Which Type of Retirement Income Plan is Right for You?

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6.16.23: 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 host, Randy Sams. Get set for a full hour of financial information and economic news affecting your bottom line. Randy works hard each day to educate Americans like you on how to reach the financial freedom they've worked so hard for. And he can help you, too. So now let's start the show. Here is your host, Randy Sams.

Randy Sams:
Hey, good morning, central Arkansas. I want to welcome you to today's program. My name is Randy Sams. I want to thank you for joining me. Your American Retirement on 101.1 FM. The Answer Where Little Rock Comes to talk again. Folks, thank you for joining us. I've got some great feedback from our from our listeners. You know, Benton Bryant, Conway, Beebe, Malvern. So it's kind of surprising. I even had one lady call me from Missouri and now she can't pick up the show in Missouri. But guess what? They were visiting someone here. And as they were driving out of town, they listened to the show and they gave me a call. This has been a couple of weeks ago. They gave me a call and we're setting up some getting some information from them to set up a consultation. But folks, listen, I do want to say thank you to our listeners. I know you're out there. I receive a lot of phone calls, maybe not have been able to speak to to every one of you, but you've been kind enough to leave me information, leave me some comments, leave me some of your concerns, some of the things that you'd like for us to address on the show, Your American Retirement. Because, you know, folks at AMG Financial, what are we focused on? We want to help people.

Randy Sams:
We want to educate people, retirees and pre-retirees on the products that will help you enjoy a safe and a happy retirement, not a risky retirement. That's what we do at CMG Financial, Your American Retirement. So again, hey, thanks for listening. Go to our podcast. Wherever you enjoy listening to podcasts, you just look for Your American Retirement and we're on there, folks. Our last episode, we talked about last week's program, Five Keys to a Debt Free Retirement. Now, that wasn't everything, but that was one of the topics we spoke about. That show is available now. Okay. On the podcast, also the YouTube channel, just check out our YouTube channel, subscribe to see weekly video highlights and special content. All you have to do is search Your American Retirement on YouTube and you're going to see my smiling face. So folks, if if y'all go to YouTube and you want to see I'm rocking a special hat today along with my Razorback shirt. So, you know, understand, the Razorback baseball team did fantastic. We didn't make it out of super regionals. The women did fantastic as far as the softball team. But hey, I'm born and raised in Arkansas, went to the University of Arkansas, so I bleed red. I'm not going to squeal for you, but I love Arkansas. And again, I want to welcome you to today's show. Folks. Please don't hesitate to give me a call. I love hearing from our listeners. And a matter of fact, in today's show, we're going to address a few of the questions that we've received from some of our listeners.

Randy Sams:
Now, we aren't going to be able to address all of them, but we're going to address a few of them today. And these are questions slash concerns that I have received from a few of our listeners that have been kind enough to either give me a call at (866) 990-7664 or they left me their information and their concern. Question at YourAmericanRetirement.com our website so we'd be more than happy to Answer all your money questions during a complimentary consultation. Also for you or for you and your spouse. So hey, a special shout out. Our listeners get in touch with me to receive a free report on. Listen to this. Tax free investments for a better retirement, tax free investments for a better retirement. So this report will help you make legal strategic investments so you can enjoy more of what you have saved. The report is yours today. Just give me a call. (866) 990-7664 or locally. (501) 249-2343. Hey, folks, for today's show, we're going to jump right into it, kind of give you an overview. We're going to do the quote of the week, then we're going to hit those questions from our listeners. And as you know, we spoke about this last week also. June is Annuity Appreciation month. So what else should we do on some of today's show? Probably the majority of today's show is we're going to talk about annuities. We're going to focus on safe money and we're going to talk we're going to talk about annuities. What are annuities, what types of annuities are available and how they can be utilized for your retirement plan. Okay. So let's jump right into it.

Producer:
And now wholesome financial wisdom. It's time for the Quote of the Week.

Randy Sams:
Financial wisdom Quote of the week comes to us from Mr. James W Frick. Frick developed the Notre Dame Foundation into one of the most successful fund raising operations in the nation. So he was active in a variety of community endeavors, including United Way, National Urban Coalition and the American Heart Association. So Mr. Frick gave us this week's financial wisdom quote of the week, which is Don't tell me where your priorities are. Show me where you spend your money and I'll tell you what they are. I like that. Don't tell me where your priorities are. Show me where you spend your money and I'll tell you what they are. I've also kind of related that to a scripture in the Word of God, the Bible. It's in red. So, you know, it's Jesus said it. It's in Matthew chapter six, Verse 21 says, Where your treasure is there. Will your heart be also. So kind of put those two together. Just let me see where you spend your money and I'll show you what your priorities are. And that's what Jesus said. Where your treasure is there, your heart will be also. So that is the financial wisdom quote of the week, folks. I love it. Now let's jump right into questions from our listeners. So we receive questions from our listeners, from retirees pre-retirees who listen to our show to learn about smart financial planning, smart money options. So let's address a few of these that we've received right now.

Randy Sams:
So my first question comes from Paul M Paul. Hope you're listening. So we're going to address your question today. Where will my retirement income come from? I have been saving decades for retirement, but now that I'm close, I'm wondering the best ways to turn our savings into income. We need to live on during retirement. Great question, Paul. So Paul's concern is where is the retirement income going to come from? In other words, where's the paycheck going to come from when the paychecks stop? So, Paul. Most retirees receive income from four main sources personal savings and investments like IRAs, Roth IRAs. Et cetera. Withdrawals and required minimum distributions from those investments and company pension benefits or a personal pension income from annuities. You guys heard me speak about it. I'm going to continue to speak about it. We're going to speak about it on today's show, Guaranteed Lifetime Income. So company pension benefits, that's called a defined benefit plan. Unfortunately, the majority of the employees that are out there today, majority of the employers do not offer a pension plan unless you're like in the public sector or you may have a union job and it's built into the to the contract. Your income may come from Social Security. But, Paul, I don't want you to have to go into retirement and Social Security be your only income. That's why we want to meet with you folks.

Randy Sams:
That's why we want to set up a consultation, put together a secure retirement plan that we will allow Social Security to supplement that retirement plan. All right. We want you to retire happy. Secure and not on a risky. So any additional earned income during retirement. So folks there's a lot of folks out there that guess what they do. They go get another job. You know, we used to have the joke and don't don't anybody take this personally. I don't mean it personal, but, you know, hey, Walmart greeter, you know, we always thought that the Walmart greeter were folks that were retired. And it may be true, but that's probably a lot of folks that go back to work. Sometimes they want to do it just to keep themselves busy, keep themselves active. But then there are other times with folks that I've met they have to get a second job because of the expenses that they have. They have an income gap. In other words, the income they've got coming in is not great enough to cover the expenses they have going out. So we have an income gap. And sometimes, folks, guess what? They have to get a second job. All right. Question number two, Paula, I hope that helps you out again. You know, you guys can call me (866) 990-7664. I'd love to speak further with you or just call me and leave me your questions and we'll hopefully address it on future shows.

Randy Sams:
Question number two comes from Tina H. Tina, thanks for listening. Tina's question How much will my income need to increase to keep up with inflation? Man that's fantastic. That's a great question, Tina. Uh, the cost of living, as measured by the Consumer Price Index, has fluctuated. Fluctuated but averaged between 4% and 5% per year over the past 20 years. Quite a bit. We strongly recommend that retirees consider inflation when preparing for retirement, and runaway inflation over the last three years has made this even more important, folks. We always at SMG Financial, Your American Retirement. We always address inflation, what I call buying power in our planning consultations. So ask yourself this question. Do you think that that gallon of milk that you're that you buy this weekend is going to be the same price next year or two years or ten years down the road? I don't think so. Okay. So, folks, those are just a couple of questions that we've gotten from our listeners. And I want to thank you all for listening. I want to give you a little heads up. Please stay tuned for the next segment. We're going to talk about safe money and what is an annuity. So listen to these important messages and we'll be right back. You're listening to Your American Retirement. My name is Randy Sams, 101.1 FM.

Producer:
Visit YourAmericanRetirement.com to schedule a free consultation with Randy today. And now back to the show.

Randy Sams:
Welcome back, everybody. I hope you're having a great Saturday morning like I am. I'm enjoying doing this show. I hope you're taking a lot of good notes. I hope you got a good sharp pencil or a couple of ink pens because we're about to get knee deep into this thing. Folks, we're going to talk about again, remember, June is annuity appreciation month. So why not spend a little time explaining to our folks, to our listeners, exactly what is an annuity? How do they work? What about safe money? Okay, so let's spend a little bit of time on the remainder of the show and let's talk about that. So at SMG Financial, remember we are all about a safe and a secure retirement, not a risky retirement. Okay. So. What is safe money? So think of safe money as money free from exposure to risk. Fdic insured bank funds. Us Treasuries. Insurance Company annuities. So during a lifetime, we may face a slow economy. Political volatility. The Mortgage meltdown. Federal Budget deficits. Mounting health care costs. It seems never to stop, but so most of us want stability. That is what safe money is, its stability, boring money that provides guarantees and stability. So what is safe money? For those planning for or already at the door of retirement, Safe money means risk management. Freedom from loss or exposure from risk. I like that. Safe money. Risk management freedom from loss or exposure from risk. So regardless of your definition of safe money, whatever fits your situation, the baby boomers generation has introduced a new concept, and that is cash has become king.

Randy Sams:
The rule is simple. And one most retirees are living by today. And that is it's not how much money you have. It's how much income you have each month. Folks, you've heard me say this before. You retire on income, not assets. So let me ask you a question. At age 65, would you rather retire with $1 million in the stock market or in your 401. K? Or at age 65, would you rather receive a 4000 per month guaranteed for you and your spouse's life? You see, assets can be can be lost. So that million dollars, remember what happened in 2022. Stock market went down, what, 25%? 20 to 25%. So that million dollars just went down to 800,000 or 750. So you don't have as much. So you retire. Guaranteed income cannot be lost, folks. It's guaranteed for the rest of your life and the rest of your spouse's life if we set it up. So remember, you retire on income, not assets. So the new retirement rule Safe money. Baby boomers are different from the greatest generation. That's their predecessor generation in one simple yet powerful way. Baby boomers spend more and save less. So having income each month is more powerful than how much passbook savings you have on deposit. Financial security begins by considering these important questions. Have you planned for Decumulation? What is your risk exposure and how does it compare to your time horizon? Where do you invest? What is your time horizon date? When are you planning to retire? Who has earned your trust and what are their goals by investing your money.

Randy Sams:
Folks, that's what we do at SMG Financial. Hopefully you'll give us a chance. You can give us a call. (866) 990-7664. Or go to the website Your American Retirement. We'd love to be able to sit down. And again, that's what I tell people all the time want to earn your business. Okay, so so being honest with yourself takes effort. So make sure your plans for retirement and the exact path you are taking make logical sense. So annuities the first step towards safe money. So annuities are an important part for any retirement plan as they are safe, secure and risk free. An annuity allows you to accumulate funds for retirement on a tax deferred basis, and upon retirement you'll receive income from the annuity that the insurer can guarantee to last either a fixed number of years or as long as you live, including your spouse. So a quick summary of annuity benefits include tax deferred earnings, No contribution limits. Flexibility in decumulation. In other words, you get to choose how you want to make your withdrawals and no required minimum deposits. If it's a non-qualified plan and we'll talk about that or if it's a kind of an IRA, proceeds may not be subject to probate if there is a named beneficiary. So annuities represent a formidable option for someone looking to enhance your retirement planning strategy. Not only do they add to the mix of tax deferred growth you may be getting from your IRAs or 401 seconds, but they also offer significant investment and distribution offering options.

Randy Sams:
So there are many types of annuities offered by many insurance companies. The first step is to speak to a financial qualified professional to receive an annuity quote so you can best gauge how an annuity would fit into your specific annuity plan. So folks do this. What is an annuity? An annuity is a risk transfer product. A risk transfer vehicle. Okay. It's safety. That's what an annuity is. So let's ask that question. What is an annuity? Got your pens ready. So in its simplest definition, annuity is an amount payable annually or monthly or quarterly however you want it paid. But for our purposes, however, an annuity describes a contract offered by an insurance company that allows you to accumulate funds for retirement on a tax deferred basis. Upon your retirement, you'll receive income from the annuity that the insurer will guarantee to last either a fixed number of years or as long as you live. So basically what we're talking about, folks, when we say a fixed number of years, I look at that as like a a single premium in, you know, immediate annuity or you can do a deferred annuity, a single premium deferred annuity. But basically what that sets up is this you can set it up to pay out for ten years. You can set it up to pay out for 20 years. All right. You can do a period certain which which guarantees you that if you do a 20 year period certain, it's going to pay a certain dollar amount every month or every year guaranteed for that 20 year period.

Randy Sams:
If you pass away before that 20 year period is up, they're going to pay that same amount on an annual basis or monthly basis to whomever you leave as a beneficiary. Okay. Or you can set it up for a lifetime payment, which means they're going to pay that same amount every month for as long as you live. And if we set it up for joint, they're going to continue to pay that same amount. When you pass away to your spouse for as long as they live. Okay. An annuity is neither life insurance nor health insurance. It's not a savings account. It's not a certificate of depression. I mean certificate of deposit. So your value in an annuity contract equals the premium payments you pay. Plus interest credited less any applicable charges. If you're in an annuity that has like any any fees, the insurance company uses this value to calculate the amount of benefits you'll receive from them when you begin taking distributions. Okay, so how does an annuity work? So an annuity often used to provide a pension. An annuity is a fixed regular payment paid over a number of years to a person during their lifetime. So an annuity is an investment vehicle. I hate to use that investment. I'm going to continue to stay. An annuity is a risk transfer vehicle primarily for accumulating retirement savings. All right.

Randy Sams:
Again, you pay premiums to the insurer and in return, they pay you an income stream at a later date. Based on this description, you'll see that there are two phases to an annuity the accumulation phase. And the payout phase known as accumulation. During the accumulation phase, the money you put into the annuity earns interest. Less any charges by the insurer. If there are any, the earnings that occur during the phase grow tax deferred. You don't owe taxes until you make withdrawals. Because of this tax deferral, your funds will grow faster than if taxes had to be paid out annually on any gains. Also, the longer you leave your funds in this accumulation phase, the more significant the impact this deferral will have on your annuity value. You know what that's called, folks? We want to take advantage in the annuity. We want to take advantage of compound interest. Okay. The importance of compound interest. This shouldn't be a secret, okay? I hope not anyway. But it's worth mentioning. So delaying retirement savings can keep you from realizing your retirement dreams. Because the power of compound interest. Only works when it has time. Okay. Take advantage of compound interest. So a quick estimator to use the mathematical rule of 72 where you divide the interest rate you receive on an investment into the number 72, and the result is the number of years it will take for your money to double. Pretty simple. If you're getting a 7% interest rate. Seven will go into 72 a little over ten years.

Randy Sams:
All right. So if you're getting 7% compound interest, it's going to take about ten years for your money to double. So, folks, you need to take advantage of compound interest. And that means starting that annuity, starting that income annuity. As quickly as you possibly can. As early as you possibly can. So remember, when you at age 59.5, you can do what's called an inservice distribution. Even though you don't plan on leaving, you're going to continue to work. You may work for another five years. You may work for another eight years, another ten years, but you can transfer. It's called an in-service distribution. You can transfer some of those funds or all of those funds out of your 401. K into a safe money vehicle such as the annuity. We can start an income annuity for you and let it grow for the next five years, eight years, ten years and take advantage of compound interest. All right. So during the second phase, the payout phase, the company pays an income to you or anyone else you designate, unlike many other retirement investments or instruments. You typically have flexibility in how you receive your funds. For instance, you can choose to accept a ten year payout or 20 year payout or a lifetime income. Payout for you and your spouse. So, folks. We're going to look at the types of annuities. So please stay tuned. We're going to be right back. Again, my name is Randy Sams. You're listening to Your American Retirement on 101.1 FM, The Answer. We'll be right back.

Producer:
Are you interested in ways to protect and grow your hard earned money? Your American Retirement is here to help.

Producer:
Two years of high inflation could warrant cutting back on entertainment costs. I'm Jim Tarabukin. With the Retirement.Radio Network powered by AmeriLife inflation in times like these have triggered Americans to be more cognizant about their spending habits. A recent survey done by CNBC found Americans from all income brackets have begun to cut back on spending. Washington bureau chief Bankrate Mark Hamrick explains.

Mark Hamrick:
People need to have a sense of hope when the economy is working for them. There's a greater likelihood that people will have hope that they can accomplish their basic personal financial objectives.

Producer:
And despite past recessions and examples of inflation, Americans have never been timid about spending money within the entertainment sphere. Sporting events and concert tickets have always been a hot item, but lingering inflation and impacts from the Covid 19 pandemic have shifted consumer priorities. According to Morning Consult Economic Intelligence data. Entertainment was among the categories that posted the sharpest year over year spending decline as of March 2023. The purchases of books and movie theater tickets underwent the steepest spending drops at a combined 58%, and about 1 in 4 US adults said they're either spending less on or have stopped paying for media and entertainment expenses altogether. So what are some ways you can cut back on entertainment costs, start sharing or cancel unused streaming subscriptions? Or you can research cheaper alternatives to sporting events and concerts in your area. Cutting back on entertainment costs. Part of our 23 cost cutters for 2023 for the retirement dot radio network Powered by AmeriLife.

Producer:
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.

Producer:
Are you anxious about retirement, concerned that you could outlive your money? Randy Sams is a Little Rock native who has nearly four decades of experience helping hundreds of Arkansans retire with confidence. If you want to get the most out of what you've worked so hard for, or if you're interested in learning how to maximize your Social Security, call Randy Today at (501) 249-2343. That's (501) 249-2343. Or visit YourAmericanRetirement.com. Welcome back to Your American Retirement. Here's Randy Sams.

Randy Sams:
Again I thank you for joining today's show. Your American Retirement 101.1 FM The Answer. My name is Randy Sams. Let's jump right back into June is Annuity Appreciation Month. And we're spending some time on today's show talking about annuities. What are annuities? Safe money? What types of annuities there are? So next, how do annuities best serve depositors? So there are two reasons to consider an annuity for your safe and secure funds. Number one, you are building a future foundation of guaranteed money that will grow tax deferred. Number two, you are creating a future guaranteed income stream for retirement. Folks, you remember what I said in the earlier segment. You retire on income, not assets. Assets can be lost. Guaranteed income is exactly that guaranteed for the remainder of your life for as long as you live. And we can set it up. Also, pay your spouse the exact same amount for as long as he she lives. Also types of annuities. So while annuities may seem complex at first, breaking them into the following components makes them much easier to understand. How money is paid into the annuity contract. How money is withdrawn and how funds are invested. Okay. There are two broad classes of annuities, deferred annuities and immediate annuities. Each class has numerous subclasses. So let's talk about deferred annuities. A deferred annuity is most appropriate for people who want to. Save for future retirement, not touch the principal and interest until age 59.5 or older.

Randy Sams:
Remember what I said. Age 59.5. You can do that in service distribution. Find an investment that will earn tax deferred interest for many years. Save more than the maximum annual contribution to your IRA or 401. So with a deferred annuity, you pay a premium to the insurance annuity company, which issues a contract promising to pay interest made on the premium while deferring the income. And the taxes are deferred until you withdraw money or begin receiving an income. So there are three major types of deferred annuities. Fixed deferred annuities. Equity Indexed Annuities and variable annuities. So fixed deferred annuities, folks. Fixed deferred annuity pays a guaranteed fixed interest rate. It's a mirror image, a multiyear guaranteed annuity. It works like a certificate of deposit, a CD. But folks, it's not a CD because it's not a bank product. It's an insurance product. But when people ask me, How does that work, I say, You know what a CD is all about? Yeah. So you give the insurance company a certain dollar amount. That's your that's your premium. And they're going to guarantee you a interest rate. All right. Right now, I'm working on several. We're looking at 5 to 7 year fixed rates, anywhere from just under 5% to about 5.2 to 5.4% for the seven year. Okay. But that's guaranteed for that for that period of time. So you get a fixed interest rate based on the current market rates of interest where the earnings compound and grow tax deferred.

Randy Sams:
So fixed annuities offer safety of your principal from typical day to day market fluctuations in the stock bond and other investment markets. Folks, we can also use a fixed rate annuity if we put you into an annuity. I've got folks that what they want to do is they may already have a pension, they may have Social Security, so their income looks good, but they would like to have some additional money coming in every month. And I call that a play check. A play check, play, check. So what they can do is they can take a certain dollar amount. I'll just give you an example. I'm working with a gentleman right now. He's got 500,000. He doesn't need an additional slash income, guaranteed income, but he does want to be able to take some trips. He and his wife love to travel. So we're looking at taking that 500,000, putting it into a seven year mega, a seven year fixed rate annuity. And that rate is right at 5.5.2, 5.37, depending on which carrier we utilize. So what his plans are is he wants to take the interest payments every year and they're going to spend that basically traveling. All right. So we can use a fixed rate annuity, a mortgage to generate an income from you. And the good thing, listen to this, at the end of that seven year period, that gentleman has been paid all the interest over that seven years.

Randy Sams:
But he at the end of seven years, he still has his $500,000 amount, his initial premium that he put in there. And then at that time, we can look and see and make some decisions seven years from now. All right. So. How about a fixed indexed annuity, Randy? Well, fixed indexed annuities differ from fixed deferred annuity in that the rate of return for your investment is based upon the better of either the growth of a named stock market index such as the Dow, like the S&P 500, the Dow Jones Industrial Average, or a minimum guaranteed interest rate. Many fixed indexed annuities offer you a portion. This is called a participation rate. All right. Of the index gains guys right now, some of the indexed annuities that I'm working with. They have some pretty nice participation rates over 100%. Okay. But this type of annuity allows for potentially higher returns than the typical fixed annuity since you can participate in a rising stock market. In other words, if that index price goes up yet you're protected on the downside by the minimum guaranteed rate of return. And this is where I always say zero is your hero because with a fixed indexed annuity. You will not lose a dime if the index goes negative.

Randy Sams:
You don't lose anything. You didn't make anything, but you didn't lose anything. So zero is your hero. Variable annuities. Folks, I don't do variable annuities, so I'm not going to spend a lot go into a lot of details because that's something that I've stay away from. I don't believe in the risk. You know what my philosophy is? You know what SMG financials philosophy is? We want to eliminate as much risk as we possibly can. A variable annuity allows flexibility to invest your funds in a wide range of investment options. This is an investment vehicle. Through Subaccounts. Those sub accounts are somewhat similar in design to mutual funds and allow for investing in stocks, bonds, money markets. Okay. Also you can get a fixed rate instrument if you so choose, but folks, the variable annuity again. They have a lot of fees and your money can still be at risk in a variable annuity. Okay, That's all I'm going to say. Now let's talk about immediate annuities. Immediate annuity is most appropriate for people who want. To retire in the very near future or already retired, begin drawing an income from a lump sum of money that they currently have, or receive an immediate and predictable payout for life based on life expectancy. Okay. The immediate annuity allows you to deposit a lump sum and begin receiving regular payments generally within one year after the deposit. It's usually funded with a single premium and purchased by retirees with funds they have accumulated.

Randy Sams:
For retirement. So they're in their working years. They've been putting money back either in an IRA or a 401. K. They want to take those funds and they want to put that money into an annuity. Again, if you're already retired or you say, Randy, I'm going to retire in six months, you haven't started an income annuity. Then basically what we're going to be talking about is some type of an immediate annuity, okay? Where you will start drawing an income immediately. So that's what we're looking at. So those annuities can provide a predictable stream of payments that will continue for a period, a time period you choose. Including for life. So the immediate income annuities, spias, they work basically where you will determine the time frame. All right. I believe I told you the story about I had a young lady from Texas that I was dealing with working with. She was about to retire. She had a mortgage. She wanted to make sure she had income coming in for that mortgage. She was still going to work part time. So what we did is we took a portion of her 401. K and we put that into a ten year sPIa, which was going to pay guaranteed certain amount of money, which covered her mortgage a little bit extra because, you know, mortgage can go up based on your insurance premiums and your taxes.

Randy Sams:
But that was guaranteed to be paid to her over the next ten years. And at the end of ten years, guess what happens? Her mortgage stops. She's paid her mortgage off. But also that ten year annuity stops. So those income payments stop at the end of ten years. But she's had the peace of mind knowing that she's had that income guaranteed for that ten year period where she knows her mortgage payments are paid. All right. So fixed versus variable. So the choice of fixed versus variable annuity depends primarily on you, the investor. All right. A fixed annuity is most appropriate for people who want to earn a tax deferred fixed rate of interest without any market risk. Save on contract expenses and management fees. Right. A variable annuity is appropriate for people who want to have the opportunity to maybe make more substantial gains depending on the market and the subaccount performance. Respond to changing market conditions by transferring money to different fund. Options within the variable annuity without paying taxes on any of the earnings you've made. Okay. So that kind of gives you a little overview of the annuities, what types they are, how they may work for you and which ones. Again, we're going to talk about if you give us a call. (866) 990-7664 or go to YourAmericanRetirement.com. Leave us your information. Let us set up.

Randy Sams:
A free consultation where, folks, we're going to look at your situation. You know, we don't do a cookie cutter retirement plan. We don't believe in one plan fits all. We're going to sit down and we're going to listen to what your objectives are. Yes, we're going to ask some questions, but we're going to listen to your responses because we want to know exactly what you what your expectations are going into your retirement. Okay. You want a trip, you want to take trips, you want to travel, you want to join the country club, whatever it might be. That's what we want to do is we want to sit down. We want to go over. Your plan. We want to go over and listen to what your objectives are. See what you have to work with. Put together a few options and then together. Not my plan, but it's your plan that we've put together together. You and me. That fits you. So we want to set you up again. Remember, folks, a safe and a happy retirement. A secure retirement, not a risky retirement. So, folks, come right back. In the next segment, we're going to talk about the tax treatment of annuities. And we're going to talk about just a few of the benefits. Qualified, non-qualified. Please come right back. My name is Randy Sams. You're listening to Your American Retirement on 101.1 FM. The Answer.

Producer:
Ms.. Part of today's show, Your American Retirement is available wherever you listen to podcasts and online at YourAmericanRetirement.com..

Producer:
Do you want to be a jet setter in retirement? Keep an eye on how much you're spending. I'm Matt McClure with the Retirement.Radio Network. Powered by Amara Life. Pretty much everyone loves saving money, but that doesn't mean you can't pack your bags and see the world. This year. There are some simple steps you can take to reduce costs while still checking off your travel wish list. One thing to consider traveling during the off season peak season will always be more crowded and more expensive. So take that trip to the beach in the early fall when the weather is still warm but the kids are back in school. While the timing of your trip is important, so is when you book Mark with a popular travel focused YouTube channel. Walters World says you should book as far in advance as possible.

Speaker7:
I know, for example, in Germany, if you pre-book your tickets on the train, it's a significant discount than if you buy it the same day. So make sure you use that advantage of doing things beforehand, whether it's a hotel room or it's tickets to a show or it's tickets to transportation, it can make a big difference. So use those discounts you can get by booking early.

Producer:
Also look for deals on flights and hotels through discount sites. Consider booking a rental home or apartment instead of a hotel, and think about taking public transit instead of a cab or ride share. So have you considered all the ways to cut your travel costs this year? It's a key question to consider, and it's one of the 23 retirement cost cutters for 2023 with the Retirement.Radio Network powered by Emeril Life. I'm Matt McClure.

Producer:
You're listening to Your American Retirement to schedule your free no obligation consultation visit YourAmericanRetirement.com.

Randy Sams:
I want to thank you for listening to today's show. I hope you're having a fantastic Saturday. I hope you have a fantastic weekend. I hope you've been able to take a lot of good notes. Again, remember, June is annuity appreciation month folks every day for for us at SMG Financial is annuity appreciation day month year. We love annuities. I'm a big believer in annuities. I have several annuities myself. Okay. I believe in protection. I believe in peace of mind. I believe in risk management. We want to get together. And ask a couple of questions. How much guaranteed income do you currently have? And number two, have you eliminated the number one retirement risk from your retirement, which is longevity risk? We want to put together a plan for you and your spouse, for you and your family. That sets you up for guaranteed lifetime income. That's income that you can never outlive. Okay. I don't want you to have to worry about your retirement account going to zero before your blood pressure does. Some of y'all get that. Okay. We want to make sure that you have as less stress, as little stress as possible. In retirement and we can put that plan together to where we can address the financial issues that you are going to address, you're going to come across when you retire or in your retirement that you may be right now. So please give us a call. (866) 990-7664. Or go to the website YourAmericanRetirement.com.

Randy Sams:
Leave us your information and let us get into a little bit more detail with you and put together a plan based on your objectives, your wants and your needs. Okay. Hey, let's finish this up. We're talking about annuities on today's show. Let's let's kind of differentiate qualified versus non qualified annuities, because folks, after that, we're going to talk about tax taxes. How? How annuities are taxed and depending on what type of funds that you are utilizing for your annuity, qualified or non qualified. That's going to make a difference on how they're attacked, on how they're taxed. So again, qualified versus non qualified annuity. So the way your payouts are taxed differs for qualified and non qualified annuity. So a tax qualified annuity is one used to fund a qualified retirement plan such as an IRA, a Keogh Plan 401 plan a Sep, simplified employee pension or some other retirement plan 403 B, 457, whatever it might be. The tax qualified annuity, when used as a retirement savings vehicle, is entitled to all the tax benefits and penalties that Congress saw fit to attach to such qualified plans. So folks, remember. If you have money in a 401. K. And you say, Randy, I'm going to continue to work for another five years, seven years, ten years. But you are 59.5, so you're outside of that penalty for early withdrawal. We can take that money from the 401. K, protect it from. Market risk. Put it into a guaranteed income annuity.

Randy Sams:
Lifetime income annuity that guarantees you a compound interest. For ten years or up to 15 years. And during that period of time, it's compounding. It's growing tax free. Okay. But it's safe. You're never going to lose a dime. But if I can get you put your money into an annuity that guarantees you a 7% or an 8% compound interest for the next ten years, even if the indexes return zero, you're guaranteed to get 7 to 8% compound interest over that ten year period. Okay. So you're guaranteed that growth and that's tax deferred and at some point in time. When you decide to retire and you want to turn on that income, the money's there waiting for you. But since it's tax deferred and it's now a qualified plan. That means that your withdrawals, your income is going to be taxed just like ordinary income. Okay. That's how it's basically treated for a qualified plan. Now let's look at a non qualified annuity. It's purchased with after tax dollars. So you've got money in the bank, whatever it happens to be. You're paying taxes on on that money. You may have a I don't know, whatever kind of account you may have that they're sending you a 1098 at the end of the year. And whatever growth you've had in that account, you have to pay taxes on non qualified annuity is purchased with after tax dollars. So you still get the benefit of tax deferred on the earnings.

Randy Sams:
However, you pay tax on the part of the withdrawals that represent earnings on your original investment only. So with non qualified annuity, you are not subject to the minimum distribution rules that apply to qualified plans after you reach. Well, it says 70.5. That was the old one. With the new Secure Act 2.0. The new required minimum distribution rule has raised that age from 72. It was 70.5. It raised up to 72, and now it's at 73. So, folks, what we're talking about is if we take, let's say, 100,000 and we put that into an annuity, an income annuity, and this money is already this is money that you've got in the bank, it's not really doing anything for you. It's not really working for you. So you want to take this money that's non qualified, it's already been taxed and we put that into an income annuity and we let that grow. It's going to grow tax deferred, okay, for however many years. So you say we're Randy, how's it going to be taxed? Whenever I start my income, when I start taking those withdrawals, those income payments? Great question. There's a little formula. You can look it up. You can Google it. It's called the exclusion ratio. Exclusion ratio. All right. An exclusion ratio means what they're going to do when you start taking income and let's say you start out with 100,000. What they're going to do is they're going to tax a percentage of that income that you take out.

Randy Sams:
But then they're also you're going to have a larger percentage that is not taxed. All right. So so let's just say that that $100,000, you've let it grown and by the time it you know, let's just say it's left in there, you put it into a 7% compound interest. We know at the end of ten years, based on 7% using the rule of 72, we spoke about earlier that that 100,000 is going to double to 200,000. Okay. So at the end of ten years, your 100,000 has doubled to 200,000 and then you start taking in income. Okay. So they're going to utilize the exclusion ratio and they're going to tax a certain percentage of that income as gain. And then the rest of it is not going to be taxed. And that ratio, that formula is going to be utilized until you have recouped, until you've received your original $100,000 investment. So it might end up being 30% of your income is is going to be taxed because they're looking at that as gain and the 70% of that income is not taxable and that will stay in place until at that point in the future where you have received your original 100,000. Remember, that's already taxes have already been paid on it when you received your original $100,000 premium back. Then from that point on, any income that you take is 100% taxable because it will all be based on the gains.

Randy Sams:
All right. So that's what we've got. So. Tax treatment of annuities. So we're going to have a general discussion basically about taxes and annuities. So during the accumulation phase, let's talk about that earnings. Credited on the funds in an annuity are tax deferred. Meaning that the gains are not taxed while they remain in the annuity. So withdrawals from a tax deferred annuity during the accumulation phase are treated as withdrawals of earnings. To the extent that the annuities cash value exceeds the total premiums paid and are taxed as income. The year withdrawn. To the extent that a withdrawal exceeds any earnings, that portion of the withdrawal is considered non-taxable return of premium, again, exclusion ratios, what we just spoke about. All right. Only occurs when you start taking the funds out. In addition, a 10% penalty tax may be imposed on withdrawals made before age 59.5 unless certain conditions are met. The penalty is in addition to any regular income tax on withdrawal. Okay, so. To give you an example, a lot of times I'm doing business and I'll get contacted from one of our listeners or someone who we've done business with. We'll get a referral and you'll have someone who has been with a company for 15, 20 years and they've taken another job or they've been let go. Whatever it might be. Okay. Doesn't mean that they're going to retire. They may still be, you know, in their late 40s or they could be in their early 50s.

Randy Sams:
So they're going to continue to work. But they've got an old 401. K that they no longer can contribute to and no longer are they going to be receiving contributions from their employer. So what we can do. He has. We can take that money from the old 401. K, roll that into an annuity and let it grow and it grow until age 59.5. Then you can start taking those payments out or take withdrawals out and avoid those penalties. All right. During the payout period, folks, annuity purchase price is returned in equal income tax free amounts over the expected payment period. The portion of each payment in excess of tax free return of purchase price is taxable in the year received. In summary, a portion of each annuity payment is received income tax free and the balance is taxable as received. Okay, now, folks, that's when we're talking about a nonqualified plan. Remember, if you're taking income payments from a qualified plan, from a qualified annuity, you've rolled a 401. K into that annuity. It's grown tax deferred for however many years. And now you're starting to take income. That income is completely taxable. So, folks, hey, I want to thank you. I hope you have enjoyed today's show. Again. June is Annuity Appreciation Month. Give us a call. Go to the website. But I want to thank you for joining us. Your American Retirement on 101.1 FM The Answer.

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 YourAmericanRetirement.com today that's YourAmericanRetirement.com.

Not affiliated with the United States government. Randy Sams does 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 a specific result. All copyrights and trademarks are the property of their respective owners. A married AmeriLife 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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