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8.29.22: Audio automatically transcribed by Sonix
8.29.22: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Producer:
Any examples used are for illustrative purposes only, and do not take into account your particular investment objectives, financial situation or needs, and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Producer:
Welcome to your American retirement with your hosts. Randy Sams and Kale Simpson get set for a full hour of financial information and economic news affecting your bottom line. Randy and Kale work hard each day to educate Americans like you on how to reach the financial freedom they worked so hard for by protecting and growing their hard earned money. And they can help you, too. So now let's start the show. Here are your hosts, Randy Sams and Kale Simpson.
Randy Sams:
Good afternoon, Central Arkansas. We'd like to welcome you to your American retirement. I am Randy Sams, president of SMG Financial, along with my co-host and business partner, Mr. Kale Simpson. Again, we want to welcome you, your American retirement. Give us a call 101.1 FM. The answer. Give us a call. 8669907664. Love to hear from you. Thank you for listening. Just want to acknowledge. Hey, folks, we've got a special day coming up, Mr. Kale Simpson's birthday. So let's let's have a big hand clap, a round of applause for Mr. Kale Simpson's birthday. Congratulations, Kale. Love to have you guys give us a call. Go to the website, American American or your American Retirement Dotcom. Leave us a message again. I'd love to hear from you. And you've got our phone number 86699907664. Again, 8669907664. Leave us a message again. We love to listen, hear, hear from our listeners. Hey, we've also got a podcast, YouTube, Spotify, whatever your favorite podcast provider might be, go listen to us and give us a hands up. We love hearing from the listeners again. I think I've said that about three times, so you guys should know by now we call and I love to listen to your input, give us suggestions for future shows, and I love talking to you about your financial situation for retirement.
Randy Sams:
So, hey, folks, today's show, this is going to be very educational. We've got a lot of topics we're going to try to fit into today's show, but we focus on educating our listeners and our clients. When Kayla and I have an opportunity to have a consultation with a client, we love to sit down with them and kind of educate what their options might be, listen to what their some of their retirement objectives might be, and then put together a plan for them. So remember at your American retirement, we're focused on addressing the major financial issues facing retirees and pre-retirees in America today by helping people understand and prepare for a secure retirement, not a risky retirement. And again, today's show, very educational. The Smart Retirement Plan rules to follow taxes and income streams. Hey, we've got a financial wisdom quote of the week. Here it comes.
Producer:
And now for some financial wisdom, it's time for the Quote of the Week.
Randy Sams:
Money is a terrible master, but an excellent servant. P.t. Barnum. I think, Kale, I've heard of P.T. Barnum. Didn't he have a big circus? Barnum?
Kale Simpson:
He sure did, Randi.
Randy Sams:
Phineas Taylor Barnum, American author, philanthropist, politician and founder of Barnum and Bailey Circus, say he became one of America's first millionaires. His quote illustrates the importance of making your money work for you. So if all you do is work for money, it essentially becomes your master. But if you put your money to work paying bills for life's necessities, purchasing assets and other investments, money will be serving. You strive to be the master of your destiny by making sure you're the master of your money. A lot to refer to this when we're talking to clients as guaranteed lifetime income. You've only got three sources for guaranteed lifetime income folks. Number one, Social Security. Number two, pension. Unfortunately, a lot of folks today are not eligible for pensions. The companies aren't offering them. And number three is a lifetime income annuity, which Kail and I specialize in. So, Kale, we're going to talk about some of the smart retirement plan rules to follow taxes and income streams. I think we're going to start talking about what smart tax. So why don't you take it and kind of introduce us to the first section here.
Kale Simpson:
All right. Thanks so much, Randy. Hey, guys, welcome back to your American Retirement on the Radio Retirement Radio Network, one on 1.1 FM. The answer is where you guys are listening today. Check us out on our podcast. Like Randy said, hit that like button and subscribe. I was on the website earlier today. I had a client, Randy, that I spoke to earlier this week. And we went we went through the website. We looked at the different podcasts, we looked at the different we looked at the different episodes that are saved on the website. Everything is titled. They wanted to know about different things that we go over and what you know, what different topics and things like that may be beneficial for them to listen to. I mean, we just went on there and said, look, you know, look, look at this one. By the time Sam, our producer, gets done editing everything that we talk about, you know, it's very reasonable as far as time, time frame is concerned. You can listen to it for 20 or 30 minutes, guys, and get a pretty good understanding of what the message we're trying to get across to our listeners. If you go to the website, you can also you can also leave us a message. And guys, we've we've had some pretty good feedback. If you want if you want us to go over a certain topic, go to the website and just and put it in and say, hey, I'd like for you guys to talk about, you know, tax smart investment strategies.
Kale Simpson:
Well, there you go. Or how do I safeguard against unnecessary market risk, how do I combat inflation, etc.? It doesn't really matter as we do all of those things. So anyway, Randy, appreciate that. That quote from P.T. Barnum. That's awesome. What you alluded to a moment ago. I'll go ahead and explain just a little bit from a 30,000 foot level if we're talking about smart retirement plans. What you said was rules to follow taxes and income streams. School just started. Kids are in school. And the main thing that we talk about in my house, I've got a first grader got to follow the rules. I mean, that's it. So if if there are certain rules to follow, you follow the rules. And I think he brought something home earlier this earlier this week. And it was you know, this is what I do at home. This is what I do at school or this is what I do both. And so. You know, depending on what that what that is, it's going to be a rule that he follows at school work or both. So same thing applies to investment. Same thing applies to retirement. There's certain rules that we need to follow. One of the main things that that we that we stress to clients, Randy, and you said this before.
Kale Simpson:
Taxes and income streams are very important. We have to be diligent in making sure that we don't put all of our eggs in one basket. That's what the old saying is don't put all your eggs in one basket. So if the only thing that you're doing is putting money in a 401K, you know, that's great. Don't get me wrong, that's a tax-deferred account. We'll talk about that. But there are other things that you can do to potentially help out retirement once that day comes. So we're going to hear a few things. And if you if you hear something, then then I'll stop in a moment and you can kind of expound a little bit on that particular topic. But guys, smart retirement planning consists of smart tax investments. Multiple buckets of money investments and I think two or three weeks ago. Randy, I mentioned a book. Our listeners may, may know what I'm about to say, but it's a it's a book called Tax Free Retirement by Patrick Kelly. You can order it on Amazon or anywhere. You get your get your books tax-free retirement. He talks about the four different types of money. The best type of money is free money. We can all agree to that, right? Free money. Hopefully I get a lot of free money. My birthday. Second best kind of money is tax-free money. Agreed, Randi?
Randy Sams:
Yes, sir.
Kale Simpson:
You don't pay taxes. That's fantastic. Third best type of money is tax deferred money. A lot of people would say that would be the best money. It's not it's the third best type of money, which is your 401K, which I spoke about a moment ago. And your fourth best type of money is completely taxed funds. That's your paycheck. So every if you get paid every two weeks and you get a paycheck. It's the fourth-best type of money, Randi. It's been taxed by the IRS. You go and spend it on groceries or new tires for the car or gasoline or whatever, whatever it is that you've got to spend your money on. That's taxed fully taxed money. Fourth best type of money. So we talked about smart tax investment strategies. So we've got tax-exempt funds. We can talk about that here in a moment. Randi, I talked about tax-deferred funds. A lot of people, a lot of our listeners are contributing to tax-deferred accounts. Tax-deferred accounts can be traditional IRAs 401 K plans, 403 BS, etc. tax-exempt accounts. Roth IRAs fall into that particular category. No. No taxable accounts. Life insurance. I bought additional life insurance this week. Just because you get older, I wanted some additional life insurance, Randi. We're going to talk about life insurance in great detail here in just a little bit, sir. But some of those are some of the things that that I think here in just a moment, we'll take a break.
Kale Simpson:
But when we come back, if you don't mind, Randi, talk about some of those different types of accounts, your tax exempt accounts, where people aren't required to to pay taxes when they when they make withdrawals, tax deferred accounts. What is a 401K contribution, a defined contribution plan? How is that different than a defined benefit plan, like a pension plan? We talked to clients all day long about the differences between the two and then how the traditional IRAs, Roth IRAs, 401 K plans, 403 B plans, etc., SEP account, simple accounts. How are those utilized and what types of clients have that? And what do we typically talk to clients about when it comes to moving those funds around? But guys, we're going to go to a break here in about 20 seconds, so when we come back. Mr. Randy Sams is going to take some time and and speak some wisdom to you guys about some different. Smart retirement plan, smart tax plans, and how each and every one of those plans can be beneficial. Pros and cons of each and every one of those plans. So guys, one moment. We're going to take a break. One on 1.1 FM. The answer you are listening to your American retirement dot com. We'll be right back.
Producer:
Miss part of today's show. Your American retirement is available wherever you listen to podcasts and online at your American Retirement dot com.
Randy Sams:
Welcome back to your American retirement. Randy Samson, my co-host, Mr. Kale Simpson 101.1 FM. The Answer Where Little Rock Goes to Talk. So, hey, thanks for joining us. We're going to talk in this segment, going to do some more education. Kale kind of ran the football and kind of handed it off to me before the break. He was talking about some of the tax-exempt tax deferred. And we're going to talk about some of the retirement accounts that you can look at. So right now, what I'm going to do is I'm going to kind of educate you on the definitions. And then we're going to look at some of the the three types of most popular retirement accounts that we can look at. So, number one, tax exempt a tax exempt account is taxed when you contribute to that account, but not when you withdraw. So in other words, your withdrawals are what, tax free, tax exempt? This is a greater benefit in retirement because you don't have to worry about being in a different tax bracket than when you contribute to it. So, folks, here's a question that you got to ask yourself. When you're trying to decide, should I do a Raul? Should I do an IRA? Should I, you know, a traditional IRA? What you want to look at and you don't have to put all your money, you know, don't put all your eggs in one basket. But here's a question to ask yourself.
Randy Sams:
I'm not going to answer this for you. These are questions that you need to answer and think about yourself and then give us a call at 8669907664 and we can discuss it with you. But question to ask yourself, do you think taxes when you retire or when you get close to retirement or when you are in retirement, do you think taxes will go down, stay level or increase? And whatever your response to write that down and you can kind of figure out which way you want to go. So is it better for you to have tax exempt, tax free money now or a portion of it into that because you think the taxes are going to go up or they're going to stay level as they are now. Now, my personal feelings is that the way we're seeing everything go today is that taxes are going to go up. I don't have a crystal ball and neither does my partner, Mr. Kale Simpson, and neither does anybody else out there. So we don't know what the taxes are going to look like in five years or ten years or 15 years down the road. But those are questions you need to ask yourself. Do you think taxes will go down, stay level, or increase tax deferred? A tax deferred accounts give you the tax benefits upfront. So in other words, you're making contributions. This is like most of these are after, you know, if you're doing it through payroll, if you're doing it, however it might be, those any any money that you put into that account is not taxed.
Randy Sams:
So it's growing tax tax deferred. So it gives you the tax benefits up front. You're not going to pay taxes when you contribute, but you will pay taxes on any withdrawals or distributions. So let's look at the three most popular retirement accounts and again, ask yourself this question might help you on which one of these accounts you feel like or you can utilize all three. Do you think taxes will go down, stay level or increase during your retirement or as you get closer to retirement? Number one, traditional IRA, traditional IRAs are tax deferred. This means you will have to pay taxes when you withdraw the funds from your accounts. So you have no way of knowing for sure what tax bracket you will be in when you start withdrawing funds from a traditional IRA. You could be looking at a reduced payout if you were in a higher tax bracket. Once again, do you think taxes will go down, stay level or increase Roth IRA? Roth IRAs are tax exempt, which means that qualified distributions are free of taxes and penalties. You will only be taxed on your contributions. This is easier to plan for because you will be taxed based on your current tax bracket. Your money grows tax free. Any withdrawals are tax free because you are taxed when you contribute.
Randy Sams:
Your money is protected from increased tax rates that are out of control. Sounds pretty good again. Do you think taxes will go down, stay level or increase? Number three, most of you guys are probably doing this right now. If you're if you're working and your employer offers it, this is a401k or 403b, lots of different vehicles, the same type of concept. 401k plan similar to a traditional IRA, a41k plan is tax deferred. These accounts differ from an IRA in that your employer sets it up for you. You make contributions to them while you're employed, but your employer can also match your contributions. And what we find, Gail, as you've spoken to folks that employers it's not a set amount that they can contribute. I've seen some that contribute, you know, 5%. Some of them contribute up to $1 amount of of what you contribute. But basically what we look at and Kale said this earlier in the first segment is free money. So any time you have a 401K available, it's something that I think you should seriously consider contributing, but especially when you have an employer making a matching contribution up to a certain amount. So if your employer matches 3% of your contribution and you do, you can do a 7%. Then what you're looking at there is, you know, you're looking at almost a 10% contribution, seven by you and 3% for your employer. So employer matching is essentially free money.
Randy Sams:
The contribution limits for employer and employee contributions combined are if you're younger than 50 years old, total contributions cannot exceed 61,000 a year. Once again, if you're younger than 50 years old, total contributions cannot exceed 61,000 per year. If you are 50 or older, you are eligible for a catch up contribution of up to $6,500 a year. So if you started late in life, you'd be surprised how many folks that Gail and myself speak to. And they are just now really they could be 45. It could be 50 or just now starting to focus on retirement. We'd like to see folks start that retirement planning a little bit early, a lot earlier. I'm speaking with a couple of 30 year olds right now as we speak on the radio, but that's what we look at. So if you're 50 years old or older, you can do a catch up contribution, which means they will allow you to contribute $6,500, which hopefully will help you, you know, pack in the in the funds and help you if you turn 60, 65 as that's your retirement age. So here's what I'm looking at risk associated with 401 k something to think about. There are risk associated when you do a 401k What Kale and I look at is most employees that we have dealings with and we ask them, What's your 401K invested in Kale, what's their answer? What's their response?
Kale Simpson:
I'm not sure that's right.
Randy Sams:
So what that lets Cal and I know is that this, this person has been growing this one K and they may have had a suggestion when they started ten years ago, five years ago, whatever it happens to be 20 years ago. But they don't have any idea that you know what they've got the funds invest in. Is it all in bonds? Is it all in stocks? Is how much risk involved? You know, what's your projected amount when your retirement age comes about? But that's the biggest risk that I see with the 401k is that the employee does not seek outside advice from someone who may be a little bit more educated on what types of investments, what types of indexes are available, what type of funds are available. And they're not aware that if certain funds aren't doing well, you can switch those funds. So most 401k is give you the opportunity to switch those funds from once, twice, three times, once a quarter, every year. So be active if you've got a 401K, be aware of what you've got the funds invested in. Number two is market risk. This is a big one. Market risk means that if you've got your 41k funds heavily invested into securities equities, you've got them into the stock market. Guess what can happen if the stock market were to fall, your 401k could very quickly become a201k. All right.
Kale Simpson:
Right.
Randy Sams:
Number three, sequence of returns, risk that comes into play when you get to the age that you want to retire. You've got your 401K balance. You've been working on it. You're happy with what you've got all of a sudden. And folks calling. I spoke this morning before the show. He's got a client that actually is experiencing this right now. We're not going to go into too much details. But basically the amount that he started with in in his 401K slash IRA account and with him taking money out, it's basically going down quite, very, very quickly because first of all, you're taking money out and the stock market, your investments are doing what they're going down, they're decreasing. So with a 401K, a lot of times what Kale and I are doing is we are working with the clients to look at the 401K balance that they have, take a a portion of that for one K and into a guaranteed income product. Then that way your money, your funds are guaranteed, your income is guaranteed, and you don't have to worry about taking money out at the same time while your accounts are going down. So, folks, that's Professor Sams educational series right now. Own the tax exempt tax deferred, the three type of retirement accounts. Again, give us a call. 8669907664. We'd love to talk to you discuss a little bit farther over the telephone. So right now I'm going to throw the football back to Mr. Simpson and we're going to talk about life insurance.
Kale Simpson:
Hey, Randy, thanks so much. Hey, that was a lot of good information. I know. I've been taking notes as you've been talking. Randy, let me ask you a quick question. So if I'm if I'm working at a company and I am participating in their 401K and they match 5% sure, should I put in 5% if I can. Should I put in 8%? Should I put in ten? What what what would you what would you tell me if I was a younger client and that was the the employer contribution match, what would you what would you say to that?
Randy Sams:
Well, I mean, it's it's free money. So, you know, and what what we're talking about, folks, when we say an employer match, if if they match 5%, they're matching 5% of your salary up to 5%. So you could do 10% of your salary into the 41k and they're going to match 5% of your salary, which means a total of 15%. So what I always look at is, well, a rule of thumb when I'm speaking to someone, you know, because folks got you know, they have they have to lay off kale. You know, you've got the the pre-tax benefit of. Getting to the fore one day your employer matches. So what I look at is I'm kind of target on 5%. So if if your employer is matching 5% of your salary, then I would suggest you do at least 5% or should say up to 5%. All right. Your employer matches up to 5%, which means that if you only do 3%, they're only going to do 3%. All right. So I would take advantage of getting the full 5%. I would do at least 5% myself, added with their 5%. Easy. Math means that you're making a contribution along with your employer up 10%. So I would say any time you have an opportunity to get free money, you should take advantage of it.
Kale Simpson:
Awesome. And I appreciate you saying that, because guys here in a moment when I talk about life insurance, when we come back from a break earlier in the show, I told you what the best kind of money is. What for free money. So if they contribute, they match the 5%. That's free money. The second best kind of money is tax free money. So when we get back from a break, there is a way that you can put additional funds to work that you would have otherwise put into a tax deferred account like a 401K. But you can turn the table a little bit and turn that into tax free income when you decide to take take contributions in that particular account. We'll talk about that on 101.1 FM. The answer, your American retirement. When we come back. We will talk about life insurance and how that tax free income works.
Producer:
Social Security will get a big cost of living adjustment next year, but there could be some consequences you might not have considered. I'm Matt McClure with the Retirement Radio Network, powered by AmeriLife. A new report by the Senior Citizens League says Social Security beneficiaries could see a cost of living adjustment or COLA as high as 10.1% next year. The reason, inflation running at a 40 year high.
Mary Johnson:
This is a very, very unusual and unprecedented pattern of inflation that we're experiencing.
Producer:
Mary Johnson with the non-profit group, told Wft TV that surveys show inflation has caused about half of Americans to spend their emergency savings and people are carrying more debt on their credit cards. So the highest jump in Social Security payments since 1981 would be a good thing, right? Well, Johnson says it's better than no increase, but there are some things to be aware of.
Mary Johnson:
In fact, you can get penalized if you think your tax liability is going to be 10% more next year than you're paying now. You could be penalized if you don't send in estimated payments or have more money withheld.
Producer:
She told the TV station. The increase would not be enough to cover a jump in Medicare Part B premiums, which are taken directly out of Social Security checks. And she says higher incomes mean some seniors could no longer be eligible for some other government benefits.
Mary Johnson:
And then a whole 15% were made in eligible because they were their incomes increased over the income limit for food stamps or rental subsidies or the programs in their area.
Producer:
So what should you do? Johnson says Prepare now. Talk to a financial adviser to help you get ready ahead of time and contact local nonprofits if you need help paying bills. So are you prepared for the unintended consequences of a larger Social Security check? That's a key question to consider as inflation impacts all our lives. With the Retirement Radio Network powered by AmeriLife, I'm Matt McClure. Remember, all of Randy and Gail's listeners receive a free financial consultation just for listening to the show. Visit your American retirement to learn more and schedule an appointment. Thanks for listening to your American retirement and subscribing wherever you listen to podcasts.
Kale Simpson:
Hey, guys. Kale Simpson along with Randy Sams. Welcome back to 101.1 FM. The answer this afternoon, your American retirement. Go to the website, guys. Your American retirement. We've got a ton of clients. Every client I'm talking to, Randy, I'm telling them, go to the website, leave us a comment, hit the subscribe button. I know both of my kids have subscribed to the channel, which is awesome. Leave a comment. Let us know how we're doing. I mean, we can only get better by knowing what what's valuable stuff that our listeners are taking away and different things that our listeners are looking to try to learn. And one thing that that we did talk about and we kind of briefly mentioned it before our last break, life insurance, I mean, we talk all the time about the market. We talk about lifetime income, and we talk about different types of tax deferred accounts, Roth accounts, retirement accounts, etc.. One important financial vehicle that we don't talk enough about, in my opinion, is a life insurance. Life insurance used to be 90% of what I thought about on a day to day basis. Randy, for many, many years, you know that you used to be the president of a of a huge life and financial services company that specialized in life insurance. You know, for for a long time, we got to know each other well back in those days.
Kale Simpson:
But life insurance is is one of those things where a lot of times people don't think about it until something happens and then they have to think about it. You know, we talked about my birthday. Woohoo! You know, I'm not old. I just turned 41 years old. But in my mind, I mean, I'm not a spring chicken anymore, so I don't know. I always get weird around my birthday. I think it's because I'm a Virgo, but, you know, I decided to buy more life insurance. Well, why did I want to buy more life insurance? I don't know. I have two, two young kids, and I have a wife and I have a mortgage and I have a business. And if something happened to me, then I would want to make sure that my kids are okay, not when they're nine and six years old. But, you know, until they reach college and they get out of college and my wife's a schoolteacher and they don't make as much money as they should. I promise you that, Randy, you would agree with me on that, especially not one that's nationally certified like my wife and has her master's degree and has been in the classroom for almost 20 years.
Randy Sams:
But she's.
Kale Simpson:
Smart. Yeah, she. He's smarter than me, for sure. She ought to do the radio show.
Randy Sams:
I guess.
Kale Simpson:
Yes, sir.
Randy Sams:
Let me let me jump in. I'm sorry to interrupt you, but. Hey, folks, before we get into the into the life insurance, what what I want to say is, I want you to look at life insurance as part of your retirement plan. All right? You can use life insurance early to set up, as Gail is going to explain to certain types of life insurance. But when when we meet with folks, here's what I tell people. When you ask folks, when you retire, you know, most folks, they have this objective, Gail. They want to retire. They want to take trips. They want to join the country club. They want to play golf. They want to play tennis. You know, it's they want to use their money. But what happens is, is that they start thinking about this and then they start thinking about their kids. They start thinking about an inheritance and they end up thinking they're not you know, they don't buy you know, they don't go do all the trips they planned on taking. They don't join the country club. They don't play golf. They don't play tennis. They sit on the front porch in their rocking chair because they're concerned about spending all their money with folks. Here's my recommendation. Write it down. Cal, you got a pen? Write this down when you retire, spend all your money, go join the country club. Go play golf, go play tennis. Don't take those trips, folks. This was this is what happens. Folks that don't utilize their funds in retirement, guess what they do? Yeah, they leave it to their kids.
Randy Sams:
And guess what their kids do? Their kids enjoy the funds. They're the ones that joined the country club. They're the ones that take the trips. They're the ones that go play tennis. So, folks, here's what I utilize life insurance for. All right? I want you to have a happy retirement. A secure retirement. You've worked too hard, too long to build your accounts up to where they're at. Use it for yourself. Use it for yourself and your spouse to enjoy your retirement and think about life insurance for this one purpose. Hopefully you've got all your bills paid off, your mortgages are paid off, you're out of debt or you're almost out of debt. Look at a life insurance policy and leave that as the legacy to your kids. All right. Pick out an amount. I don't know how many children you might have. Kale has two sons, so he may feel like a good amount to leave. His boys are 250,000 apiece. It could be more, but I'm just going to use that as an example. So what Kael could do is go get a 500,000 life insurance policy, leave his two sons as beneficiary. And when Kael and his lovely wife, Nancy, decide to retire, I want them to spend all their money on their retirement because their legacy has been left in the form of a life insurance policy. To his two boys and Kael, the death benefit off of life insurance. Is it taxed or is it taxed free?
Kale Simpson:
It is tax free, Randy.
Randy Sams:
That's good. Well, I'm through Kael. I just want to throw that in there to kind of let people understand why we're wanting to talk about life insurance. Yes, you can use it as a retirement vehicle when you're younger, but when you get close to retirement, think about life insurance and leave that as your inheritance for your kids. All right, Kayla.
Kale Simpson:
Absolutely. No, you're right. And kind of while I jump into this and explain the different types of insurance life insurance policies specifically, you know, I always have the same conversation with clients, Randi, that you do. And I mean, the deal is everybody wants as much life insurance as they can get. The reality is there are multiple factors that determine how much you can get. No one wants to be insurance broke, so you don't want to spend all of your money on life insurance. But everybody needs a little bit unless you are self insured. And then we'll talk about that in another segment. But real fast, Randi, talking about life insurance, high level overview for you guys. Life insurance, it's important to know what types of life insurance is available. Life insurance helps support your family if you pass away, can take care of things like final expenses, different bills that you may have. One thing that that we talked about or I spoke about earlier was I have a mortgage on a house, so you can use that to be a part of mortgage protection, I guess, if you will, Randi, where it pays off your most of the time, your biggest asset in your largest expense on a monthly basis. That's your mortgage at your house, pay that mortgage off. Or it can be an equity protection policy where make sure that you protect if you've got a large amount of equity, if you have a $500,000 house, you've got 200,000 in equity. Protect that 200,000. Because if you don't make payments, I promise you that bank will come knocking if you don't make payments because they will keep that equity position in that property and you won't if you cannot make those payments. So life insurance, let's let's look at this at a high level overview and then we'll we'll delve into it on our next segment, Randi. And I'm going to get your assistance as as we dive down deeper into how insurance works and the type of insurance what I tell clients all the time the big the big three one and two term in per. Those are your one twos.
Randy Sams:
I like it.
Kale Simpson:
Term is term insurance. Ten years, 15, 20, 25, 30. It's good for a certain length of time a term. Typically it is a larger face amount. The insurance that I that I just purchased was another term policy. I have plenty of term insurance. If something happens to me, my kids will be fine. And Nancy will have plenty of money to take care of her new boyfriend. If as long as I told her, I said, as long as you redo the furniture, because I don't want somebody else sitting in my chair, watching my TV in my house.
Randy Sams:
Or.
Kale Simpson:
Using and using my golf clubs. And I'm sure my my golf shoes will be bigger than bigger than his. So he going to have to bring his own golf shoes. But real quick term insurance, Randy, typically it's cheaper from a cost basis then perm it's going to be on a term and typically it's a larger face amount. I will throw this caveat in there. A lot of times your term insurance, you will need to be healthier, then you will have to be to qualify for perm or permanent life insurance. Permanent life insurance, Randi, that's if we get to be later down the road, later in life, we're on a fixed income and we want to make sure we've got ten, 15, 20, 25,000 perhaps to take care of final expenses, if that makes any sense. We can cover clients with financial issues, independent diabetes, things like that.
Randy Sams:
Kayla is going to ask so so why we know with term insurance. So with term insurance, if I have a 20 year term and let's say I purchased it when I was 35, so do my premiums go up between 35 and 55?
Kale Simpson:
No, no. They're locked in for that term. They cannot they cannot go up during your term, period, Randi. Good question.
Randy Sams:
So I've got, let's say a 500,000, 20 year term policy. My premiums are locked in for 20 years. But what happens at the end of 20 years with a term.
Kale Simpson:
End of 20 years, it turns into an R, t, an annual renewable term. And so your premiums will go up based on your current age. You can continue to keep it most of the time. You can keep it to your 95 years old or higher, depending on the company and the policy, Randi. But they will continue to go up each year after your term is over. So most of the time, Randi, clients will not keep it after your term expires. That, if that helps.
Randy Sams:
Well, and also, you know, we know that between the age of 35 and 55, certain things can go wrong, correct?
Kale Simpson:
That's right.
Randy Sams:
So if if I've had this coverage for the last 20 years and I've paid a certain amount of premium, you know, every month slash every year for 20 years at the end of 20 years, if if I decide to drop it, what do I have to do next if I want to get additional coverage?
Kale Simpson:
Well, you have to reapply for additional coverage if you drop the old policy.
Randy Sams:
And so what happens if if let's say I've been diagnosed with a heart condition at age 50 and now 55, my premiums have gone up and they're going to continue to go up. So I want to try to get another type of, say, another term policy for another 20 years or 15 or whatever. So I'm going to have to go through underwriting, correct?
Kale Simpson:
You will have to go through underwriting. And Randi, real quick, I'll say this real fast. So you will have to go through underwriting if your term expires, premiums are going to go up and the older you get, they're going to go up exponentially. I do have a client that his term expired was a very cheap policy, but he had medical issues, serious medical issues, and his term expired. And he said, hey, he said, Kale, what do I do? I've got a wife and I've got three little girls. What do I do? I said, Can you afford it? He said, Yes. I said, Pay it. Pay it. Pay it until you can't. Because you're not going to. You're not going to go get 500,000 again with the medical issues that you just had. But there comes a time, Randy, where he cannot pay it. So listen real quick, guys. Randy and I, we're going to jump into some more specific things here in just a moment. Guys, you are listening to another episode of your American Retirement on 101.1 FM. The answer, more in-depth life insurance conversations when we return. We'll be right back.
Producer:
You talk? How long will inflation last? I'm Matt McClure with a retirement radio network powered by a marriage life. Americans and people around the world are struggling through the worst inflation we've seen in four decades. Everything from a gallon of gas to the food you buy at the grocery store is all more expensive these days.
Mary Johnson:
We're also seeing it in all sorts of other everyday services. Nail salons, hair salons, you name it, you're seeing difficulties in terms of higher prices.
Producer:
Tara Sinclair is a professor of economics at George Washington University. She says the inflation situation is a bit of a vicious cycle right now.
Mary Johnson:
Employees are asking for higher raises and then employers are trying to figure out how to pass those costs on into the goods and services that they're selling.
Producer:
Ongoing supply chain issues are a huge factor driving inflation. In an ideal world, Sinclair says, fixing those issues would be a perfect outcome.
Mary Johnson:
If we could provide all the goods and services that people are demanding at the current prices, then we would be in much better shape and we wouldn't see this competition to buy these goods and services. That's really pushing up the prices.
Producer:
But it doesn't usually work that way. Instead of increasing supply, the way we usually tamp down inflation is on the other side of the equation.
Mary Johnson:
And so instead it's about slowing the demand for goods and services. And the way that that happens is through the Federal Reserve, our central bank, raising interest rates.
Producer:
And that means things like car loans, mortgages, home loans and credit cards get more expensive. It's not the most pleasant way to do it, she says. But that is likely how inflation will cool down in the coming months. The Fed's interest rate hikes have also caused a lot of volatility in the markets. But Sinclair says if you're planning for retirement, it's not all bad news.
Mary Johnson:
It is important to remember that they have seen strong years of growth recently up till now. And so we're seeing a lot of people that have a lot better financial conditions now then, particularly if we think about people that were trying to retire after the global financial crisis.
Producer:
And she says many pre-retirees are looking to move assets into safer investments.
Mary Johnson:
And there are these higher interest rates from the Fed are good news. So hopefully they can look forward to to that and maybe be able to find a steady annuity that will support them in retirement.
Producer:
So how will you respond as interest rates go up in an effort to bring inflation back down? That's a key question to consider as you plan for your retirement years with the retirement radio network powered by AmeriLife, I'm Matt McClure. Fixed annuities, including multiyear guaranteed rate annuities, are not designed for short term investments and may be subject to restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.
Kale Simpson:
All right, guys, welcome back. Retirement Radio Network. You're listening to 101.1 FM. The answer, this is Kale Simpson and Randy Sams coming to you from your American retirement. Guys, we left before the break. We were talking about life insurance, the importance of life insurance, the different types of life insurance, and how we can think about life insurance, Randy, as a as a pillar, as a as a block of your financial structure, your financial stool, if that makes any sense. So anyway, but we left off we talked about term. You had some questions for me regarding term policies, why they may be beneficial. Who would who would be an ideal candidate for for a term policy? Guys, everybody is going to be different just like retirement. So if you have questions, go to the website, your American retirement, it's got a section. The top right part of the website can put your name, your email address and send over a request and you can put in notes. And just I have some questions regarding life insurance. We'll help you out. We've been doing life insurance for a long, long time. Life insurance is what we started out doing at my firm. And we still do it to this day. So so real quick, Randy, from a permanent life insurance, we talked about the big two, which is term and perm perm being permanent.
Kale Simpson:
Permanent insurance unlike term randy permanent is permanent most of the time. It's good till age 100 or it's good till some companies age one, 21, whatever the case may be. But it is designed to be a permanent life insurance policy that does not expire as long as you pay premiums. You hear a lot of commercials about guaranteed acceptance, permanent insurance, you know, medical questions, things like that. We have we have companies. We don't do any of that stuff most of the time. For our listeners, we try to set you up with a company that will give you day one coverage where if something happened next week, God forbid, the company is going to pay your beneficiaries permanent insurance. Randy is typically going to be a smaller face amount. We're not we're not talking about three and 400,000 in whole life, just really doesn't work like that. I like to tell my clients term insurance is $1 sign from a cost basis. Permanent insurance is $2. Science and index. Universal life is two and a half dollars signs, maybe $3 signs, depending on how you want to look at it. But Randy, permanent insurance clients call. They are 65.
Kale Simpson:
They had life insurance for a long time with the company they worked at. They had 300,000. They need additional life insurance to take care of final expenses, but they lost their insurance at work. There may be an existing health issue that could prevent them from getting another term policy or term policies. Guys, the older we get, the the expense on a term policy can go very high. And so we don't want you spending 800 or 1000 a month on a life insurance policy. I said that before the break. We don't want to be insurance broke. Maybe we only need 20,000 or 25,000. That permanent life insurance policy is very feasible and it can be very cost effective, Randi. But again, every client is going to be different. We'll talk about the health situation. We'll talk about tobacco use, we'll talk about family history, talk about budget, etc.. Before we determine what insurance policy may be right for you, none of them may be right for you. The last one, Randy, before I open it up for questions for you and then I ask you a couple of questions, too, I kind of threw out a little bait into the water earlier when I said the best kind of money is is free money.
Randy Sams:
Yes, sir.
Kale Simpson:
And then the second best kind of money is tax free money. So tax free money can be, depending on how it is structured, can be in the form of indexed universal life. You take loans from an IUL that's looked at as a loan and you're not required to pay taxes on that. I will refer you guys to the IRS website, irs.gov. I'm not a tax accountant, nor is Randy Sams. But you can go to the IRS website, look at IRS rules on withdrawing funds from IUL. It cannot be a modified endowment contract, but there are ways that you can use an UL and index universal life to be a great tax free addition to income during retirement. So I'll give you this one little example, Randy, and I think it'll it'll make a whole lot of sense for you and then let's jump into this stuff. So I'll use an IUL like I was talking to a client, he was 68 years old in very good health. His wife was older than he was, but his main objective, Randy, was to leave as much of an estate to his wife and to kids and grandkids. We did a retirement account for him and with the retirement funds, he was able to take out a certain amount per year from a liquidity standpoint.
Kale Simpson:
So since he was in good health, we used those large payments that he took from his annuity contract. We funded an IUL that he only paid for over a few years. After a few years, that life insurance policy was paid up, as they say, and after day one with the contributions, he was able to buy a paid up permanent UL for over $3 million. So he immediately increased the value of his estate by $3 million. If something happened to him, he had his retirement account protected in an annuity contract. He was taking distributions but only for a short amount of time. And then after that, he continued to just let his annuity contract grow until he was required to take distributions at 72. So when you look at it, Randy, if that made any sense, he said no one ever explained that to me until you came around. So I guess that's that's good for for me, there were like 25 business cards on his table. It increased his estate by $3 Million. He only pays for a short amount of time. It's paid up after that amount of time. And then after that he's not putting any more money into that life insurance policy, nor is he taking funds out of his annuity contract.
Kale Simpson:
So not only is his IUL going to grow, his death benefit is there for his family tax free like we spoke about. And his annuity contract has no market risk and it's going to continue to hopefully grow and outperform any conservative investment you can find at a bank. So we checked off three boxes in that IUL, but the main thing, Randy, is it was tax free income for his estate and it all happened by just being creative. That was a very unique situation. But at the end of the day, it was it was a unique situation that I keep with me in my mind. I did it quite a few years ago and it really made sense from a financial standpoint. But again, what makes the most sense for you? Everybody's different. Reach out to us and we'll try to help determine that. But Randy, I'm going to throw that question to you. How do I know or how do I choose, Randy? What type of insurance, whether that's term perm or an IUL, how do I know what type of policy is right for me?
Randy Sams:
Well, I mean, it really depends on what you want to utilize it for. I mean, most folks that you're talking to, younger, especially younger families, husband, wife, kids, they just bought a house. They needed a lot of life insurance, you know, so you know how it is. Just like one up when when my boys were younger, you know, you're concerned about if something happens to me, you want your family to be able to pay the mortgage on the house without having to move out on the street. You want to be able to hopefully have enough money for the kids to go to college if they so choose. So you. Probably need a higher amount of coverage, and that's where term insurance comes in. You can get a higher amount of coverage for a little less premium. But one of the questions that that will get asked on permanent insurance is with term insurance at the end of the term, your rates are going to continue to go up. You're going to be at a higher age. Your health might be different, but with permanent insurance, especially if you start when you're younger, you know the answer to this Do my rates go up? If I started at 35 and I bought a permanent life insurance coverage, do my rates go up at certain ages? And the answer to that is no.
Randy Sams:
Your rates are going to stay the same. That's why it's permanent. It's there as long as you pay your premiums, you've got coverage. So, folks, here's an example for myself that I was able to utilize. If you remember earlier, I think it was in segment three, I spoke about how you can use life insurance to leave a legacy for your children and still be able to go out and have a great time with your retirement funds and not worry about spending, joining that country club, taking those trips around the world, whatever. So here's an example. Gayle, I'm going to ask you this in a simple yes or no. If I were to come to you with an opportunity, if you invested 100,000 and you're guaranteed return was a million, would you consider that? Yes, sir. It sounds like a good deal, doesn't it?
Kale Simpson:
It does.
Randy Sams:
Well, here's what we did. So the couple took my advice. They love the idea of being able to retire and utilize their retirement funds for exactly what they wanted to do in retirement. But they also wanted to leave something for the kids. So instead of having to worry or be concerned about spending all their retirement funds on themselves and the kids have nothing, they ended up buying a whole life policy. It was $1,000,000.10 pay, which means that they're going to pay the premium for ten years. And basically at the end of ten years, their investment, their premium added up to 100,000. But you know what the good thing is? Guess what? The death benefit was 1 million. So they had four kids, four children. And that's what they wanted to leave each child, 250,000. Now, that million dollars at the end of ten years, there's no more premiums. Duke It's paid. It's done with. And they've got that guaranteed million dollars set for their kids. So it really it depends upon the objectives, what your what you have for in mind. What do you need it for? You want to cover your mortgage. You want to make sure that, like I said, if something happens to you that your family's taking care of, all of those are questions.
Randy Sams:
So what are you planning on using your life insurance policy for? We do. A lot of folks that are concerned about in retirement, like Gail said earlier, they want to may not need a lot of life insurance because you don't have a lot of debt. They've already got their kids set up, but they may want to look at what happens. How much is it going to cost for me if I have a burial, if I have a funeral funerals today, the average is anywhere from 10 to 12000, maybe more, depending on what part of the country that you live in. So what we refer to those types of policies, Gail, are final expensive policies. So you don't buy insurance folks with your money, you buy insurance with your health. So remember that and your health is going to affect your premiums. What's your premiums might be? That's why a lot of folks we recommend trying to get your life insurance, whether it be term and especially permanent, because when you're a healthy, you're going to be more your underwriting risk is going to be less to the insurance company than it would be if you're older and have some health conditions. Gail I think life insurance is is a great addition to what we've been speaking about as far as retirement.
Randy Sams:
I think it's very important for our listeners to understand that, yeah, Kelly and I are all about guaranteed lifetime income, but we also want to be able to talk to you about if you're younger, if you something happens to you, what's going to happen to your family, your wife, you're a husband, your kids? Are they going to be able to go to college? Are they going to be able to live in the house that you have right now? So really, we're going to ask a few questions to determine, first of all, how much do you need? Secondly, what are you planning on using that life insurance for? Again, the benefits of of life insurance. Greatest benefit of life insurance is that death benefit. Because as Kaitlyn already said, I've asked him the death benefit for life insurance is tax free. So, folks, we hope you've enjoyed listening to your American retirement with myself, Randy Sams and my co host, Mr. Kale Simpson. I go to the website, Your American Retirement. Drop us a note. Give us some thumbs up on our podcast. We're happy to be here with you on Saturday 101.1 FM. The Answer Where Little Rock Goes to Talk. Thank you for listening.
Producer:
Thanks for listening to your American retirement. You deserve to work with licensed financial insurance experts who can offer sound strategies for protecting and growing your hard earned money to schedule your free no obligation consultation. Visit your American retirement today that's your American retirement dot com not affiliated with the United States government. Randy Sams and Simpson do not offer tax, legal or investment advice. Consult with your tax advisor or attorney. Regarding specific situations. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. This information is intended to be educational in nature and does not provide a guarantee or specific result. All copyrights and trademarks are the property of their respective owners of our life assumes no responsibility or liability for the content of this message. The information contained herein is provided on an as is basis with no guarantees of completeness, accuracy, usefulness, timeliness, or of the results obtained from the use of this information.
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