Feeling good?
Thank you. You’re looking good too. Feeling great.
Yeah, thank you very much. Today we’re going to answer the question. Why would anybody in the world own an annuity? Now? Look, the markets have gone up, Phil, at least as of presently we don’t know where they’re going to be as of this airing. But look, when you see the potential of what the markets can do, what they’ve done in your retirement accounts, why would we lock it up into a contract, which might have limited numbers? I’d like to go into this throughout today’s program, if you don’t mind.
Well, there’s actually so many different reasons to own an annuity. And again, inside, there’s a place for almost every type of investment class inside of a retirement income plan. Okay. So let me give you a cut. Just a couple of reasons. All right. Some folks want an annuity because they don’t have a pension. They have social security. They don’t have a pension. They’re not sure whether Social Security will truly go bankrupt the defunct or what have you. And they understand the concept especially after going through 911, the financial crisis of 2007 and eight the Coronavirus attack all of these things they understand how three different hands go into your retirement income funds. When they’re invested in the market. Okay, stock and bond. portfolios, the tax man reaches in and grabs his or her share. The market grabbed it giveth and taketh, okay, give it give it a give it then taketh okay. And then we go in to also take funds. So, there are three sources of withdraw. And really only one source of increase, okay, which would be returns on investments. Many folks have saved all of their money in their 401K, and I see this a lot 80% 90% of their resources are in these government taxable retirement accounts for one. Okay. So, what I like to do, there are certain companies and honestly, I am not a proponent of annuities, per se, because many of these products in my professional opinion weren’t worth having. Okay, it wasn’t worth protecting myself against downside, and only getting a two or 3% return, it wasn’t enough return. Okay. So now these newer products are amazing. And I see these newer products with the top companies, there’s really only about a handful of products I would own and only a couple of companies that I would have a fixed indexed annuity. Okay. So, here’s a couple of reasons why you might wait might want an annuity. Let’s assume for a moment, you want to turn on tax free income and retirement with your Social Security, you may want to and we’ve done this with a lot of planning, you may have let’s say you have I don’t know, a million dollars or more, you may want to put 400 or 500,000 Inside the annuity, not draw from it yet. Okay. And then each year convert a portion of that annuity to a Roth. So many times, we’ll have a Roth conversion plan and sign to the annuity. And what it’s designed to do, folks, is I want to put a timeline together three years, four years, five years, seven years to retirement during that time, I’m going to convert that annuity slowly to a Roth IRA. Now many companies, the larger percentage of companies won’t allow you to do that. Once an IRA Oh is an IRA and an annuity. We have companies and these are A rated companies that have been around for over 100 years that allow us to do Roth conversions. Why? Because when I retire, I want to turn that source of income, which is now tax free. And many of these products also have inflation riders built into them, where they automatically get an increase of 3%, four or 5% based on market growth. So, what do I want to do I want tax free income, I want it to be guaranteed. I want to be able to do a Roth conversion inside of it. And then I want to turn on increasing tax-free income that I can outlive that my wife can outlive and anything that’s left in the annuity because they’re still earnings tax free returns while we’re taking guaranteed withdraws, go to my kids. Now one of the other things is I don’t want to outlive my money, I may want to live on only 40 or 50% of my retirement account, I may want to leave the rest of it to my kids and grandkids, not expecting to spend it all, I want to help them jumpstart their retirement. So many times, what we’ll do if you do not have a pension, or sometimes even if you do, and we need tax deferral is we’ll put some of these funds into an IRA inside an annuity with a plan to do a timeline conversion and then turn on tax free income that I can’t outlive.
What you’re essentially saying is, is what companies do with what we had saved 30 or 40 years ago and turning it into a pension. We’re just- we’re just doing it on our own with an annuity.
And it’s called a private pension. And that’s exactly how we term it. It’s a private pension. But it’s extremely important that you understand many of these plants have moving parts. This is why you only want to work with a licensed fiduciary absolutely do not buy an annuity on the internet. That’s my professional opinion. Okay, always work with a licensed fiduciary and always have a purpose for the annuity, increasing income, I want to take a certain amount of funds. And I want to make sure that those funds if I live to 90, even if the funds run out with the annuity, the income never runs out and continues to increase.
Okay, can I ask you a why though? Why would the insurance company who writes that contract, be so willing to do that? So, I put in 400,000, I get paid out over 25 years of my retirement, you’re saying that I could possibly run out of what the initial investment was, but they’ll continue to pay if I live to 110? Why is the insurance company willing to do that?
They’ll actually pay and until you live to 120, after at 121, they’re done. Okay? Again, I don’t claim to have any of our clients being Methuselah or anyone like that. But fact of the matter is, this is long term income planning, why you may not have a pension many times once we convert that over to the Roth, these things, it’s designed these accounts are designed to be empty within a 12-or-13-year period. So, if I turn it on at age 70, it’s designed to have nothing left in the account, but a time I’m 82-83. But I’m gonna live to 90-95, 90- So, I want to continue to earn tax free returns on the insurance company’s dime, while my other resources continue to grow for other reasons.
All right, Phil, we’re going to take a very short break. If you want to get started on your own income plan for retirement that you can’t run out of, give us a call right here for the first five callers, we will do a complimentary review, we’ll take a look at the assets that you currently have and see how we can help you maximize them at your retirement. call the phone number below more retire smart Austin with Phil Capriotti Senior right after this.
I watched my parents work, work themselves really to the bone. I saw my father retire at 63 and pass away. Six months later, once he had stopped working. My mom looked at me and she said, You better be an accountant. You better learn the tax law. I went to a private school, got a great education, lived in the library and graduated without any debt. I realized the benefit of being debt free at a very young age. And I also realized the benefit of educating and speaking to people and I liked working with folks who actually needed help. I started my company 17 years ago, and now we employ two CPAs and two licensed tax professionals. We have a legal arm that helps folks design trusts as well as wills. We have an insurance and that offers property casualty insurance, we sell health insurance, Medicare Supplements, long term care life insurance annuities, and we have wealth management that I started to work with Edie slot looking at tax efficient ways to have retirees or soon to be retirees retired tax free. If your accountant or CPA is not also your financial advisor, you really have a conflict of interest.
Welcome back to retire smart Austin with Phil Capriotti senior today we’re talking about why we want to create reliable income streams in retirement. This tool right now that we’re talking about is annuities. This is not the only lane of Empower Wealth and tax of course you manage the asset. We talked about tax planning, estate planning, how long would it take Social Security, but this tool in particular, has its own set of benefits? What are some of the those benefits in your opinion?
Yeah, so first of all, folks, when you have a retirement plan that’s efficient, you really should have a little bit of everything in it not just stocks, not just bonds, ETFs and mutual funds. So, my number one priority in retirement is to guarantee a steady flow of income that you can’t run out. Number two is you have to protect your retirement income plan from longevity risk. You don’t want your assets to run out when you’re 85 or 90. If you live to 100, you want your assets to pay you till then, and this is one of the benefits of an annuity. The other benefits of a fixed index annuities that protects you against any type of market downturn or volatility. With the annuities that we represent for our clients, if the market has a negative turn of 10, or 15, or 20%, that year, you’ll make zero you won’t lose any money. In the following year. If the market does if the index does 10, 15, or 20%, you’ll make about 85 90% of it the largest share and we want to make sure that there’s no cap on the earnings. The other part of the annuity piece is it has to be inflation protected. So, when we structure an annuity, whether we did a Roth conversion or not into it, I want to make sure that my client’s purchasing power isn’t eroded by the hidden tax called inflation. So, I want this annuity to give me increasing income at a rate of somewhere around 5% a year for as long as I live. Okay, so that’s extremely important. You want to have a predictive cash flow, predictable. I know exactly how much is coming in from my Social Security each month. I know how much is coming in from my annuity each month, I know how much is coming in from other income sources, whether they be pensions rental income, or the like, I wanted, I want to have structure in my retirement income plan. So, this is another reason why folks like annuities, especially what I call the Crème de la Crème, the top annuities because they’re not all homeruns they truly are not. Also, there’s no investment decisions, the insurance company is managing the in the indices inside of inside of the annuities, whether it’s the S&P, whether it’s NASDAQ, whether it’s Bloomberg pink, it doesn’t matter. The other thing is I want a wealth of choices inside the annuities. I especially want tax deferred growth, many of my clients who have Ross, and they may have a million, 2, or more in taxable accounts, they’re irritated. And the reason they’re irritated is they may be earning about a four or 5% dividend. But at the end of the year, they’re not spending that dividend. They don’t need it. So many folks look for annuities for tax deferral. My thought is if I’m not spending it, I shouldn’t pay taxes on it. So many folks not only use it for income, but they use it for tax deferred growth, diversification, it’s extremely important to have an all of the above approach when it comes to your retirement income and plan. And again, an annuity isn’t and when I say an annuity, I’m not talking about variable annuities. I’m not talking about fixed annuities, I’m talking about income annuities, they’re designed, fixed indexed income annuities, they’re designed specifically to create increasing income. There’s no contribution limit.
That’s, that’s the biggest thing that I was thinking about there. So, when you’re talking about really trying to build your wealth, not have to pay taxes on something that’s going to grow. Right now, for those great earners who are here in the wonderful state of Texas, if you’re looking for a place to grow, there’s no limit on what you can put into it.
No, as long as it passes suitability, and it’s considered an asset class that acts in your best interest, we’re in good shape as long as it passed suitability. Many folks believe that once they put money into an annuity, they can’t get it out. That’s not true. Those products went by the wayside many, many, many decades ago. In Texas, we are a 10-10-10 state folks, that means that can’t be longer than a 10-year surrender, I must be able to access at least 10%, Withdraw the value of the annuity each and every year without penalty. And with that being said, I want to make sure that I have that income. And I also want to make sure that it’s protected against creditors. So, give me an example.
If this is different than an investment account, how is it protected from creditors?
Well, because it’s an income, it’s considered a pension is considered an income stream. There was a famous football player many years ago, I think I might have told this story before. Okay, who was accused of killing his wife, murdering his wife, and while he was found innocent of a jury of his peers, well, the family sued him. They sued him in civil and they could not get $1 of his money, because what did he do? He lived in California, and he put all of his monies in annuities and the reason for it’s not every state allows it. Texas does. Florida does. Arizona, California, there are about 13-14 states, they’re bulletproof. When you put money into an annuity, you can protect it against unintended beneficiaries, whether it be an ex-spouse of one of your children, okay, or whether it be from lawsuits. Okay. So, we’re creditors, and when I say creditors, we’re more concerned with lawsuits. Hopefully you’re not concerned with creditors. Now. Hopefully you have a tax, you have a, you have a debt free retirement liquidity option. I don’t need to have 100% of my money available to me 100% of the time, every single day, why there’s no way I’m going to spend 100% of it in any one year, anyone month, week, or even in it and hopefully, any 10-year period.
And that’s often when people say, well, it’s illiquid. What happens if I need the money? Well, it’s the same thing with the money that you have invested in the markets or in your 401k. It’s not like you’re gonna go liquidate it all at once. I think it’s just a buzz phrase that was used about annuities.
Yeah, it was an and again, you have to understand the people who demonize these annuities were normally wealth managers. Why? Because when you put your money in an annuity, a financial advisor is not allowed to charge you a fee on top of it. That financial advisor is paid a commission, whether it be a lump sum commission, whether it be paid out over a two-year period or a 10-year period, they’re paid by the company, and if you’re licensed fiduciary, we must disclose what the commission is, and we do and how it’s paid out. But again, it has to be designed for your best interest. It’s designed for simplicity. And each annuity product has to be designed according to your specifications. What’s my income goal? What’s my suitability? What do I want to achieve? I have folks come in when we do know the comparisons like Phil, I had this annuity I bought it five years ago, 10 years ago, 20 years ago, and I’ll ask What did you purchase it for? I haven’t a clue. The advisor I worked with at the time told me to buy it. Okay, and I’ll ask them, how’s it been doing for you? And they’ll tell me, the thing hasn’t made more than 2% a year over the last 10-15 years. Many of these annuities, these older annuities had caps, you know, it would protect you against downside, but you couldn’t make any money past two or three percent.
Is there a high cost of conversion. Are you allowed to convert them? Can we review them? Can we take a look at the older annuity?
We do 1035 exchanges on these annuities all the time, if it’s in the best interest of the client, many of these older products-
You’ll be expressly clear about what the costs are, is it actually in their best interest or not? Because the firm is registered as a fiduciary.
Not only is it in their best interest, I have to justify it to the insurance company. The insurance company wants to know why did you recommend this product? What are the specific reasons for it? How does it act in the best interest because we’re paying you a commission up front, we want to make sure that you’re not doing it, you’re doing it for your client’s best interest not to enhance your own wealth. Okay, and I understand this, and a client should understand it as well as psychological comfort. I have clients that set up annuities for their spouses, they’re like, look, I want to just leave this money aside, here’s X amount of dollars, let’s say 300, 400, 500,000, I don’t want to touch it. I want to convert it over to a Roth over the next five years. And then I want to be able to turn that income on my spouse when I’m no longer here. I’m going to lose the Social Security check. She’s no longer going to get my Downton converted to the Roth, she’ll have, she’ll have my Social Security and a tax-free source of income, she won’t have to worry about it the psychological effect, having that money coming in guaranteed for life and coming in each and every month. And some folks just like that. Also budgeting. Many folks want to set up an income plan and use a fixed income annuity. They want to look at their other sources of income, and they want it to be automatic, they want it to be low maintenance, okay, and they want their advisors to manage their options each and every year.
We’re gonna take a very short break for a message right here called the phone number you see right here the first five callers, we’ll do a complimentary not only your investment review, but we’ll do an annuity analysis for you find out if it is still working for you. If it’s an older fashioned model, is it time for you to trade up to something that’s more cost effective that can provide you more options? We’ll do the annuity analysis. First five callers, but you need to reach out to us use the phone number here more with Phil right after this.
You know in October of 1987, the stock market dropped 22% And what became known as Black Monday in April of 2000 the .com bubble burst dropping the market 25% And the banking and mortgage crisis of 2008 plummeted the entire global market 37% In a matter of weeks today, right rising interest rates and raging inflation has caused the markets to drop significantly with no end in sight. During these volatile times, you want to be assured that your retirement investments are being managed by an experienced financial adviser who know how to weather the hardest of economic storms. Do you want to take the next financial crisis alone, call me and my team here at Empower Wealth and tax using the number below. The closer you are to retirement, the more important it is to work with a team of professional licensed fiduciaries here at n power, wealth and tax. Thank you very much and have a blessed day.
Welcome back to retire smart Austin with Phil Capriotti, senior today we’re talking about how we create our own private pension, there is a tool for it. But when it comes to long term care costs, those continue to rise in the insurance industry actually designed products now in a different way where they’re added on to some of these private pension tools. How do these work? Are these effective in your opinion?
These are three vehicles to cover home health care and long-term care costs cost. And let’s face it, we’re baby boomers, we know that we are we going to live forever, right? So, we somebody else, not us. The fact of the matter is, one out of one out of eight out of every 10 individuals that reached the age of 80 are going to need some sort of rehabilitation home health care or long-term care. So, there are three ways to pay for this. And it should be part of your retirement income plan, you can pay for it out of your own assets. That’s one option. You can buy insurance, a long-term care policy and have that normally, that’ll cover two-year, three-year, five-year, maybe a lifetime benefit period. That’s another way. One of the other ways that’s become very popular is included in your annuity, having a multiplier or a doubler, or increasing your income. If you cannot prove perform two out of six daily living activities. So many of these companies and again, they’ll have these, not many of them, only a select few will have these riders that cover long term care and home health care. Now take a look at this Spike, you know, because it’s really kind of creative planning, we’ve taken a particular company won’t make any names did a Roth conversion over a five year period, client fell and was permanently disabled, okay, their annuity income doubled, it went from 45,000 a year that was tax free to 90,000 a year tax free, they use some of that extra money to pay for the nursing care at home. And with an annuity, you can never run out of money, you can never run it, you’re gonna run out of money but not out of income. So, with these plans, they not only give you continuous lifetime income, but they have an option to cover long term care. And again, not cover the entire costs, I don’t want to be misleading in any way, offset it or defray and this is a way of insuring yourself, if you do not have long term care, or do not wish to designate an account to cover home health and long term care.
And these sound to me, at least, in my opinion, a little bit more nimble than just a long term care policy on its own.
I think so. I think they’re; you know, you’re using one group of dollars to do multi to accomplish multi objectives. Now, again, granted, you cannot buy these things in contemplation. And what contemplation names is I bought it because I know I’m going to need home health care. Okay, many of these plans. I mean, again, there’s only 20 nickels in the dollar. There’s only 10 dimes in $1. Many of these plans, they must be in force for a period of two years, four years, five years before the home health care benefit will kick in or be viable.
Okay. All right. So, I getcha.
Yeah, I got out, need home health care. Hey, Phil, let me go by an- Yeah, that doesn’t work.
It’s in the contract.
It’s right into contract and we spell it out in the benefits and feature of the contract.
Hey, before we wrap up today’s program, I do want to go to the flip side of the coin. Is there anything that we do need to be aware of in our own private pay?
Absolutely. Absolutely. See, when you create your own private pension, you have to make sure you’re using the right product, it really has to be tailored. And this is why you want to work with someone like myself or our team, someone that not only has a back office or a home office, we’re experts in the area of annuities, managing money, but here are the downsides of annuities. Okay. And I’m talking specifically to you about fixed indexed insurance products or annuities. Number one, in order to get a larger return or a larger gain in the market, you have to give something up. The insurance company has to manage that block of money for anywhere from a one-year period 3, 5, 7, 10-year period. The longer the period of the surrender period, the better the return, the longer the company has to work with the money, the more benefits they offer you as an incentive in the contract to allow them to work with a percentage of your money over a period of time. So, they have surrender periods. And remember I said this is a 10-10-10 state. That doesn’t mean you can’t touch the annuity for 10 years. That doesn’t mean you can’t turn on income for 10 years. We have clients that go into annuity products with their Roth and turn on income immediately. The fact is, you simply can’t take more than 10% of what’s in the contract out in any one year without experiencing a surrender charge. Okay. The other misconception is if I put my money in an annuity, it’s no longer mine. It’s the insurance companies if I die, yeah, after my spouse’s finished, my kids don’t get it wrong. That’s a life annuity, not a fixed index annuity. A life annuity means the insurance company is going to pay you for life. And when your life is done, so is their obligation to pay you. We don’t offer those types of plans at all, I would not consider my if I won’t purchase it, I won’t recommend it. The other thing is many of these annuities have moving parts. And this is why you want to work with someone you can trust, they have caps. In other words, no matter what the market does their maximum cap, they’re going to pay me as 3% 4% or 5%. We don’t work with CAP products, they have spreads that have no cap, but they take the first 5% of growth, you get zero that and you’ll get anything above 5% or 6%. We don’t work with products that have spreads, okay. Okay. Fees, a lot of them have large internal fees. That’s another thing that we want to circumvent the more the insurance company takes it away a fee, the less you have in your account. Many of these products, quality products, have no fees. And because we’re paid a commission to manage and structure them. It’s a win/win for the client. I don’t think that the disadvantages, if they’re structured, right, are really disadvantages at all, in my professional opinion, for certain people.
and since we’re looking at keeping them into a contract for a while, for me, it sounds like carving out a portion of your saved assets. Right. Well, let’s create our own private portion. Right, we’ll have the assets we still have are growing. That’s right, right, right. Phil, thank you so much for talking about annuities today. I will keep it again to the first five callers, folks, if you’d like to figure out how to set up your own private pension plan to make sure that you’ve got income that you can’t outlive along with the rest of your assets and a tax efficient strategy for retirement. call the phone number you see right here and schedule your own appointment for a complimentary review. Thank you for watching retire smart Austin. We’ll be back with Phil Capriotti Senior next week.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Investment advisory services offered through Donato Wealth Management, PLLC, dba Empower Wealth Management (“Empower Wealth Management” or “EWM”),
an SEC registered investment adviser that only conducts business in jurisdictions where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting.
The information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional adviser before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned, or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Personal investment advice can only be rendered after the engagement of EWM, execution of required documentation, and receipt of required disclosures. All investment and insurance strategies have the potential for profit or loss. Asset allocation and diversification will not necessarily improve an investor’s returns and cannot eliminate the risk of investment losses. Past performance is no guarantee of future results. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD #305031.
Insurance products and tax services are offered through Senior Tax and Insurance Advisors, PLLC, dba Empower Wealth Group (“Empower Wealth Group” or “EWG”). Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not in any way refer to investment advisory products offered through EWM. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. EWG is not affiliated with or endorsed by the U.S. Government, Social Security Administration, nor the federal Medicare program. You may be contacted by a licensed insurance agent. Calling the number above will direct you to a licensed insurance agent. EWG may not offer every plan available in your area. Any information provided is limited to plans available in your area. Please contact Medicare.gov or 1-800-MEDICARE.
EWM and EWG are both affiliated companies of Empower Wealth, LLC (“Empower”). Investment adviser representatives of EWM may have a financial incentive to recommend tax and insurance products and/or services offered through EWG which presents a conflict of interest. This conflict is addressed by EWM’s adoption of its Code of Ethics, which requires that all EWM’s Associated Persons place the interest of clients ahead of their own. Clients of EWM are also free to choose their own tax and/or insurance professionals and are under no obligation to utilize the services offered through any related entities or persons associated with Empower.
Strategic Partners listed on this page are not employees of EWM and are not affiliated through common ownership.
We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.
© Empower Wealth Management All Rights Reserved.
