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Decoding Annuities: Should They Join Your Retirement Portfolio · Money In Motion with Klaas Financial

0:00
Speaker 1: Join this week by our retirement planning professional CJ Closs
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Speaker 1: and Malia Quavis. Of course they do come to us
0:05
Speaker 1: from Class Financial the website Clossfinancial dot com. That's Closs
0:10
Speaker 1: k l aa Sfinancial dot com. Tellph number for the
0:13
Speaker 1: office here in Madison six oh eight four four two
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Speaker 1: five six three seven. No charge for that initial gets
0:19
Speaker 1: to know you appointment tech Loss Financial. It will be
0:21
Speaker 1: complimentary to you again their number six oh eight four
0:24
Speaker 1: four two five six three seven to get on the
0:27
Speaker 1: air this morning. If you've got a question, whether it's
0:29
Speaker 1: about our specific topic or anything retirement related. Friends from
0:32
Speaker 1: Class Financial, they are here for you right now. Love
0:34
Speaker 1: to have you join us at six oh eight three
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Speaker 1: two one thirteen ten. That's six oh eight three two
0:39
Speaker 1: one thirteen ten as mentioned. Joined this week by CJ
0:41
Speaker 1: Closs and Malia Quavis.
0:43
Speaker 2: CJ. How you doing this morning?
0:45
Speaker 3: I am doing great, Sean? How are you?
0:47
Speaker 2: I'm doing really well. Malia? How have you been?
0:49
Speaker 4: Very good? Happy to be here.
0:51
Speaker 2: It's great to have both of you along.
0:52
Speaker 1: And we've got a very important conversation this week about annuities,
0:57
Speaker 1: what they are, what you need to know well to
0:59
Speaker 1: get into detail on annuities and just a moment, A
1:01
Speaker 1: couple of really cool features of the program. Of course
1:04
Speaker 1: the class Quiz question the week will be doing one
1:06
Speaker 1: of those a little bit later on the program. Chance
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Speaker 1: for you to win a great prize a twenty five
1:10
Speaker 1: dollars gift cards to red Robin from our friends at
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Speaker 1: Class Financial. We'll tell you a little bit later on
1:14
Speaker 1: the program how you can win that little tip. It
1:16
Speaker 1: pays well and get you a little update, little leg
1:19
Speaker 1: up on the competition when it comes to the Class
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Speaker 1: Quiz Qunch League by paying attention to the program because
1:24
Speaker 1: almost every time the question answer come up during the show.
1:26
Speaker 1: Speaking of other great great resources mentioned the website cossfinancial
1:30
Speaker 1: dot com. You can learn more about COSS Financial learn
1:32
Speaker 1: about their separate divisions. You can also sign up for
1:34
Speaker 1: the weekly Market Pulse newsletter right at class financial dot com.
1:38
Speaker 1: That's Coss k LaaS financial dot com. And before we
1:42
Speaker 1: get rolling and talking about annuities, let's actually take a
1:45
Speaker 1: look back at last week's program.
1:47
Speaker 4: Yeah, so last week we had a great conversation. Of
1:49
Speaker 4: course our favorite topic retirement planning, and the question was,
1:54
Speaker 4: according to the Department of Labor, what percentage of Americans
1:57
Speaker 4: are currently employed at age sixty five and beyond. Is
2:01
Speaker 4: it five percent or twenty percent? And our first caller
2:05
Speaker 4: with the right answer was Matt of Madison correctly answered
2:10
Speaker 4: twenty percent. So not everybody is working as long as
2:14
Speaker 4: they think. That's kind of the gist of this is
2:17
Speaker 4: is good retirement planning yet be ready for some some
2:22
Speaker 4: kind of different different ways on the journey. You might
2:25
Speaker 4: go left, you might go right. We don't know where
2:27
Speaker 4: you're going to end up. So sitting with a financial
2:29
Speaker 4: planner hopefully will help you figure out the right direction
2:33
Speaker 4: because you might retire sooner than you expect or later.
2:36
Speaker 4: So listen carefully to last week's program for more information.
2:39
Speaker 1: And as Willia mentioned, a very popular topic there as well,
2:42
Speaker 1: you can get that right at class financial dot com.
2:44
Speaker 1: That's Class k l aas financial dot com. Don't forget
2:47
Speaker 1: about there telling for number six oh eight four four
2:49
Speaker 1: two five six three seven. No charge for the initial
2:52
Speaker 1: get to know your appointment tech Class Financial. It will
2:54
Speaker 1: be complimentary to you again the number six oh eight
2:57
Speaker 1: four four two five six three seven. So like a
3:00
Speaker 1: lot of you know these familiar words, we're here thrown
3:02
Speaker 1: around folks discussing retirement planning and one of those words
3:05
Speaker 1: you hear a lot is annuities. And I think today
3:08
Speaker 1: we're going to kind of get into explaining what exactly
3:11
Speaker 1: an annuity is, whether it makes sense for folks, and
3:15
Speaker 1: you know, do you want those in your portfolio?
3:16
Speaker 2: What do folks need to know? CJ.
3:19
Speaker 3: Yeah, good question, there, Sean. So a lot of people listening,
3:23
Speaker 3: annuity may sound like a four letter word to you,
3:26
Speaker 3: and that's not uncommon. Annuities have gotten a pretty bad
3:29
Speaker 3: rap over the years because of the complexity and fees
3:33
Speaker 3: associated with them.
3:35
Speaker 2: However, a couple of things.
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Speaker 3: Number One, we don't sell annuities, So the good news
3:40
Speaker 3: is we are just a fiduciary, fee based firm that's
3:43
Speaker 3: going to give you our impression of them, how we
3:45
Speaker 3: see them working out in the world for retirees. And
3:48
Speaker 3: we'll tell you the good, the bad, and the ugly.
3:50
Speaker 3: And I will tell you at the onset here that
3:53
Speaker 3: because of the fees and complexity and tax considerations, they
3:58
Speaker 3: have gotten this bad rap. However, at the very basic
4:02
Speaker 3: level of what an annuity is, it's pretty simple. It's
4:06
Speaker 3: kind of like a pension, right, I'm just buying a
4:10
Speaker 3: future pension, So keep that in the back of your
4:13
Speaker 3: mind as we go through this. Now, unfortunately there's so
4:15
Speaker 3: many of them. By the end of the show, you're
4:17
Speaker 3: going to be like, wait, what about that pension comment.
4:20
Speaker 3: So they are complicated, but at its most basic level,
4:25
Speaker 3: annuities can act like a like a pension plan for people.
4:28
Speaker 3: So annuities have a long history in the US, going
4:31
Speaker 3: back to the middle of the eighteenth century, believe it
4:34
Speaker 3: or not, but many people don't understand exactly what kind
4:37
Speaker 3: of insurance vehicle they represent. So today we do hope
4:41
Speaker 3: to unravel some of that mystery. Since we interact with
4:44
Speaker 3: annuities and retire in our retirement planning, we thought obviously
4:47
Speaker 3: it'd be good for us to kind of dig into this. So,
4:49
Speaker 3: simply put, an annuity is a written contract, typically between
4:53
Speaker 3: you and a life insurance company, in which the insurance
4:56
Speaker 3: company makes a series of regularly spaced payments to you
5:00
Speaker 3: in return for a premium or premiums you have paid. Again,
5:06
Speaker 3: think of what a pension is for you. State of
5:08
Speaker 3: Wisconsin employees or who are part of the WRS system
5:13
Speaker 3: you worked. Between you and your employer, you're putting money
5:15
Speaker 3: into the State of Wisconsin and Department of employee trust
5:18
Speaker 3: funds pension. You then get to retirement. In what happens,
5:21
Speaker 3: they pay you back a series of payments. So again
5:25
Speaker 3: often we will refer to pensions as annuities. And then
5:29
Speaker 3: of course you decide when you want to start receiving
5:32
Speaker 3: those payments and they begin. It could be monthly, it
5:34
Speaker 3: could be quarterly, it could be annually. Now, to be clear,
5:36
Speaker 3: annuity sales in the last few years have been quite large.
5:40
Speaker 3: In twenty twenty three, there was over three hundred and
5:43
Speaker 3: eighty five billion, yes billion with a B put into
5:47
Speaker 3: these vehicles. These annuities include all types such as fixed annuities,
5:52
Speaker 3: fixed indexed annuities, single premium annuities, variable annuities, equity indexed annuities,
5:59
Speaker 3: and the less goes on. Although individuals, as I mentioned before,
6:03
Speaker 3: in our company don't sell these, we are actually insurance
6:06
Speaker 3: licensed to be able to speak to these with authority.
6:10
Speaker 3: And as I said, some annuities can make sense for
6:12
Speaker 3: certain situations, but truly understanding the products and the internal
6:17
Speaker 3: charges that could be at play, well that's a whole
6:19
Speaker 3: nother story that you need to be cautious with.
6:21
Speaker 1: Talking this morning with our retirement planning professionals, from Class Financial,
6:24
Speaker 1: CJ Class and Malia Quavis Dolphe number to get down
6:27
Speaker 1: the air SIXO eight three two one thirteen ten. That's
6:28
Speaker 1: six po' eight three two one thirteen ten. The website
6:31
Speaker 1: Class financial dot com. That's coss klaas Financial dot com.
6:35
Speaker 1: Sorry for interrupting you there, CG. I know there are
6:37
Speaker 1: some important things that folks need to consider here, aren't there.
6:40
Speaker 3: Yeah, Yeah, no worry. Sean knows that I can just
6:43
Speaker 3: ramble on forever, so I'm glad he stops me every
6:45
Speaker 3: once in a while.
6:47
Speaker 2: Yeah.
6:47
Speaker 3: So, a couple of other things to understand before we
6:50
Speaker 3: kind of move on to the next topic here. With
6:51
Speaker 3: annuities is something you might want to consider. Annuities are
6:55
Speaker 3: long term investment vehicles, specifically does for retirement. Remember that
7:04
Speaker 3: annuities are long term investment vehicles specifically designed for retirement. Again,
7:11
Speaker 3: if you keep in the back of your brain, annuity
7:13
Speaker 3: is a lot like a pension. And remember not all
7:16
Speaker 3: pensions do you put money in and start generating income
7:19
Speaker 3: right away. Most pensions you actually accrue over many years
7:23
Speaker 3: that would be known as like a deferred annuity, and
7:25
Speaker 3: then you generate income in the future. But there's nobody
7:29
Speaker 3: in their right mind that would say, yeah, I'm gonna
7:31
Speaker 3: buy one of those pension things for a couple of
7:33
Speaker 3: years and then move on. No no, no, no no. Pensions,
7:37
Speaker 3: like annuities, are long term retirement vehicles that are designed
7:41
Speaker 3: to generate income in the future. So remember that word
7:45
Speaker 3: for retirement, because here's one of the keys. If you
7:48
Speaker 3: take money out of an annuity prior to age fifty
7:51
Speaker 3: nine and a half, you will pay up ten percent
7:53
Speaker 3: penalty almost all of the time. And beyond that, if
7:58
Speaker 3: you take money out before age fifve nine and a half,
8:00
Speaker 3: not only would you pay the ten percent IRS penalty,
8:03
Speaker 3: but if you take out too much, you might also
8:05
Speaker 3: pay an early withdrawal surrender charge because most annuities also
8:09
Speaker 3: have surrender periods where you can't take all of the
8:12
Speaker 3: money out or move the money. So if you are
8:15
Speaker 3: basically younger then call it fifty. You probably shouldn't be
8:20
Speaker 3: messing around with annuities because if you put money in
8:25
Speaker 3: at forty, you know you're not going to be able
8:27
Speaker 3: to touch that till age sixty. Now, there's exceptions to
8:30
Speaker 3: every rule. Obviously, if it's retirement money or if it's
8:33
Speaker 3: designed for something specific that you're working out with your
8:35
Speaker 3: financial planner. God bless you. We're not telling you you
8:38
Speaker 3: can't do that, but just be cautious and always remember
8:42
Speaker 3: annuities are kind of like pensions. They're long term retirement
8:45
Speaker 3: vehicles that will generate income in the future.
8:48
Speaker 1: Talking this morning with CJ. Closs and Malia Quavis. They
8:50
Speaker 1: are our retirement planning professionals from Class Financial.
8:53
Speaker 2: Learn more online. You can also listen back.
8:55
Speaker 1: To this in previous shows podcast subscribe as well at
8:58
Speaker 1: Clossfinancial dot com. That's clause k l aa S Financial
9:02
Speaker 1: dot com. Tellphen up for the office right here in
9:04
Speaker 1: Madison six so eight four four two five six three
9:07
Speaker 1: seven No charge for the national gets to Know You
9:08
Speaker 1: appointment tech Claus Financial. It will be complimentary to you. So, Malia,
9:13
Speaker 1: as we talk about some different types of annuity, what
9:16
Speaker 1: are out there? What are some of those different areas
9:18
Speaker 1: that folks need to be aware of?
9:21
Speaker 4: Jay said, I mean, these these annuities, the structure of
9:24
Speaker 4: them certainly can be from A to Z and understanding
9:28
Speaker 4: the complexity of what you have, I mean we could
9:31
Speaker 4: probably pull a hundred of our clients who have purchased
9:35
Speaker 4: annuities in the past from you know, various various banks
9:40
Speaker 4: and so forth are insurance brokers, and they probably couldn't
9:43
Speaker 4: tell you the inner workings of the annuity. And to
9:47
Speaker 4: be honest, even though we interact with them, sometimes it's
9:50
Speaker 4: really in the details. And so really understanding what you
9:54
Speaker 4: have at bay there is super super important because you
9:58
Speaker 4: want to understand what kind of flexibility do you have,
10:00
Speaker 4: don't have, et cetera. So we're going to on a
10:03
Speaker 4: high level tell you about two basic types of annuities,
10:07
Speaker 4: and that would be first of all, deferred annuities and
10:10
Speaker 4: deferred annuities that actually begins in the accumulation phase. So
10:16
Speaker 4: what this means is that you're paying as the owner
10:18
Speaker 4: a premium, you're adding after tax money into an annuity,
10:23
Speaker 4: and then you're going to choose from available investment options.
10:26
Speaker 4: So during this phase, this accumulation phase, those earnings typically
10:32
Speaker 4: accumulate again, which is great. We like growth and that's
10:36
Speaker 4: going to accumulate on a tax deferred basis. So that's
10:40
Speaker 4: why people like these because they're like, Okay, I'm accumulating
10:44
Speaker 4: some gain. I don't have to pay the taxes every year.
10:47
Speaker 4: It's in this nice little wrapper. So that really is
10:49
Speaker 4: you know, enticing for people, the owner has the flexibility
10:54
Speaker 4: to start the distribution or what we call the income
10:57
Speaker 4: phase later obviously retirement and coinciding with whatever retirement date
11:04
Speaker 4: they have specified. So within that deferred annuity category, there's
11:11
Speaker 4: two different types. There's fixed ones, and those fixed annuities
11:14
Speaker 4: often offer a fixed rate of return for a specified
11:18
Speaker 4: period of time, and you can select that time period
11:21
Speaker 4: based on your investment horizon, so it could be a
11:24
Speaker 4: five year, a seven year, a ten year, or whatever
11:27
Speaker 4: might make sense for you, and also the amount that
11:30
Speaker 4: your retirement income needs to be coming from that annuity.
11:36
Speaker 4: And then there's also variable annudies. Those are very popular,
11:40
Speaker 4: and within the variable annuities there's professionally managed investment options.
11:45
Speaker 4: So this is where the clarity gets really muddy. People
11:48
Speaker 4: think a variable annuity is strictly an investment vehicle, which
11:53
Speaker 4: it can be, but the overall wrapper of it all
11:57
Speaker 4: truly is there's an insurance component, so they are a
12:01
Speaker 4: separate entity. Now, the value of a variable annuity contract
12:06
Speaker 4: will fluctuate based on the performance of the underlying investment
12:10
Speaker 4: options that you have chosen as the owner. Now on
12:13
Speaker 4: top of those, you're going to have optional living benefit
12:17
Speaker 4: writers that of course come at an additional cost, and
12:22
Speaker 4: writers that provide perhaps guaranteed lifetime income. And this is
12:27
Speaker 4: again where things get murky. You might receive a statement
12:33
Speaker 4: showing a balance and that balance is fluctuating every month,
12:37
Speaker 4: but within the annuity there's this guaranteed lifetime income. And
12:42
Speaker 4: again it gets very complicated because people see the waves
12:45
Speaker 4: of the amounts and they're like, but am I getting
12:49
Speaker 4: my income? Is that going to continue? And quite honestly,
12:52
Speaker 4: it is difficult to understand. So within the deferred annuity category,
12:57
Speaker 4: we have fixed and variable. They're common. When we see
13:01
Speaker 4: is called an immediate annuities so also known as a SPIA,
13:05
Speaker 4: a single payment immediate annuity, and that one you basically
13:09
Speaker 4: put money in and immediately it goes into the distribution phase.
13:14
Speaker 4: And so you would put a lump sum payment in.
13:16
Speaker 4: As I said, there's no accumulation phase, and your initial
13:20
Speaker 4: withdrawal can start usually as early as thirty days, but
13:23
Speaker 4: usually has to be taken within the first year. So
13:26
Speaker 4: you might say, well, I need guaranteed income for the
13:28
Speaker 4: next ten years. I want to buy a SPIA produce
13:32
Speaker 4: what CJ's referred to as kind of like a pension
13:35
Speaker 4: income situation and you know that you're going to have
13:38
Speaker 4: that guarantee. Essentially, you're putting the money in and they're
13:41
Speaker 4: going to give it right back to you in increments.
13:44
Speaker 4: So these are two deferred and immediate annuities something to
13:48
Speaker 4: kind of get a handle on. And within that mix
13:51
Speaker 4: are the variable annuity products as well.
13:53
Speaker 1: So much stuff to know. As we talked this morning
13:55
Speaker 1: with Malia Quavis and CJ. Closs, our retirement planning professionals
13:59
Speaker 1: from Classial. You can get to know class Financial and
14:02
Speaker 1: the team online Colossfinancial dot com. That's colss k l
14:05
Speaker 1: a a S Financial dot com. Learn more about their
14:08
Speaker 1: separate divisions. You can also sign up for the weekly
14:10
Speaker 1: Market Pulse newsletter, all available to you at Cossfinancial dot com.
14:15
Speaker 1: The telephone number six oh eight four four two five
14:17
Speaker 1: six three seven, no charge for that initial gets to
14:20
Speaker 1: know you appointment tech Loss Financial. It will be complementary
14:23
Speaker 1: to you again their number six oh eight four four
14:25
Speaker 1: two five six three seven. What about fees? We'll get
14:28
Speaker 1: some of those details next as Money in Motion with
14:31
Speaker 1: Coss Financial continues right here on thirteen ten.
14:33
Speaker 2: Wi B a.
14:38
Speaker 1: Talk this morning with our retirement planning professionals. CJ colossomlia Quavis.
14:42
Speaker 1: Of course they come to us from COSS Financial the
14:45
Speaker 1: website COSS financial dot com. That's COSS k l a A
14:49
Speaker 1: S Financial dot com. Telephone number six oh eight four
14:52
Speaker 1: four two five six three seven. No charge for the
14:55
Speaker 1: initial get to know you appointment tech Loss Financial. It
14:57
Speaker 1: will be complementary to you again their number six four
15:00
Speaker 1: four two five six three seven. Talking about annuities this
15:04
Speaker 1: weeknd CJ. Actually, excuse me, Malia, what are some of
15:09
Speaker 1: the fees that we might find that are nestled within
15:12
Speaker 1: these annuities.
15:13
Speaker 4: Yeah, unfortunately, nothing comes for free. We all learn that
15:17
Speaker 4: at some point in our life, and so there could
15:20
Speaker 4: be some disadvantages to annuities, such as high fees and
15:25
Speaker 4: looking at limited liquidity. So in addition, these products, as
15:29
Speaker 4: I said, are often complex, hard to understand, so we
15:33
Speaker 4: say buyer beware, and that goes with everything. You want
15:36
Speaker 4: to make sure you understand what you're dealing with. So
15:39
Speaker 4: for starters, almost all annuities have commissions, which can be
15:43
Speaker 4: anywhere from one to ten percent of the total value
15:47
Speaker 4: of the contract, depending on the annuity type. Now, this
15:50
Speaker 4: is where it gets confusing because oftentimes people are like, well,
15:53
Speaker 4: I put in one hundred thousand, and you know I'm
15:56
Speaker 4: going to get X amount of income from it, and
15:59
Speaker 4: there's been there's you know, I'm not really seeing those
16:02
Speaker 4: internal fees that that are specified are specified within the
16:07
Speaker 4: contract because again it's in the details. So we want
16:11
Speaker 4: to be the first to tell you the more complex
16:13
Speaker 4: the annuity, often not always, but often the higher the commission,
16:18
Speaker 4: because that commission is can be pretty hefty, and a
16:21
Speaker 4: simpler and more straightforward the contract often the lower the commission.
16:25
Speaker 4: So we're not we're not haters on people selling these
16:29
Speaker 4: products because sometimes they can make sense. But please know
16:32
Speaker 4: that there is an incentive a commission that's involved in
16:36
Speaker 4: the sale of annuity. Now, again you don't see this
16:38
Speaker 4: directly coming out of your investment when you write the check,
16:41
Speaker 4: but you should be aware that that is an incentive
16:44
Speaker 4: sometimes for a person that is selling it to you.
16:47
Speaker 4: There's also trailing commissions oftentimes that go to the selling agent,
16:51
Speaker 4: and those are paid every year by the contract. So
16:54
Speaker 4: again nothing's free there. There usually comes a point where
16:58
Speaker 4: you're going to see some sales charges coming out of
17:00
Speaker 4: these contracts. Now, the big thing we want to point
17:03
Speaker 4: out is surrender charges CJ touched upon this again. These
17:08
Speaker 4: are supposed to be retirement vehicles, So if you opt
17:12
Speaker 4: to pull your money out of an annuity within the
17:14
Speaker 4: first several years after you buy it, you may pay
17:18
Speaker 4: quite a penalty. And we've seen surrender charges typically running
17:22
Speaker 4: about seven percent of your account value. There's usually a
17:26
Speaker 4: declining balance over you know, it could be a ten
17:29
Speaker 4: year or even a twenty year period of time. And
17:32
Speaker 4: to be honest, we've seen people being sold annuities as
17:36
Speaker 4: young as in their thirties and what do you know,
17:38
Speaker 4: life changes, They need to get their money out and
17:42
Speaker 4: they have this horrendous surrender charge to get their own
17:45
Speaker 4: money out. So pay attention to if you're looking at these,
17:50
Speaker 4: make sure your age appropriate, as he mentioned, because those
17:54
Speaker 4: surrender charges. Again, to get my own money out and
17:56
Speaker 4: I have to pay a twenty percent surrender that's ridiculous,
17:59
Speaker 4: so just be careful with that. The next item is
18:03
Speaker 4: really the high annual fees. So if you put money
18:06
Speaker 4: into a variable annuity, you'll also encounter sometimes some high
18:10
Speaker 4: annual expenses, so you'll have an annual insurance charge that
18:14
Speaker 4: can run as much as one in a quarter percent.
18:16
Speaker 4: You'll also have annual investment management fees. Those could range
18:21
Speaker 4: anywhere from a half to two percent. And then there's
18:23
Speaker 4: also those insurance writers we are speaking of. Could be
18:27
Speaker 4: lifetime income or an enhanced depth benefit, could be a
18:32
Speaker 4: multitude multitude of things that can add another half a
18:36
Speaker 4: percent or more. So ultimately, if you add everything together,
18:40
Speaker 4: we see these contracts being very, very hefty with their
18:43
Speaker 4: expenses and it all adds up. So if you compare
18:48
Speaker 4: the price of these types of insurance contracts to maybe
18:52
Speaker 4: what you have invested in a mutual fund, you'll see
18:55
Speaker 4: a significant, significant difference in the yearly am out your
19:00
Speaker 4: pain on your mutual funds, et cetera. So just keep
19:04
Speaker 4: that in mind. You want to see the whole picture,
19:06
Speaker 4: understand what you're getting and and really the liquidity factor
19:10
Speaker 4: is an important thing under standing surrender charges. Should you
19:13
Speaker 4: need your money early.
19:14
Speaker 2: Know what to know it before you sign it.
19:15
Speaker 1: As we talked this morning with Malia Quavis and Cjloss,
19:18
Speaker 1: our retirement planning professionals from Class Financial. The website class
19:21
Speaker 1: financial dot com. That's Closs Klaas financial dot com. Great
19:26
Speaker 1: website to learn more about the team at COSS Financial.
19:28
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Speaker 1: weekly Market Pulse newsletter that available to you at Coss
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Speaker 1: five six three seven. No charge for that initial gets
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Speaker 1: to know You appointment at Loss Financial. It will be
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Speaker 1: complementary to you again that number six oh eight four
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Speaker 1: four two five six three seven. We'll take it down
19:47
Speaker 1: the home stretch and do the loss quiz question the week.
19:49
Speaker 1: We'll do that next as Money in Motion with Coss
19:52
Speaker 1: Financial continues right here on thirteen ten, WIBI talking with
19:59
Speaker 1: our retirement plan professionals from Coss Financial, Malia Quavis and CJ.
20:03
Speaker 2: Closs.
20:03
Speaker 1: The website it is Coss Financial dot com. That's Coss
20:06
Speaker 1: k l a a s Financial dot com. Mention the
20:09
Speaker 1: weekly Market Pulse newsletter. It's a great little weekly email,
20:12
Speaker 1: a little snapshot of what's been going on in the markets.
20:14
Speaker 1: Also a link to the most recent podcasts that available
20:17
Speaker 1: to you for free at cossfinancial dot com. That's k
20:20
Speaker 1: l a a s Financial dot com. Speaking of things
20:23
Speaker 1: that are available to you. The telephone number six O
20:25
Speaker 1: eight four four two five six three seven. Don't forget
20:28
Speaker 1: no charge for that initial gets to know You conversation
20:30
Speaker 1: that first deployment at COSS Financial will be complementary to you.
20:33
Speaker 1: Again their number six oh eight four four two five,
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Speaker 1: six three seven. Talking this week about annuities, and we
20:41
Speaker 1: can't talk can't talk anything about money without talking about taxes.
20:46
Speaker 1: What do we need to know about taxes and annuities
20:48
Speaker 1: and what happens then to deferred growth CJ.
20:52
Speaker 3: Yeah. So you can put different types of money into annuities.
20:56
Speaker 3: So remember there's a difference between the structure of an
21:01
Speaker 3: account versus the underlying investment. So when we talk about
21:07
Speaker 3: when we talk about an annuity, that's a product type
21:10
Speaker 3: that's not necessarily the exact tax structure. But annuities get
21:15
Speaker 3: a little bit wonky when it comes to taxes because
21:18
Speaker 3: I could take IRA money, So think I have an
21:20
Speaker 3: old four one K, I roll it over to an
21:22
Speaker 3: IRA and then I could buy an annuity with that
21:24
Speaker 3: IRA and if I do that, well, then it's all
21:28
Speaker 3: of the money is pre tax and then when I
21:29
Speaker 3: pull it out in the future it's all taxable. That's fine.
21:32
Speaker 3: Or I could take non retirement money, so think just
21:35
Speaker 3: excess savings and go buy an annuity, and then when
21:38
Speaker 3: I do that, the money that I put in there.
21:40
Speaker 3: I've already paid tax on obviously, and the growth is
21:43
Speaker 3: then tax deferred. I do not pay tax on the
21:47
Speaker 3: growth until I go to pull it out. But that's
21:50
Speaker 3: the key here, right. So Millia mentioned earlier and I
21:52
Speaker 3: did as well, that you can't typically touch the growth
21:55
Speaker 3: on these till fifty nine and a half for two reasons.
21:58
Speaker 3: Because if it's IRA money, IRA money by definition can't
22:01
Speaker 3: be touched till fifty nine and a half thout a penalty.
22:03
Speaker 3: If it's not IRA money, then you can't pull out
22:06
Speaker 3: the growth till age fifty nine and a half because
22:08
Speaker 3: that's one of the stipulations that the IRS put onto
22:11
Speaker 3: annuities when they said, hey, we're going to allow you
22:14
Speaker 3: to get deferral of growth, they said, in exchange for
22:17
Speaker 3: offering that to you, you know, general public, you can't
22:21
Speaker 3: pull out that growth until you turn fifty nine and
22:23
Speaker 3: a half, even though the money you put in there
22:25
Speaker 3: was not a retirement was not retirement money. So that's
22:28
Speaker 3: the trickiness of this. And then you think, well, gosh,
22:31
Speaker 3: I have some after tax money, I have some growth,
22:34
Speaker 3: and now I want to get my money out. What
22:36
Speaker 3: kind of tax is it?
22:37
Speaker 1: Is it?
22:37
Speaker 3: Capital gains? Tax or income tax. It is ordinary income
22:41
Speaker 3: tax on the growth. So listen, be careful with cashing
22:45
Speaker 3: out annuities. If you're going to move non retirement also
22:49
Speaker 3: known as non qualified annuity money around, you may want
22:52
Speaker 3: to consider things called ten thirty five exchanges just to
22:55
Speaker 3: avoid getting whacked on the taxes all out. As you
22:59
Speaker 3: can tell, a big thing to be aware of is
23:02
Speaker 3: just taxes on annuities, to be cautious.
23:04
Speaker 2: Talking this morning with the retirement planning professional CJ.
23:07
Speaker 1: Closs and Malia Quavis website Class Financial dot com that's Coss,
23:10
Speaker 1: k l A A S Financial dot com and CJ.
23:13
Speaker 1: I think the big question had the big take takeaway years,
23:16
Speaker 1: when could an annuity make sense? And what happens to
23:19
Speaker 1: the money if if I, when I ultimately when I pass.
23:24
Speaker 3: Yeah, so here's what I'd say to you again. I'm
23:25
Speaker 3: gonna I'm gonna remain high level, which is what we
23:29
Speaker 3: did at the at the onset here. Yes, annuities have
23:32
Speaker 3: gotten a bad rap over the years for good reason.
23:35
Speaker 3: Right commissions, surrender charges, complexity, taxes, all the stuff, right,
23:41
Speaker 3: all all the things we just went over. However, at
23:45
Speaker 3: their very basic level, if you buy the simplest form
23:49
Speaker 3: of them. Think of this as like a fixed annuity
23:52
Speaker 3: that's in deferral until you want to generate income in
23:55
Speaker 3: the future. They're actually quite simple in concept. I give
24:01
Speaker 3: money to an insurance company, it grows in deferral until
24:04
Speaker 3: say sixty five when I retire, and then they pay
24:07
Speaker 3: me back a lifetime income stream, just like a pension
24:10
Speaker 3: would be. And as we all know, like again back
24:13
Speaker 3: to you State of Wisconsin employees. By the way, we
24:16
Speaker 3: work with a boatload of you, so we know your
24:18
Speaker 3: plans quite well. As you all know, there's pros and
24:20
Speaker 3: cons to that. Right, if I generate my WRSETF pension
24:24
Speaker 3: in the future, the good news is I can generate
24:27
Speaker 3: it from my lifetime maybe mine and my spouses. But
24:30
Speaker 3: if we both die early, there's often you know, we
24:33
Speaker 3: take a hit on the dollar amount. So there's pros
24:36
Speaker 3: and cons to annuities and pensions. But what I'd say
24:39
Speaker 3: is they are simple in their nature in that you
24:41
Speaker 3: are taking a group insurance contract and guaranteeing a lifetime
24:46
Speaker 3: income stream. That's the basis of what an annuity was
24:50
Speaker 3: designed to do. It's when you get more complicated than that,
24:54
Speaker 3: it's when you start saying well, I'm going to get
24:57
Speaker 3: a variable annuity with an income writer, and I'm going
24:59
Speaker 3: to get variable annuity that allows me to hedge certain
25:02
Speaker 3: types of investments on the inside, or I'm going to
25:05
Speaker 3: get a fifteen year locked in annuity. Listen, that's where
25:09
Speaker 3: these things get complicated and why they have a bad rap,
25:12
Speaker 3: because commissions get large, surrender charge periods get extended. And
25:17
Speaker 3: so I guess the point of this whole show is
25:20
Speaker 3: annuities could make sense. They absolutely could make sense for you,
25:24
Speaker 3: your household, your family. But you just want to know
25:27
Speaker 3: what kind of annuity you're getting, what the restrictions are,
25:30
Speaker 3: and make sure that it meets your needs. So if
25:33
Speaker 3: you're gonna go this direction, we would just say buyer beware.
25:36
Speaker 3: Doesn't mean it's bad, just buyer beware and make sure
25:38
Speaker 3: you're working with somebody you trust.
25:40
Speaker 1: Talking this morning with CJ. Closs and Mali Equavis and
25:42
Speaker 1: CJ real Quick too, what happens if I pass? And
25:44
Speaker 1: what about taxes on these?
25:46
Speaker 3: Yeah, so this I mentioned this briefly in this section before,
25:50
Speaker 3: but so again, if I put non retirement money, what
25:53
Speaker 3: we call non qualified money or after tax money into
25:56
Speaker 3: an annuity, the growth is taxed fer so I put
25:58
Speaker 3: one hundred grand in say rows to two hundred thousand
26:01
Speaker 3: dollars over the course of the next you know, ten
26:04
Speaker 3: years or whatever it is, I get tax deferred growth
26:07
Speaker 3: on that. But then when I die and I give
26:09
Speaker 3: that two hundred thousand dollars to my beneficiaries, they have
26:14
Speaker 3: to pay income tax on that one hundred grand of growth.
26:18
Speaker 3: Ouch right, ooh okay. It's kind of like taking after
26:22
Speaker 3: tax money and almost turning a portion of it into
26:24
Speaker 3: retirement money. Now they would have options for things called
26:28
Speaker 3: stretch annuities, which is really great. You can stretch out
26:31
Speaker 3: the deferral of that over your lifetime and just pay
26:33
Speaker 3: little bits over over time. So again not a reason
26:36
Speaker 3: to not buy one, but certainly just something to say, ooh,
26:40
Speaker 3: if I'm inheriting a non qualified annuity again, like pause
26:45
Speaker 3: and work with a good a good tax expert or
26:47
Speaker 3: a good advisor who can give you a guidance on that.
26:50
Speaker 1: Talking this morning with our retirement planning professionals from Class Financial, CJ.
26:53
Speaker 1: Closs and Malia Quavis. Learn more onlinethwebsite. Colssfinancial dot com
26:57
Speaker 1: that's Coss Klaas Financial dot com. Get to know the
27:01
Speaker 1: team at COSS Financial learn more about their separate divisions.
27:03
Speaker 1: Also sign up for the weekly Market Pulse newsletter all
27:06
Speaker 1: online at cossfinancial dot com. We'll also listen back to
27:09
Speaker 1: this in previous shows podcast. It's a really good website again,
27:12
Speaker 1: that's Cossfinancial dot Com. Teleph number six oh eight four
27:15
Speaker 1: four two five six three seven. No charge for that
27:18
Speaker 1: initial get to know your appointment at Coss Financial. It
27:20
Speaker 1: will be complimentary to you again the number six oh
27:22
Speaker 1: eight four four two five six three seven. You're also
27:25
Speaker 1: going to want to hold on to that telephone number
27:26
Speaker 1: because it's time now for the Class Quiz Question the Week.
27:28
Speaker 1: It works like this, In just a moment, I will
27:30
Speaker 1: ask you the class Quiz question the Week. You will
27:32
Speaker 1: then have thirty minutes from the ter today's program to
27:34
Speaker 1: call the Class Financial office right here in Madison at
27:37
Speaker 1: six oh eight four four two five six three seven.
27:40
Speaker 1: If you are the first cot correct answer, you win
27:42
Speaker 1: this week's prize, which is a twenty five dollars gift
27:44
Speaker 1: card to Red Robin. This week's Class Quiz question Week
27:48
Speaker 1: is this what is the penalty amount for taking money
27:52
Speaker 1: out of an annuity prior to age fifty nine?
27:55
Speaker 2: And a half.
27:56
Speaker 1: Is it ten percent or twenty percent? Telephone numbers eight four, four, two, five,
28:01
Speaker 1: six three seven first cost correct answer when the twenty
28:03
Speaker 1: five dollars kift cards to Red Robin dor forgot as well.
28:06
Speaker 1: That's Coss Financial's office right here in Madison. That number
28:09
Speaker 1: again six oh eight four four two five, six three
28:12
Speaker 1: seven C. J. Maleia, It's always great chatting with both
28:15
Speaker 1: of you.
28:15
Speaker 2: Guys. Have the most fantastic of days.
28:17
Speaker 4: Thanks Sean.
28:18
Speaker 2: Thanks Sean, Go to news next year.
28:20
Speaker 1: On thirteen ten WIBI, This is Money in Motion with
28:23
Speaker 1: Coss Financial Asset Advisors, LLC, a registered investment advisor registered
28:28
Speaker 1: with the SEC. The contents of this show are for
28:31
Speaker 1: informational purposes only and should not be considered individual investment advice.
28:35
Speaker 1: Class Financial does not offer tax or legal advice. Any
28:39
Speaker 1: opinion offered during the course of this show is the
28:42
Speaker 1: opinion of that particular investment advisor representative, and not necessarily
28:46
Speaker 1: the opinion of Coss Financial. News comes your way next
28:49
Speaker 1: right here on thirteen ten WIBA