Episode Transcript
Speaker 1 00:00:05 This is annuity Straight Talk. Since 2008, your host Brian Anderson, has helped clients nationwide navigate the complex market for annuities. With Brian's assistance, hundreds of clients have achieved a profitable and secure retirement. I would know because Brian has answered many of my questions concerning annuities and retirement planning so that you can benefit as well. Let's get started. Here's Brian.
Speaker 2 00:00:48 Hello and welcome everyone to the Annuity Straight Talk podcast, episode number 71. Number two of the year, 2023. My name is Brian Anderson. For anybody who's new, those of you that have been around know that I'm the founder and creator of this wonderful website. I got one of the best comments I've ever had yesterday. You guys see this later. Some guy read my report and said, sorry, nothing I read would convince me to use your services. I love it. I love honesty. Go ahead. Apparently wasn't deep enough for him or what the issue was, but we gotta start with the basics of most people. Man, anybody that wants to do a deep dive, bring it on. I can do it. I will go deep, deep, deep, deep, deep and I welcome you to try it. The reason I do that is not because I'm arrogant thinking that I know everything, but I know a lot of things that can help you out and when people challenge me, it forces me to become better.
Speaker 2 00:01:42 If I have to go find an answer, I learn something and I appreciate that. So episode 71, uh, pension or annuity. I've got a newsletter for this. I'm gonna use it as a guide to talk about this through the podcast but not gonna share my screen cuz it's not necessary. Again, right behind me on the wall as Buster the mule deer. Hopefully in a few weeks I'll have the display finished. Can't wait to show everybody pension or annuity. Not a lot of pensions out there, but there are some mostly of the corporate type. But this question puts a lot of people on the hunt for annuity information. Most of what you get is kind of like standard portfolio management information. Hey, I don't have a pension. Do I need an annuity? You'll get various answers depending on risk tolerance, income needs, all that stuff. Portfolio management, investment management pitches, annuity sales pitch.
Speaker 2 00:02:32 That's pretty standard stuff and it kind of, I shovel all of that into like the general annuity information category. Like everything else, I'm gonna try to cover all the angles. Some people have got pensions, they're still out there. You've got federal, state, municipal pensions even. And then there's still a fair number of corporate pensions out there. It's just not as widespread as it was 50 years ago. So anybody who doesn't have a pension at all, again shovel it into the general annuity category, the question can be answered. It's kind of a general approach to retirement planning. Do you need additional income to cover your expenses? If you do, then an annuity is probably a really good idea. If not, there are several ways to stabilize your portfolio with an annuity. But that doesn't relate to the question I want to answer today. So if you want to take a deeper look at any of that stuff, you can ask me.
Speaker 2 00:03:21 You can search through the newsletter, search through the podcast, it's all in there. Really what I'm gonna do this year is I'm gonna fill in a lot of the cracks, but the broad brush of information that most people need for retirement is already out there. We'll update where is needed and obviously fine tune it based on specific custom questions we get. So this really is custom retirement planning. It's not a sweat shop where we're trying to sell, sell, sell and move as much product as possible. Believe it or not, I do get a lot of pressure to behave that way. To produce that way. People coming and saying, Hey, we know how you can increase your sales 10 x I don't want to do that. I wanna do things my way, present it, present my personality, my perspective and the people that appreciate that and want a job well done are going to find me.
Speaker 2 00:04:10 So that may be you, maybe it's not everybody's welcome to consume it for free. There's absolutely no strings, no obligations, no questions asked. Take it or leave it. Okay. For the purpose of this part, I'm gonna talk about the question of whether to take the income payments or the lump sum from an employer pension. So a lot of times they come pension time. I know four did it. Uh, several years ago they offered buyouts to people with pensions. They were underfunded, they were trying to offload a little bit of the liability. So a lot of times if you have a pension and it could be federal, state, municipal or corporate, you'll get an option when you retire. Do you want to take the lump sum of cash or do you want to take this string of income payments that last the rest of your life?
Speaker 2 00:04:53 Some people need the income and some people don't. People that don't wanna see an increase in taxable income, they may be better off taking the lump sum and just managing it. I've met a lot of people over the years that kind of fall into one of three categories and this was spurred by, I guess you know the word is inspired by a great couple I met a few weeks ago who are dealing with the same issue. So it's not specific to their numbers. I don't share personal information for people. I'm gonna do a little bit different angle of this next week because how rates have changed. I'm gonna talk about actually more of the case study. Again, in general terms, I don't need to get into specific numbers just because I don't wanna give people the wrong idea. Their numbers are not like your numbers are not like anyone else's numbers.
Speaker 2 00:05:38 And so it's the strategy and the philosophy behind these things. So one thing I talk to them about is that I see this hundreds of times every year. So I'm very comfortable. I can be very objective about it and it's math only. I look at the best mathematical way to accomplish something in retirement. But you or anyone else, you've got a subjective emotional connection to all the work and all the years that went into creating what you create. So I don't want to be abrasive to anyone, but I try to just be that objective right down the line. Figure out what the best way to do things is. Some people do make emotional subjective decisions in retirement for peace of mind comfort or just personal preference and that's fine. Not everybody does the absolute best thing from a mathematical perspective because well every case is different.
Speaker 2 00:06:33 So there's a lot of reasons for doing that. What we try to do first is number one, I provide the mathematical justification for doing it. And then you come in where your personal preferences and your own reasoning and things that make you comfortable, your parameters kind of define the subjective elements of that and the two mold together to create a pretty perfect retirement plan. As long as we communicate, of all the ones I see, most everybody fit in two, three categories. Category number one is the people who say I need the income. If you need the income that's coming from employer pension and you're deciding to whether you should take that or the lump sum, it's a pretty easy calculation to determine whether you get more from the company payments or by moving money out to a private investment. Using an annuity is the closest similarity you can get.
Speaker 2 00:07:23 In a lot of cases the annuity is safer, some pensions, um, not all of 'em. Uh, some pensions have language that allows them to reduce benefits if they become insolvent. Kind of like social security, not a scare tactic by any means, but that's one thing you need to understand. The lump sum can be used to create something secure that is not going to be reduced but, and a lot of people will do, not everybody takes the lump sum and goes and buys annuity. There are a lot of people that will go out and say, Hey, I'm gonna put it in a managed portfolio stocks and bonds or we're gonna take coupon payments, dividends, all this stuff, systematic withdrawals. You can do that as well. So I'm not saying it's all or nothing in annuity. Now if you look at your employer pension, you get all sorts of options.
Speaker 2 00:08:05 They're just like an annuity, okay? You get single life, joint life. So you can do it on yourself, you can do it you and your spouse, you can take it for a specific period of years. You can say I wanna take it for 10 years or 20 years. Most pensions give you the option of any of those things and only if a few that I've seen will actually dictate, hey this is a 10 year payout or something. I have seen that it does happen. So you pick one that suits your situation first and you you gotta figure out what the percentage withdrawal rate from the lump sum would be. So the annual income amount as a percentage of the total lump sum. So let's just say if you figure out it's 5% of the total amount, then that's your benchmark. Okay, well if I was with the company, I would take a joint survivor annuity so that my spouse could get the same payments if something happens to me and that turns out to be 5% of the lump sum, that's your benchmark and you can shop for alternatives.
Speaker 2 00:09:00 There's a lots of stuff available publicly. People that came to me were able to find kind of a quote engine to look at it. They were looking for someone to kind of help them sift through it and maybe see if just to confirm whether they had had all the options available. So looking for additional options, always a good thing to involve a professional. That's what I'm here to do. So you can just call me, I'll help you figure it out. It's not hard and it doesn't take a whole lot of time. So if you really need the income, it's really kind of risky to use anything but an annuity as an alternative. We talked about it potentially being safer than a corporate pension. If you can even match the income with a private annuity, I call it private, taking the money out and doing something else, then it's probably a good idea to switch.
Speaker 2 00:09:45 And obviously if you can exceed the payment with a private annuity then you would be crazy not to cuz there if not, you're leaving money on the table. It's fair to say that over the years I've met a lot of people who had actually taken less income with the private annuity because the employer pension had that clause allowing the company to lower payments if the Fen pension fund was in trouble or insolvent. So they got more security, a better guarantee they went with an annuity even though it cost them a little bit every month. That's a personal decision. That's where you go at the subjective angle of things. The math says it's not as much money but subjectively and emotionally, hey we feel more comfortable with this. Again, you need to look at the plan documents. It's not everyone. If you're looking at this, and I understand this topic in particular fits a small subset set of people, but it's a good topic and it does kind of offer lessons for anyone who likes to think outside the box.
Speaker 2 00:10:35 You can draw this into the same type of planning options that everybody else does. So the biggest issue with taking the pension from an employer is that you can leave no remainder to to heirs with the employer pension, at least most that I've seen or any of them that I've seen. So if you live for three years and then something terrible happens and you pass away, you never live long enough to get the money out of it. But with a private annuity you can set a guaranteed period of years on it. The guarantees you get all your money back, you can have installment refunds, you've even got options with residual account values that'll allow you extra liquidity, things like that. So again, it pays to look at all the options so you know that you're getting the best deal even if that means you stay with your employer pension.
Speaker 2 00:11:22 Second group of people is the people who say I don't need the income. This is the most broad category so I can't go into too much detail cause it's gonna go off in a whole lot of different directions. It's not the people who qualify don't need the money. It's that for a lot of these people, income is not the most pressing issue for this group of people. There's a lot of people that can rely entirely on social security. If they retire late and they've let that social security come up, maybe they don't need a whole lot more money. Additional income would would only increase the tax burden for others. You could say the pension lump sum might be a relatively small percentage of their total assets. If you got some of the people that are real savers who have a bunch of money outside of it, maybe in a 401k, IRAs, Roth, stuff like that.
Speaker 2 00:12:09 And for people like that that are a little more independent, sometimes it makes sense to take it out and manage it along with their other assets. So pensions typically roll out to an ira. So they're tax qualified, tax deferred, all that stuff. It's all about control. Who do you want to be in charge of your money when you retire? A list of reasons you might take this path or personal and the number of things you can do with the money is long. You can do anything. Buy a ding motor home for all I care as long as that's what makes you happy. Again, some people put it in managed portfolio stocks and bonds and annuity works just well for anyone who doesn't want risk. So that's, that lands you on the risk tolerant spectrum. It's like, well I want to have control of this money but I don't want risk.
Speaker 2 00:12:50 Well there's, there's where the annuity comes in. So this reminds me of, I'm kind of the annuity retirement nerd. So I remember when this happened, it was 2010 or 12 Prime America. Don't know if any of you guys have ever heard of them. They're kind of like the Amway of financial services. Start your IRA here, get your friends signed up and your family signed up. And for everyone that signs up you can make a little bit of money and all this stuff. It's turning mom and pops into uh, financial advisors, but it is, it's a legitimate financial institution, a kind of a broker dealer. They came under fire four, it's a national brokerage firm came under fire for recommending that federal employees take the lump sum instead of pension payments I saw come up and they had actually had congressional hearings with the Prime America executives.
Speaker 2 00:13:37 If you look it up, there's a headline, cause I looked it up last week when I was kind of trying to remember when it happened and there's a headline that says Elizabeth Warren owns Prime America c e o. Now I'm gonna say this right now and I'm not, I don't imagine a time in my life when I'm ever gonna be important enough to be in a congressional hearing for any reason and I won't single out anyone individual. I would just say right now, if that ever were to happen and a congressperson grills me and owns me on the stand, I will hang up my license. So I watched this and it was, I watched the hearings and I was so frustrated. Prime America, c e o kind of stumbled over the answers to his questions and it was funny, why would you ever like, and then the question's kind of like, why would you ever ask someone to give security for an annuity investment where you made money and obviously you're doing it just so you made money.
Speaker 2 00:14:34 And his only answer was, well what if they die in two years? It's right if they die in two years of money's gone. But that's such a small section of people and that's what he got grilled about. You really, you're convinced that all these people were gonna die early and all he had to to say, I mean he could have gone and said, well they're choosing to trust an insurance company over payments backed by an institution that's functionally bankrupt so it's safer. All he had to say was like, will somebody prefer to manage their own money and have control over it rather than have someone dictate when they get money and how it happens? That's all he had to say. It, it makes sense to me. It's all about control. I wanted to control the money, that's why I took my pension. Not saying that's you, but that's a number of people.
Speaker 2 00:15:20 And I sat there and I was, I might have been screaming at the tv, it was ridiculous. I'm like, you're the c e o of this national brokerage firm and you can't even explain the reasons why someone would do it. So here we go, 10, 12, whatever years later I'm putting it on a podcast and I'm answering it for him. You know, I really think it had to do with the types of stuff he was using to replace the pensions. They did have an agenda. They were trying to sell variable annuities. Not always the best option. It's certainly not the A one size fits all. Okay? So anyway, there's my story for the day. Now the third type of person is the person who says, well I do need some income but I don't need all of it. Like let's say the pension was gonna pay 'em a thousand bucks a month.
Speaker 2 00:16:05 And they said, well I don't need a thousand bucks a month. I mean my income's or my expenses are covered and I'm just using a quick easy number. I don't want anybody to think they're excluded. I could use some people, I could use giant cases and then people with less money will think, oh well I don't have that kind of money so I'm not gonna call him. Or I could use the small cases. And then the people with a lot of money, you're gonna say, well he doesn't know how to handle my stuff, so I'm gonna try to stay away from specific numbers as much as possible. Cause I don't care how many zeros are on at the math is the same. But for people, if, if it's a thousand a month you say, well really 500 bucks a month would give me plenty of walking around money.
Speaker 2 00:16:41 I don't need all that. So let's say a thousand a month, well I just call it 200 grand was the the pension lump. You could take 200 grand and transfer it out to an ira, use a hundred thousand to secure your 500 bucks a month and then you have a hundred thousand left to do something fun with invest, save, offer liquidity, provide inflation adjustments down the road, pay, maybe buy some long-term care insurance, set it aside for your grandkids, college, whatever, all that stuff. So if you don't need all the income, then it makes sense. It's a combination of the first two. Where can you secure something outside? I don't know of any pension that says, Hey, here's your lump sum. Choose how much you want to put in the annuity program and take the rest and roll it out into an ira. I don't think any do that, correct me if I'm wrong.
Speaker 2 00:17:27 It is certainly the exception n not the rule. So someone who doesn't need all the income from the pension, a lot of people fit in that category. I truly do recommend taking out and taking control of it elsewhere. Yeah, so you in that situation, obviously you roll it into an ira and from the IRA you can separate it into different parts, right? Or different investments. So the question, question again of pension or annuity, should you take the lump sum? You know, another quick story, again, it's just math. Figure out what your benchmark is and if you're in the five to 6% range as far as a payout of the lump sum, then it's worth looking at your other options. I met someone who was a municipal employee, this is several years ago, and she called me and said, Hey, I'm getting ready to retire and I was wondering if I should take my pension or if I should roll it out and maybe do one of your programs.
Speaker 2 00:18:19 She watched the videos and liked them and maybe I should take it out and do what you're doing and maybe I can get more money. I said, okay, okay, well how much income are you supposed to be getting? She said, well they're gonna pay me $5,000 a month in retirement. She worked for this city for like five years or no, 15 years. Crazy. That's a very healthy pension. I said, okay, well how much is the lump sum if you took it all today? And I forget around numbers, but I'm gonna guess I'm gonna take a stab at it and I'm in the ballpark. She said, well, I can get five grand a month or they'll give me 137,000 that I can put into an IRA <laugh>.
Speaker 2 00:18:59 Now you wonder why some of these city states and the feds are going bankrupt because the rich benefits with nothing to back it up. So you think property taxes in that city, you're gonna go up probably maybe an additional sales tax, but she's essentially got two years or so worth of income in a lump sum. So that's a 50% payout. Nope, you take it. If you make it two years, you did fine. Not an investment in the world that will do that. So there's some of them that are so far out there and typically they are the government type stuff, although I've seen some that are pretty healthy. It's not the same for everyone. But again, it just, it takes a, a couple of, you know, run some quick numbers, see what works for you and that's what I'm here to do. So through 2023, we're gonna do more of this stuff.
Speaker 2 00:19:46 Try to get more case studies out there. If you want me to run your case study and put it out there, I'd be happy to do it again. You can give me a call. You guys know this. 804 3 8 5 1 2 1. If you wanna ring the phone, leave a message. If I don't answer, I get a lot of spam calls and sometimes I'm busy, but I will call you back and or you can schedule an appointment if you want to guarantee a time slot on my calendar. Top right corner of any page on annuity straight talk.com. This has been episode 71, henin or Annuity. My name is Brian Anderson. Thank you for stopping by. I will see you next week with a case study that relates to this topic. Thank you so much and have a great day. Okay, bye.
Speaker 1 00:20:37 You have been listening to annuity talk. The information is for informational and educational purposes only. Does not represent tax, legal, or investment advice. The views expressed by guests on this program are their own and do not necessarily reflect the views. Partners, no information presented today should be acted upon without meeting with the licensed professional. It's important that you all insurance contract disclosures carefully before making a purchase decision Gs based on claims of the insurance company.
