Welcome to Retire Smart Austin. My name is Cynthia De Fazio, joined today by Phil Capriotti, senior of Empower Wealth and Tax and to our viewers at home, you may be asking yourself, what exactly is a fixed, indexed annuity, and does it fit into my retirement plan? And better still, can I create my own personal pension? Well, if you’re thinking about that, today’s show is just for you. Phil, how are you today?
I am absolutely wonderful, and it’s a pleasure to be here with you. Cynthia.
Phil, I’m so excited to be with you every single week. I always look forward to the topics that we talk about because they’re fresh, they’re interesting, they’re informative. The viewers at home respond so well, you’re getting a ton of those QR, click, E codes.
We are. A lot of you folks are coming in and, I mean, we’re loving it. We actually absolutely are. You know, this is our way, really giving back to the community. We meet a lot of very, very nice people who actually work with wonderful advisors and we see the and we see the opposite as well, sure, most of all, the opportunity to do the pro bono work, to do to meet with them, to review the portfolio, run the Morning Star Report, to run their Social Security Maximization report, to do a retirement income plan and update it. We give them the schematic to help them understand how to structure a successful retirement plan and really enjoying it, because this is out my way. It’s our way of giving back to the community without asking for any compensation or remuneration of any of any sort, and I guess just in my heart of hearts, and yours as well, just to help people along. So, I just want that note, we don’t expect anything in return. All of you, if you’ve been watching us or for years or just started watching us to not pick up the phone if you’re within five years of retirement or in retirement and dial the 888-818-6557, number, I believe, is a serious mistake. The topics that we cover are topics that are that are brought up in our office. Yes. So, these questions that come to in our office. When that when clients come in and they have questions or they’re calling questions, we like to address them, and this is the best way to do it. And this is a great topic, by the way.
I love this topic. I have to stop you right there, because today is a very special episode. I don’t know how long you’ve been watching us, if you’ve watched all of these, but this is episode 175 Phil, wow, 175 you’ve been giving so much quality information to all the viewers at home. Happy. 170/5
Wow. That’s fantastic. You know, when we started this over four years ago, we thought we’d do it for about six months, 12 months, and you know, that would be it. And, man, it’s taken on a life of its own. We’re now, we’re now on to TV networks. On Sunday, we’re on NBC at 10:30 to 11:00, you know, if you’re at church and for the morning. And then we’re on Fox from nine to 930 and then we have two-hour radio shows. We have one on Saturday, KLBJ comes on seven to eight, and then we have one on Sunday that comes on 7pm It’s another hour show. And then we have two hour shows on The Bridge, which is Christian Talk Radio. So, we’re having a lot of fun. We really are. We’re really having a lot of fun. We’re getting a lot of folks call in. A lot of folks are. We’re educating. This topic is extremely important. Yes, and that’s kind of a piggyback off of the topic we did a couple weeks ago about variable annuities. Yes, by now, you probably figured, I’m not a big fan of variable annuities, okay, I don’t like to discriminate, but I believe that they benefit the companies and the agents that sell them more so than the clients, since there are fixed index annuities available as a replacement. Okay, so let’s start out with that. What is a fixed indexed annuity? Yes, some folks are concerned of market volatility. They are concerned that if they put their money in the market, they can lose. And I understand that. I get it so a fixed, indexed annuity is just what it sounds like. It’s an insurance product, an annuity, and it offers a fixed rate of. Return, or a return tied to an index like the S&P 500, NASDAQ, so forth and so on. There are a lot of different indexes that we use. What these do is they protect you against market losses in down times, and they give you about 90% or so of the market’s uptime. All of these products are different, okay, number one, this show was coming with a warning, never, ever buy a fixed, indexed annuity over the TV or over the Internet. Okay? That includes us. Ever, always buy an annuity from someone who’s a licensed fiduciary that’s allowed to sell investment products and insurance products because they are legally obligated to choose the best annuities. Now, why do I say that? Folks? There’s over 2000 different fixed index annuities just in the state of Texas.
Wow, in the state of Texas, that’s it. For different products,
Many companies have 8, 10, 12, different types of fixed, indexed annuities. Many insurance agents sell the products that offer the highest commission. I’m not a fan of that. The idea is to be able to offer these products based on needs, whether a client needs so let’s go ahead and talk about the benefits, right? So, the first thing is principal protection, fixed indexed annuities provides you protection against any market loss. The worst that could happen in any given year is you lose zero. If the S&P, let’s say we’re using that Index drops 20% that year, you make zero, they reset the index on the anniversary date for the lower amount, the 20% less, and then the following year, if the if the S&P goes up 10, 15% you’ll get a percentage of that we like to we like to choose indexes that give US at least 80, 90, or 100% of the upside. Okay, so that’s number one. Number two, the returns are potentially higher a good, solid, fixed, indexed annuity. And by the way, FYI, there’s really only two handfuls of companies of products that I even offer our clients. And the reason is, many of these things are loaded with a lot of sizzle, no steaks, so to speak. They have a lot of benefits and features that have cap spreads and things of that nature, which we’re going to get into. So, I like fixed index annuities that have no cap, they have no spread, and they give me at least 80 to 90% participation in the gain of the index. I also like fixed indexed annuities that have a high watermark lock in, meaning I don’t have to wait for the anniversary date to collect my return. Wow. If my index is up 17 18% and I can lock that in. I don’t want to have to wait to the anniversary date three or four months later. Agree. If the client says 17 when we call clients say, Hey, your index is up 17 and a half percent. Do you want to lock it in? If I’m getting 17% from a fixed, indexed annuity, I’m locking that in all day long. Absolutely okay, because many times, if you get greedy, what normally happens is, you can see quick drops in the market, and that 17% could drop to 1512, and so forth. So, most of the products, 95 plus percent, don’t allow you to lock in. You have to wait for the anniversary date. Check that off of my list. I can’t sell that type of product. The other thing for some annuities, if you’re not looking for income, you’re just looking for safe, tax, deferred growth. Folks will park money into these things. They want to get a 6, 78, , percent return. That’s what they want. They don’t want any fees, like we talked about with variable annuities. But they don’t want to pay taxes at the end of the year. So, with a fixed, indexed annuity, you get the tax deferral section, meaning all of those gains are not taxed until you take a withdrawal. Wow. So, we can also use these as a vehicle while we’re executing Roth conversions, because many times these taxable accounts, we may be receiving dividends and interest of 40, 50, 60, 100,000 a year, which adds to the income, if it’s not in a deferred plan. Most folks also like and I like them as well guaranteed interest. They have guarantees in them. I have to have a guarantee, all right, and for most folks that are very conservative or ultra conservative, these things are great. Now, for the most part, we like to use them for private pensions, for folks who are forced to put all of their money into a 401K, their company gave them matching, Cynthia, but didn’t give them a pension to go with it. Wow. So, with that, we may want to take, just to give you an example, let’s assume you have a million, 1.5 it doesn’t matter. Could be a half million. We normally like this. Look at okay, how much are we getting from Social Security for husband? How much for wife? Now I want to have tax free retirement plan. So, I want to be able to, let’s say, put 500,000 of that into a fixed, indexed annuity as an IRA. Are we running out of time?
We’re a little tight, but please finish.
Alright, let me finish, then we’ll come back. I want to be able to do I want to be able to do internal conversions in that process, in that product, I want to be able to convert it to a tax free Roth in segments, little at a time, and then at the end of that time, whether it’s a three year conversion, or four or five year now, turn on tax free income, and we’ll get to the rest of it when we come back.
I love that. You said tax free income. Tax free income to the viewers at home, there’s a number to call on your screen. 888-818-6557, if you’re in the viewing audience today and you’re asking yourself, should I have a fixed index annuity in my retirement plan? Do I want to create my own personal pension? If the answer is yes, call in today. 888-818-6557, if you don’t have a pen handy, that’s okay. Just grab your smartphone. You can click on the QR code at the bottom corner of your screen that will take you right to Empower Wealth and tax landing page, and you can claim your spot accordingly. We’re going to take a very short commercial break here on Retire Smart Austin. When we come back, we’re going to talk about some tax-free income. Stay tuned.
One of the secondary reasons I got into the tax business is my very first job. It was an usher at a movie theater. So back in my day, since the baby boomer, people would come, we would tear their ticket, and we would walk them down, see them and then come back. So up until that point, I was getting $5 a week for allowance. And I’m telling you, I was like an indentured servant. My brother was allergic to grass and pollen, so I had to do all the lawn work. I had to do all of the works. And matter of fact, so I get my first check. I have 37 and a half hours. I’m making $2.10 an hour, this check’s would be close to $80 I look at the check and I’m sticker shocked, $41.78 I’m good at math. That’s not adding up. I go over to the manager. He says, oh, Phil. He says, flip the check around, federal income tax, state income tax, FICA tax, all of these different taxes. So that was my first lesson at 15 about how important paying taxes are. And by the way, I think that anyone that has paid taxes every year for 50 years, by the time they’re 75 they should be tax free. I don’t care where they put their money. That’s my belief. I believe we’ve done our fair share.
Welcome back to Retire Smart Austin My name is Cynthia De Fazio, joined today by Phil Capriotti, senior of Empower Wealth and Tax, and we’re talking all about fixed index annuities and how they will go into your retirement plan. Again. This is episode 175 thank you for being with us today. Phil, I love today’s topic. Obviously, something that you ended with there had everyone’s attention creating tax-free income.
So, these are just some of the benefits and features we need to see inside of these products. Now, one of the other things that has to be in a product before I’ll offer to a client, in addition to doing internal Roth conversions, many of these fixed, indexed annuities have long term care and home health care riders. Wow. Okay, so many of these companies will actually double your income. Now, if I convert it to a Roth, if we put 500,000 into an annuity, and I turn that income on in five years, and it’s and it’s churning out $55,000, $60,000 in tax free income. Wow. Okay, I need to be able to have increases in that income to adjust for inflation. So, two riders that I must have in the fixed index annuity, and this is why you only want to talk to a licensed fiduciary like us. We’re very experienced in this. So, if you do not have a pension and want to set up a pension, or you have a pension with a cash out option, and you do not want that pension to spin out taxable income, you want tax free, you might want to consider one of these products. Many times, folks will not have the health to qualify for traditional Long Term Care coverage, but they do have significant wealth, and they are financially responsible for covering long term care or home health care. And many of you folks who have are helping parents right now and you. Know who I’m talking about, because I’m one of them, and so is my wife, to be honest with you, you need to have that help, that long term care, and at least home health care if you can’t perform two out of six ADLs, daily living activities. Yes, these things also have riders, so I need to be able to adjust that income automatically from that, say, one $500,000 block, it has to include inflate the opportunity to increase with inflation. Okay, so fixed, indexed annuities, the ones that we offer that you have to be a licensed fiduciary to sell, have this. So, once I converted to a Roth, if I’m getting a 3% 5% six, 7% increase each year based on what the index returned inside of the product, and that’s how it’s based, and it has a multiplier inside that maybe doubles the income. If I can’t perform two out of six daily living activities, and I may not have the health to qualify for long term care. This is a great product to have, and you’re establishing your own tax-free pension. It also has to have 100% spousal benefits. Wow, when I turn on this income, if it’s my 401 k, if I predeceased my spouse, I need my spouse to be able to collect the same level of income with the same benefits for long term care and home health care, with the same index increases for inflation. And one of the benefits with these annuities is once the account runs out of money, which normally happens within a 12-to-13-year period from turning it on. That’s the way the actuary set it up. It needs to provide you income up to age 120 years old, and that’s one of the benefits of annuities. When you run out of money, you don’t run out of income. Wow, that’s huge, because we can use a piece of that for 1k use it to convert to a Roth, turn on tax free income, and then be a little more aggressive with the other investments. Why we have their mailbox money set you have the security. Absolutely we have the social security. We set up their own pension. If they’re married and they’re both professionals, we may set up two pensions, a beautiful thing.
It really is, because people always talk about their number one fear is running out of money by using such a vehicle as this, the fixed, indexed annuity, creating your own personal pension, tax free income. Phil, it’s beautiful. It
And here’s one of the disadvantages. I don’t want to give you all of the fluff here. The disadvantages are fixed. Indexed annuities are very complex, okay, and this is why you really don’t want to purchase them from an insurance only agent, okay, really don’t, and most of the better companies won’t even let them sell them. Many times, they have a lot of different features, but they’re all sizzle, no stake. And what I mean by that they may be burdened with caps. For instance, what let me explain what a cap is. Let’s say we’re using the S&P index, and the S&P grows 10% in one year. Many of these products, especially the older products, will only allow you earn a cap of 3% so if the S&P does 10, I make three. Well, that’s barely keeping pace with inflation X that product out I’m not using it for my client. Many other products have what they call spreads. And what a spread is, folks, is that’s how much they take off the top of the growth of the index before you get your money. So, let’s assume we’ll use the same S&P index. Let’s assume the spread is 5% Well, the S&P index, if it grows 6% the company keeps the first five, I get one. Wow. So, I don’t want any spreads in any of these index. I want no cap, unlimited cap. I want no spread, unlimited spread. And this is what you have to watch out for. Now, a lot of companies will come through and they’ll say, no problem. We have no caps, and we have no spreads, but they have another moving part called participation rates. Now what that is Cynthia is that’s the amount of that you can that’s the amount of growth that you could participate in that specific index that you’re using. In other words, let me simplify it. Let’s say again, we’re using the S& P index, and I have a participation rate of 40% if the S&P grows 10, I get four. If the S&P goes 20, I get eight. It has a participation rate. We like to use participation rates of 80% 90% 100% okay, I don’t want any of the risk, but I also want. A larger part of the game. Of course, that makes sense. So, this is why you don’t buy these things off the internet, folks. This is why you dial 888-818-6557 or click the QR code. Come on in, and if you don’t have a pension, or if you have an annuity or and I don’t care whether you bought it 10 years ago, 20 years ago, or 10 days ago. Come on in let us run a comparison analysis on the product to make sure your fixed, indexed annuity was sold to you with your best interest in mind.
Phil, thank you so much. To our viewers at home. That number to call is on your screen, 888-818-6557, if you’re in the viewing audience today and you’re questioning, do I have a fixed index annuity? Do I need one? This is the perfect opportunity for you to find out if this will be a supplement to your retirement plan. Again, that number is 888-818-6557, or if you don’t have a pen handy, we’ve made it even simpler, just grab your smartphone, click on that QR code at the bottom corner of your screen that will take you right to the landing page for Empower Wealth and Tax and you can claim your time with Phil and his team. Accordingly, we’re going to take a very short commercial break. Don’t go anywhere. We have so much more about fixed, indexed annuities when we return.
You the work never seems to end until the day it finally does. After nearly a lifetime on the job, you should be rewarded for all the time you spent working, whether that’s crossing off items on your bucket list, learning a new passion or rekindling the love of an old one. After all, life isn’t over when you stop working. It’s the start of an all-new chapter, the one where you’re the writer and you get to choose how your story will go. A way to achieve that is by having a clear financial plan to sustain your golden years. The biggest fear most retirees have is if they’ll have enough money to maintain the lifestyle they’ve always enjoyed having a plan to help protect you against the curveballs life often throws will help to maintain your lifestyle. Call today to get your free written financial plan so you may live every day to the fullest and enjoy the retirement of your dreams.
Welcome back to Retire Smart Austin. My name is Cynthia De Fazio, joined today by Phil Capriotti, senior of Empower Wealth and Tax and we’re talking all about fixed indexed annuities. Are they the right product for you? Do they fit it within your plan? And can you create your own personal pension? Phil, a great show we’re having today, another very important topic for people to be able to understand the benefits and sometimes disadvantages of fixed, indexed annuities.
You know, I don’t like to see the demonization of any particular person, place or thing; to be honest with you, everything has its benefits, and it has its disadvantages. Folks that say don’t ever own an annuity, they’re actually one dimensional. That tells me that they’re really not a complete advisor. Maybe their company doesn’t allow them to sell annuities, one of the big box retailers we have in horse UVA and all around Austin, their companies won’t allow them to sell index annuities. And I’m thinking, how can you have your client’s best interest if you don’t allow them to sell the absolute best product. Many folks are retiring without a pension. We can use these vehicles, if you choose the right one, to guarantee income. So, let’s talk about some of the other disadvantages. One of the other surrender charges, yes. Now in Texas, we are called a 1010, 10 state, which mean, if, God forbid, you pass away, all of your money is available to the beneficiary without any surrender charges, all of them disappear. It doesn’t matter if it’s the day after you buy the annuity. Number two, you must be allowed to take at least 10% of what you put into the annuity each year. It’s called a 10% free withdrawal. And all of these annuities in Texas have to have them. Okay, okay. So the other thing is, it has to have no more than a 10 year surrender period, meaning I could take 10% each and every year out without any without any penalty, but after 10 years, I could take it all out, if I want, without any penalty, and how these surrender charges normally work, folks, is the first year it might be 9% after your first year, and after your second percent. Anything in excess of 10% it goes down to 876, until it evaporates after 10 years. The other thing is advisory fees. These annuities, I have annuities that I have folks coming in that were purchased, that had purchased annuities, bought annuities like 10 years ago, eight years ago, seven years ago, they’re making 2% that’s the cap on their annuity, and they’re being charged one. Percent for rider fee, these people are making 1% and they simply don’t know how to get out of them. If you purchased an annuity during a low-interest rate environment, folks, meaning the 10-year treasury was at 2.2% these returns on these types of products are very shortsighted and very limited. The best time to buy or enter into these contracts are during the current period where 10-year treasuries are up over four, 4.2 the mechanics behind them. The insurance company doesn’t care if the market goes up, down or sideways. They don’t care. They’re going to take a percentage of that 10-year treasury yield, okay, or bond, and they’re going to keep that to pay us and also to pay their employees, okay? Also, a portion will go in what they call the general fund for investments, but they must keep 87.5% of the value of that annuity, or what we paid into it in guarantees. So, if every person cashes out their annuity and the entire state of let’s say Texas, they have the liquidity to do it. Wow, banks, I understand only have 11% on hand if there’s a run on the bank. So, these things are very well insured, but it’s important again, to know all of the benefits and features of the annuity as well as the disadvantages. The only reason you own an annuity is because it’s part of your retirement plan, and it was sold to you not as a commissioned product, but actually, as part of your retirement plan, primarily pension or tax deferral.
Wow. So again, it’s so crucial and critical that people come in to speak with you about a fixed index annuity you mentioned at the beginning of the show. Never buy one of these online. Never buy one of these by calling into a phone number. This needs to be discussed to make sure that this is the right product for that person.
And always talk to a licensed fiduciary that can sell investment products and insurance products because they are obligated to offer these products and act in your best interest 100% of the time, or they are financially obligated and culpable.
Wow. Phil, thank you so very much for such an amazing, informative show to the viewers at home. Thank you for spending our 175th episode together. That number to call is 888-818-6557 and if you have questions about it’s a fixed index annuity, right for me, this is the perfect opportunity for you to call in 888-818-6557 or click on that QR code at the bottom corner of your screen. Be safe, be happy, be blessed. We’ll see you back one week from today. On Retire Smart Austin, thank you for watching.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
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