Episode Transcript
[00:00:00] Hello and welcome everybody to the Annuity Straight Talk podcast, episode number 227. My name is Brian Andersen, founder and creator of AnnuityStraightTalk.com Got a really good resource for you here. Years and years of research on the topic of retirement planning, retirement distributions, market risk, how annuities work, covering the full scope of topics and we're adding new value to it and new options for evaluating different scenarios in retirement. Today I want to talk about required minimum distribution planning, something that that is a hot topic for some people and it is a requirement for just about everyone.
[00:00:37] Please like subscribe or comment on any of your favorite podcast platforms or on YouTube if you would like to schedule a call with me. That's the top right corner of any page on an annuitystraighttalk.com run through your numbers, get an idea what you want, tell you if an annuity works and how it will help you. And if you don't agree, then go do something else. And that is perfectly fine because a lot of people do that required minimum distribution planning. So it's going to affect just about everyone and especially those who otherwise don't need to do any distribution planning in retirement. Three general categories. I mean, don't hold me to this, it's kind of what I thought of while I was writing it. First, there's people that have an income plan that will automatically cover required minimum distributions.
[00:01:22] Second are those who need to take a little bit more than what they plan to take for income to cover it. And third are the people who don't need the money at all.
[00:01:30] Everyone can learn something from this, but it's the last group or the last two groups of people that really need to approach the issue as early as possible. It's a core retirement topic and this is a retirement website, so we should cover it. Talked about it in the past, but I'm going to do a little bit more work to actually provide some good information for people who are thinking about it. Of the three groups mentioned above, each of you, each of them. So everybody should verify at some point whether you're set up properly so that no surprises come. At the last second you get to 73. For the younger people at 75, oops. Didn't realize got to take X amount out and pay more taxes this year. Maybe it's going to bump you into a higher tax bracket and you don't want to be forced into a bracket unexpectedly. Now people that handle it ahead of time use Roth conversions or early distributions. I'm kind of a fan of that Just set up a distribution plan early and keep that as low as possible. Invest your assets elsewhere, potentially tax favored investments as well. That can mitigate the risk of having that big bill come due. But you need to think about it and know if that's something you should consider now by default. I kind of go through this when I'm doing a plan with everyone. I look at it and say, all right, do we also need to talk about, you know, an RMD issue possibly potentially, you know, so I cover that. I don't necessarily talk about it a lot, but I think it's something everybody has to keep in mind. Less than optimal advice comes from every corner of the financial services industry. I'm not talking about everyone. I'm just saying there are a lot of guys that don't consider this. There are annuity agents that sell annuities that have benefits that come for money that's deferred. If it's IRA money, you've got to take distribution. That's going to water down those benefits. Defeats the purpose of buying the contract in the first place. There's investment managers, I know this for a fact, that want to charge fees on higher account balances, will discourage their clients from taking early distributions. They don't want to lose those assets. And I know a few people off the top of my head right now that are building a giant tax bomb, could take money out of it and like reduce that burden. The future. But with the market going bonkers, if it keeps going, then man, some big balances that are going to have to start being distributed. You should probably start that early.
[00:03:39] We are all human. The point of saying that the advice is out there. There's good and bad. Nobody knows your plan better than you do, unfortunately. You got to educate yourself, make sure that you can verify the advice that you're getting is really in your best interest. I don't think it's in anybody's best interest to build a tax bomb five, six, ten years out. Now we built the new app that I keep talking about it. We're going to keep adding features to it that make it a very well rounded tool for creating retirement plans. The latest of those is a required minimum distribution calculator. What I want to do with this today is just to say you will run this through there and we can do this as part of every other case as well. Want to know, is there a looming issue? Do you need to plan ahead for that? And it's not necessarily a product that's going to help you, but you know, you might think, oh, I don't have to pull anything till I'm 73, so I'm not going to worry about it. But if you do wait till 73, are you going to have a bigger problem than if you would have just said take a little bit out along the way? It's one step closer to covering every issue from now and into the future.
[00:04:40] So now there are places online where you can calculate your rmd. To my knowledge, I don't think they go to the length or to the extent that we do here. Plus the tools will build into it. Right now we can calculate the RMD just to look and see what things look like. But in the future, we're going to do things like, you know, mitigation strategies to reduce that burden in the future, because there are a couple of things you can do again, like early distributions, Roth conversions, all that. And so what we're doing different here is we're showing you what does it look like over 20 years under different market scenarios. Is there a point, is there a probability or likelihood that you're going to have a major issue? And is it something you should deal with in pieces and parts now rather than waiting for that ball to drop in the future?
[00:05:22] Now, of course, annuities can help with the management of those distributions. We can save that for a specific planning case. I'm not just sitting here. Again, most of what we do is like, we help everybody with all facets of their retirement plan. We're not just sitting there, oh, let's sell an annuity right away. That's one difference we have. Because, number one, when somebody calls and makes an appointment, my first goal is to help them do something. I want their life to be better. There's a lot of people I only talk to once or twice. I want them to go away with something, knowledge or an actionable item they can do that's going to improve their plan no matter what it means. For me, I'm trying to be effective at what I do, and that's one way I found I can do it. Find one way to help at the beginning. I published a podcast last year explaining how annuities can work with a distribution plan and make it easier or better.
[00:06:08] You can go check that out. The link is in the newsletter. No problem. We're going to be able to get the app to work with those strategies very shortly. So I'm going to run a quick demo right here and talk about the changes we're going to make. The future. The first step is determine whether you have A problem or will have a problem that needs to be dealt with and solved, then hopefully have enough time to take care of it. If you do it ahead of time. Here is what I'm going to do. Share my screen and you guys can look at the app.
[00:06:34] Such a cool app. It's getting better too. It's funny, when I first put it out there, I was like, wow, this is cool. And then it's, you know, it's five or six times what it was at the very beginning. Okay, sample planning case here. Oh, we're not going to use it. Said I was going to use an annuity, but I played with it a little bit first. When we click the RMD or require minimum distribution override, it automatically sets the age at 73. So one of the changes we're going to make is we're going to show what we can do not only with income annuities, but BY Starting at 73, you know, somebody say 68 or 65.
[00:07:03] What happens if we take some of those distributions early? Does it make it better going forward? Just going to look at the numbers. Single life, because that's essentially what you're planning on your distributions unless your spouse is more than 10 years younger. You can use a different table for now because we don't see that as often. For now we're just going to start with this and I'm going to explain it. One thing we can do, I'll explain that later. Submit the strategy and here we go. We get a worse 20 years in the last 20 years. So this is what happens to a 70 year old waiting 3 years taking money that's required to take out again in the worst 20, what the RMD is set to do. So we've loaded the table in here for those years. This is what the value would be. You're going to go off the right side value, which is the total balance and the first year factor is 26.5. So you divide 26.5 by that and you get here. So in the worst 20 year period, this is what would have happened in this scenario where you would have been required to make those distributions every year. So what we do with the annuity or even a bond component is say will that make it better when we're required to pull money out and will that reduce our risk? So there are certain things we can do there if you're interested in looking that. But if you want to get a good idea of what your rmd, we might even put a basic calculator like this. I think It'd be a good idea to just have on the website so people go plug in and we can even put a tax feature in that real quick. Your adjusted gross income and here's your rmd. It's going to, you know, have the tax tables in there and say this is your federal tax. Anyhow, that's what it does where it gives you a projection of what you would be expected to do. And of course you want to run a bunch of different scenarios. I think we should put a total at the bottom of that so we see how much money you actually pulled out. But again you'd have that money to spend to give it away to reinvest elsewhere. So you'd have another account or a growing balance or something else to account for that. It's not just that ho you're forced to take, you know. So in some cases the RMD is not all that bad. This is a million dollar portfolio. If you have less than that, you know, divide it by two. If you have more than that, multiples of that. And in the last 20 years you start a little bit lower just because of the timing of those returns at three years out. And that's going to grow up a little bit higher. Obviously if you grow a bigger balance than in the later years, you're going to have quite a bit higher. Some of those RMDs are 70, $80,000 back in your 80s, because the factor, the payout factor goes way up out there. What I want to show you guys, which is interesting, is something I thought about recently because everything is changing with AI and technology. The tech companies, the data centers and all the surveillance they're putting on us right now. I mean, nobody's upset about that enough. But since we're all just sitting here doing nothing, then it's probably going to happen. What if the market just rips and goes off?
[00:09:33] Then we can add a simulation where we can pick a start year out anytime in the last 100 years. So we're going off start year and I'm just going to put 1990. Let's catch the dot com bubble. What if you do that?
[00:09:47] What if that's what happens with the market? It starts and it just goes 20% a year. You guys are going to have a lot of money. Everybody should be really happy. But I know for a fact some people be griping about the RMDs they got to take. So let's look at what those would be.
[00:09:59] You got $1.86 million. If you add 10 years of really solid market Performance. If we look at that, pretty solid returns. I think if you add the 80s, it's really big. But that's one of the biggest market years, you know, in here.
[00:10:11] Start slow. You're pulling 51 in 99, you're pulling $159,000 out on $1 million portfolio. That's a starting portfolio. But I mean, would that change your tax situation? Do you think that's something you should plan for if that possibly happens? We don't always want to talk about the worst case scenario. We want to talk about strategies, put you in the position of control.
[00:10:31] So if you have a portfolio that's going nuts, then in the middle here, when that portfolio is really high, this is the first 10 years is gangbusters. The next 10 years of the lost decade. But it's got you as high as $190,000 in RMDs, which is tough because you pull it out. That's when the market, you know, and then the market dumps after that. But that's just what happens. This is a historic period. I can't do anything about it. Interesting tools. You can get a plan for it again. Might make just that simple feature live on the website. Don't know. But it's going to be part of all the case planning we do with, you know, income planning and whatnot. It's interesting because I've had a few people recently come in and say, ah, I don't really need anything, but I think some of your strategies might help for RMDs and a lot of people coming in, you know, savers don't become spenders. They save really well and they say, oh well, I saved all this money.
[00:11:21] You know, they don't become spenders, so I don't really need it. I might need 10, 15,000 bucks a year, 20,000 a year, but their RMD is going to be 60.
[00:11:31] So that's what the situation where you want to say, all right, is there something else you should do or you set up? In that case, it's better to set up a plan for the 60 because that's obviously going to cover the 20 that you need. Episode 227 Another tool that we have at our disposal to help get the plans as specific as possible, cover all the bases. This is RMD planning. One good place you can do it. I don't know where else they've got this same thing, but I'm sure some of the big institutions have this factored into their software packages that they use for, you know, Monte Carlo and this and that this has been. Yeah. Episode 2 27. My name is Brian Anderson. Thank you guys so much for joining me. I hope you guys have a great day and I will see you back next week for episode number 228. Have a great day. Okay, bye.
