Before You Buy an Annuity: The Questions Every LGBTQ+ Retiree Should Ask

TPIR Ep 124 Full Show.mp3: Audio automatically transcribed by Sonix

TPIR Ep 124 Full Show.mp3: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker 1:
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.

Speaker 2:
Welcome to Take Pride in Retirement, the podcast dedicated to helping members of the Lgbtq+ community protect and grow their hard earned money. Get set for a show full of education and insights with your host and advisor, Matt McClure. We recognize every family is unique. The goal of the show is to help you achieve financial freedom, so you and your loved ones can have the retirement you've always dreamed of, a retirement you can take pride in. No matter who you are, where you're from, or who you love. So now let's start the show. Here's Matt McClure. Well, hello there and.

Speaker 1:
Welcome to another edition of Take Pride in Retirement. Matt McClure here with you, your host, your advisor, your friend, your pal and your confidant.

Speaker 2:
And I'm Josh retinal the attache to the advisor, aka co-host, aka Matt Hobby.

Speaker 1:
And thank you for being a friend as well. I appreciate that.

Speaker 2:
Travel down that road back again.

Speaker 1:
He said, your heart is true. You're a pal and a confidant. Um, much like I am, as I tell people each and every week. Um, we are continuing as well as friends, pals and confidants, uh, and myself as an advisor to talk about annuities. Uh, this time around, because if you listen to our last episode, you know, it is Annuity awareness month. That is why we are talking about these and we're talking today. Um, a bit about some questions that everybody should ask about an annuity before you buy, try before you buy or I guess ask these questions before you buy this time. Um, so we'll get to that in a moment. But first I want to say thank you so much for being a part of the show. If you are watching or listening wherever you watch or listen, we really, really appreciate the fact that you're here. I know we say it a lot because we mean it a whole heck of a lot, so thank you. Um, and you know, if you're listening via whatever podcast app, please subscribe to the show. Leave us a great rating there. If you're watching via social media or on YouTube, especially because we're trying to get a lot of growth going on the YouTube channel. Uh, and it's, you know, it's happening, but you can make it happen faster by liking and please also subscribe.

Speaker 2:
Subscribe.

Speaker 1:
Ah, I like that one. That was the angelic today. I liked the way that came across. And then also if you want a free consultation, um, you know, kind of a deep dive into your own financial situation or if you just have a question about anything that we talk about here on the show, I would love to answer those questions for you. Just go to take pride in retirement.com. It's take pride in retirement.com, or call 85524692178552469211. Once again, is that number, um, free of any cost, free of any obligation? That's what we do. Or at least that's what I do around these parts since I'm the advisor here. Um, but I would love to take that deep dive and give you a retirement you can take pride in. We'll work on that together, shall we? All right. So, Mr. Attache, let's get into it.

Speaker 2:
All right, so you say this all the time with clients. Don't start with the product. Start with the problem. So what do you mean by that?

Speaker 1:
Great first question to start out with. And again, you know, these are the questions that you should ask before, uh, buying or investing in an annuity. And yeah, I mean, start with the problem. Like what problem are you trying to solve? Um, and there are a lot of different problems that an annuity could potentially solve. So like you look at your own retirement plan. And you say, okay, I've got this lump sum of money. How in the world am I going to take that lump sum and turn it into income? Well, the income question could be one of the problems. What the income problem could be one of the problems that an annuity can solve for you, because you can take that and turn it into an income stream in retirement. Another one is protection from market volatility. If you look and you say, I've got you know, I'm invested maybe 90% in the market, like in stocks, you could have a problem there, especially as the closer you get to retirement because you want to be more diversified than that. In general, you want to you want to have less risk that you're taking. The closer you get to retirement, you want principle protection. And that is another thing that these annuities, many, many of them anyway, can offer protection from that market volatility. If you want to protect against longevity risk. You know, when I was first getting licensed several years ago with my, um, life and health. Licence to be able to, to, uh, offer annuities to folks. Um, one of the things that they said was the difference between life insurance and annuities. So life insurance is insurance against the risk of dying too soon.

Speaker 1:
Annuities are insurance against the risk of living too long. Because when you turn on that income stream in retirement with a lot of these, you know, unless it's a specific thing where you get only you only want income for, say, five, ten years or something like that, you can have their products out there like that, that offer offer those types of benefits. But you generally people will turn them into an income stream for life and that's guaranteed. No matter how long you live, you can live to be 150 and you'll still get that income. You know, that income stream will keep, uh, keep flowing. Um, there's also, you know, tax deferred benefits. Yeah. If you've got a 401 K or an IRA, those are tax qualified dollars. You can get the same tax treatment inside an annuity. So you don't pay any taxes on it until you make those withdrawals. And then you can leave behind a death benefit to your beneficiaries as well in in most of these contracts. So it's very, very, um, you know, important to not start with, oh, what product looks great and what's the flashiest? And do I recognize the company name necessarily? Like that could be an important factor for you. But, um, you know, it's not necessarily the most important factor who has the flashiest website and all this kind of thing. Um, no, it's more about you and what problems you have that perhaps an annuity could solve. Yeah. And I think with LGBTQ plus retirees, they may have different priorities. Right? Yeah. No, that's absolutely true. I mean, you know, for kind of the traditional, you know, husband wife, two and a half kids, white picket fence, a cat and the dog and the SUV in the driveway, that can look a lot different than an LGBTQ plus individual or family, right? You might need extra protection or want extra protection for a surviving spouse.

Speaker 1:
An annuity could potentially provide that for you. If you want to support chosen family, you could name those chosen family members as beneficiaries. That could be something for for you as well. In that situation, if you want to create an income stream for both you and your partner, could be something for you as well. Um, and then, you know, if you have long term care concerns, a lot of these contracts will offer long term care benefits where if you become confined to a nursing home or another long term care facility in your older years, that it will either, you know, do something like maybe double your income for as long as you are confined to that space. So that can help you cover those costs. Or it could maybe offer a lump sum benefit to help you cover those costs. So yeah, there are a lot of different things that LGBTQ plus folks specifically can, uh, be concerned about and have have a problem that an annuity could perhaps solve in their retirement plan. I love that. And let's talk about the phrase, everybody loves to hear Guaranteed income. So what does that actually mean? Yeah, no, I love that phrase. We talked about that at the last episode. I think at the end of the last episode, we were like, you know, guaranteed income.

Speaker 3:
Money, money.

Speaker 1:
Yeah, it's guaranteed money. It's what you love to hear. Uh, but you know, yeah. What is that guaranteed income phrase actually mean? And how does it actually work? Well, um, there are different types of annuities that could perhaps address different income needs, right. So there are annuities that could generate immediate income. So like you put in a lump sum and at some point within that next year, you could turn on an income stream and start getting paid, uh, replacing that paycheck within a certain number of months. And that could either happen for, you know, the rest of your life. If you want to put in a big lump sum and get paid out for the rest of your life, kind of like a traditional pension would, would behave from an employer. Um, or if you want to just do like, let's say I'm going to actually be able to retire. And this actually happened with one of my clients. I'm going to be able to retire earlier than I thought. So, but I've got a plan to turn on an income stream later on, like, say, at age 67. But I'm going to be able to retire at age 61. In this particular case, what about six years of annuity income? I can do that. Just kind of bridge that gap.

Speaker 1:
And yeah, we're able to do that. Just do that six years of guaranteed income and then the other annuity kicks in for this particular person. And he's got an income that he can live on the rest of his life. So there's immediate income like that. Then there's deferred income like the other one. So you put put in that money, it grows over a certain period of time. And then at some point in the future, that's the deferred part. You can turn on an income stream on that larger amount after it's had time to grow. Um, there are lifetime income writers with a lot of these policies where, you know, there, there are a couple of different ways to get, you know, your, your funds from an annuity. You can, after a certain amount of time, take it out with, uh, from from the annuity carrier withdrawal charge or surrender charge free, um, after a certain period of time. So you can get just the lump sum amount and you can invest it in a different way if you want. Whatever you want to do with it, because obviously it's your money at that point. Um, or you can use, uh, Annuitization. So that's just turning your lump sum into a stream of income. And so, you know, maybe perhaps that's for a guaranteed period of time or for the rest of your life.

Speaker 1:
Then there are lifetime income riders, which do guarantee an income stream, even if your your balance goes to zero the rest of your life, you've got a guaranteed stream of income. So that is something to, to keep in mind as well. And then there are joint income options. So if you want to guarantee income for yourself and your spouse or your partner for a certain period of time or the rest of your life. Uh, those could be options as well. So those are just some different income options there that maybe different types of annuities or maybe annuities of the same type with different kinds of features or writers or whatever could address. And, and here's, here's the thing, I think because there are so many sort of nuances here. Get in touch with me. Or if you have an advisor yourself, get in touch with them. I would encourage you to get in touch with me, of course, but take pride in retirement.com. I can answer those questions and clarify things for you. Uh, just, you know, don't. I won't pull the wool over your eyes. I'll take the wool out from over your eyes or something like that.

Speaker 4:
And I always say that Matt is the advisor that cares. So he's not going to steer you in the wrong direction. He's going to do what's best for you. And as we always say, everyone's circumstances are different. So that's important for you to plan with someone, especially if you're part of the community that understands the ins and.

Speaker 1:
Outs of planning like that. And speaking of our community and being married like us. Like if people are just like us, they're married. You know that joint income option is possibly there. What should they be asking? Yeah. Like, you know, you could ask the question, do I want income for a single life or for joint life? You know, like, do I want that dual income or just one? Because, you know, if you are, it's almost like when you're thinking about one versus the other, it's almost like I'm, um, if you think about it as an insurance product, for example, you're insuring one life versus two lives. And so insuring two lives can be more expensive than insuring one life. And so the benefit, like the monthly benefit could be lower overall, if you like, with the same amount of money in joint life versus single life. So that's something to consider. Uh, but you know, a lot of times with, with like, say, married couples, I will encourage them to just take out one annuity, invest in one annuity, uh, in one partner's name and name the other partner as beneficiary. And then if they have the funds to do the same thing with the other partner, open up an annuity and the other partner's name. Name the other partner as beneficiary. So then they both they have each other covered and the payouts overall are going to be higher because the payout factors are going to be higher for an individual versus a couple as far as the payout goes.

Speaker 1:
Um so that's something to consider survivor benefits super important as well. Make sure that those beneficiary designations are up to date. I always will say that until I am blue in the face. Um, and you know, those survivor benefits can be huge as far as, you know, a lump sum or a continued stream of income, kind of depending on what the contract says. And that really offers protection for the surviving spouse. It's an act of love for that loved one, because you are making sure that they will be taken care of should something happen to you. And this is true in the LGBTQ plus community. It's so important in our community because of the different types. As you just alluded to, everybody's situation is different, right? There are married couples in our community. There are a lot of unmarried couples in our community. There are individuals who are not coupled in our community and who grow up with chosen families surrounding them and and retire with chosen families surrounding them, rather than a partner or a spouse. So getting those like legal protections in place and getting a contract in place that says, here's what, what you know is going to be, here's who's going to be my beneficiary, here's what's going to happen with my money. Should I, you know, not be here anymore? That kind of thing. Super, super important. I, I would encourage everybody to consider all of those different things before investing in an annuity. Yeah.

Speaker 5:
So here's the uncomfortable question. What's the catch?

Speaker 1:
There's, isn't there always a catch. There's always a catch. Um, and there are I mean, you know what. This is why I say an annuity may be great for some people and could not, you know, might not be great for, for somebody else. Uh, because there are potentially not always there are a lot of a lot of annuities that are free of any fees, but there could be some fees, like for different riders, different features that you might want to tack on to said annuity, like something like I talked about earlier with the, you know, if you're confined to a nursing home, that kind of thing, generally speaking, this will be a rider. I think some annuity companies include it in a base annuity. So you don't have to put a rider on to get that benefit of an income doubler or a lump sum if you're confined to a nursing home, that kind of thing. So if it is a rider that you have to add on, there'll probably be a fee for that. And it'll usually be somewhere in the neighborhood of like 1% on an annualized basis, but it's not going to be generally something that's taken from your principal. It'll just be taken like shaved off the top of the growth for any particular period where the growth is calculated. Um, there are also caps. So like sometimes it'll be instead of if it's a fixed indexed annuity, for example, and the growth is tied to the S&P 500. Well, maybe this particular annuity only you only get like 50% of the growth of the S&P 500, something like that instead of the full 100%.

Speaker 1:
That's a cap. Sometimes the caps are even greater than, um, you know, what the, uh, the, the growth of the actual thing is greater than 100%. And that would actually be a participation rate. So participation rate is the percentage of the growth in a particular index that you would receive. So like if you get, um, let's say 190% interest or 190, 190% interest, 190% of the growth of a particular annuity, uh, or of a particular index that the annuity is tied to rather then that is not potentially a drawback. It could potentially be a big benefit, right? So you just got to look at those and make sure that you are not, um, missing something, I guess, and making sure that. Okay, if there is a cap, what's the cap? You know, up to a certain percentage or if there is a participation rate, is that participation rate greater than or less than 100% of the performance of that index? And then there are also some, some other things as well. But, you know, there are definitely some potential downsides that you need to be educated about. And that's one of the things that I love about doing the show is we get to sort of highlight these and make sure that if you are interested in an annuity and even after listening to this show or previous episode, maybe you think you are interested in an annuity now, at least you know the questions to ask, right?

Speaker 5:
Yeah. And if someone's out there saying there's absolutely no downside, that's probably a red flag.

Speaker 1:
Yes. Yeah. Short, sweet to the point. Yes. There are always going to be potential downsides with anything. It's just weighing it all in the balance and making sure that in the end, it actually makes sense for you and your situation.

Speaker 5:
Yeah. So moving on. Obviously, we all know life happens. So what if I need access to that money unexpectedly? I need my money.

Speaker 1:
Well, this is actually can be another one of those potential drawbacks that I neglected to mention a moment ago is that, um, you probably most of your money, at least for the first several years, will be tied up in the annuity. Not all you will have access to a certain percentage of that annuity. Generally speaking, it's 10% penalty free withdrawals within the first, you know, however many years, let's say five, seven, ten years, maybe up to like 14, 15 years, some of these surrender charge periods go. And so anything above that 10%, for example, will incur a surrender charge. So you do have access to up to 10% usually. Sometimes it can be a different percentage, but usually it's 10% no matter what. So you've got that surrender, um, surrender charge free amount. Write that penalty free amount that you can withdraw. Um, there are some that offer free withdrawals. There are some that, you know, will, will automatically pay out your RMD as your required minimum distributions if it's qualified tax qualified funds that you put in there. And you know, if you're in an emergency situation, you know, weigh in the balance. Okay, am I going to like, can I cover that emergency with this? You know, 10% of what the balance is now in that annuity without having to pay a penalty? Would I have to get more of that out and then pay the penalty charge? Or um, do I have enough in an emergency fund, which hopefully that would be the case and that would be the answer.

Speaker 1:
You wouldn't even have to worry about it. But I would say that. Yeah. I mean, you do have access to that money, but there could be those surrender charges and other things. Eventually those surrender charges will go away after that five, seven, ten, 14 year period, whatever it might be. Um, and in the LGBTQ plus community. You know, we sort of become caregivers, right? A lot of the time was something that we know a little bit about, especially, you know, a little bit about for, you know, especially parents in in our particular case, but also partners and siblings and close friends, unexpected expenses do happen and liquidity matters in this case. So make sure that you understand those ins and outs and know that, yes, you do have some liquidity, but just understand the limitations of that for at least those first several years of the annuity contract.

Speaker 5:
Yeah. And this next question, I mean, no one likes talking about this, but we have to we need to if I pass away, what happens to the money?

Speaker 1:
I'll keep this short sweet. And to the point here because it's a it's, as we often say, a difficult, not a not fun topic to talk about. If you as the annuitant or as the owner of the contract pass away, You get to name a beneficiary in the beginning. You'll name that beneficiary and you can change it whenever you. You need to make sure that they're always up to date, as I said earlier, but you name a beneficiary and that person will receive a either a lump sum or annuitized payments over a certain period of time from what's left in the contract value of the annuity. And so that that's the basic thing. You get to name a beneficiary. There's money left in the annuity and the actual dollar amount value of the annuity at that time, that beneficiary will receive those funds. And it's pretty much as as simple as that. Um, when you die, a lot of people sort of have this misconception. We talked about this in the last episode that the annuity company will just keep the money. Um, that used to be the case back in the day today it is not back in the day. And so things have changed. And, uh, this is kind of the way it works now where you get, you have that death benefit, you get to name a beneficiary and it, um, you know, the things sort of will, uh, more or less take care of themselves after that. But you've got to make sure, of course, that the beneficiary, what's the rule, folks? The beneficiary needs to be up to date. Yes. You've passed the quiz. You've been paying attention.

Speaker 5:
And all that seems especially important for our community.

Speaker 1:
Oh, 100%. I mean, we talk about things like chosen family all the time. And if you don't have a partner or spouse and you are relying on chosen family and you want them to be your beneficiary, absolutely. It's important for unmarried partners as well. You know, like you could have maybe if you're married, maybe a joint life annuity, and maybe if you're not married, maybe that's not an option for you, but you can name the other person, the beneficiary, just all kind of depends, right? Uh, the beneficiary designations, I should say this to the real, real reason that it's important to keep those beneficiary designations up to date. You say, well, man, I updated my will. Isn't that enough? No. The beneficiary designations override what is in a will. So they say where there's a will, there's a way, where there's a will, there might be, um, you know, a person who thinks they're going to be inheriting from you who doesn't. And that's not going to be a great situation for you. So make sure that, you know, the beneficiary designation in a life insurance policy, a brokerage account, whatever it might be, and an annuity, that's the most important thing to keep up to date. Keep all of those documents up to date as well as far as any living wills and all that kind of stuff. So for, you know, for LGBTQ plus retirees, retirement planning is far beyond just being about money. It's about dignity. It's about protection. It's about not only protecting yourself, but making sure the people that you love are protected and provided for the way that you intend. We've talked about this before. I mean, we've had friends who have passed, unfortunately, and did not have any of this sort of planning in place. And then there is like the dispute and it turns ugly and all the things you want to avoid that at all costs. Take pride in retirement.com once again is the website. Take pride in retirement.com. The consultation is absolutely free of any cost and there is no obligation.

Speaker 5:
Yeah. All right. So let's zoom out a little bit on this. Why is guaranteed income suddenly everywhere?

Speaker 1:
Well, as you always say in this economy, um, it's a, that's, that's one of the reasons. Um, but I mean, kind of one of the main reasons is the longevity risk piece, right? The risk of living too long and running out of money, uh, people are living longer. And this is a product that can address that because as I, as I say, no matter how long you live, if you've got a product with a guaranteed income for life, then you can count on those payments to keep coming. Even if you celebrate your 150th birthday, which may or may not happen one of these days for us as human beings, but people are living longer. So this is one of the things that it addresses. Um, the pension is disappearing as we've talked about previously. Used to be you could work for a company for 40 years, you retire, you got a gold watch and a pension and send along your merry little way. That no longer happens. And so you've got this lump sum of money, perhaps. How do you turn it into income? An annuity can address that. Uh, market volatility makes predictable income a lot more attractive to folks. And boy, have we seen some market volatility here lately over this past year. Uh, and, and more really, you know, things have have trended upwards, but there's been a lot of bumps along the way. And so you can take the bumps out of the scenario. If you invest in something like, say, a fixed indexed annuity, which doesn't partake in the downside of the market, only the upside. So those are just kind of three reasons there.

Speaker 5:
Yeah. So the goal isn't necessarily about replacing investing, right.

Speaker 1:
And I would never recommend anybody put all of their eggs in the annuity basket. I would say that you can be diversified and have the annuity be one basket that you put your, your, your eggs in or your, your money in. Uh, but yeah, you still want to partake in the market because then you can have the potential for more growth and all that kind of stuff. But you can also, on the other side, be well diversified and have principal protection with still some market like growth, but take the market risk out of that part of the equation. It's all about balance. You know, most retirees need both things, right? Growth and they need income. It's not kind of an either or sort of a thing. So that that really is what it boils down to is um, don't count on annuity for all of your dollars and cents, but sure, invest in an annuity if it's right for you and make it a portion of your investment portfolio to give yourself the benefits that we've been talking about while also being educated and saying, oh, there are some potential downfalls here. There are some things that I need to be aware of, but in the balance, sure this is right for me or no, it's not. And we can look at something else that you can invest in.

Speaker 5:
Awesome. Like I always say, Matt's not going to steer you wrong. Reach out, see what he can do to help you because that's why he's here.

Speaker 1:
Yeah. Take pride in retirement.com is the website. Take pride in retirement.com. You can schedule a complimentary consultation if you want help with a retirement income strategy. How do you turn that lump sum of money into an income stream in retirement? That's a question that we can answer together. Um, so once again, take pride in retirement.com. You can also call 8552469211. As I always say, you know, no matter who you are, where you come from, who you love, how you identify or how much money you have, you deserve a retirement you can take pride in. And I would love to help you get there. Well, Mr. Attache, that's going to do it for us this time around. But thank you for being a part of the show. As always.

Speaker 5:
Thank you for being. My hubby did.

Speaker 1:
Appreciate.

Speaker 5:
It and I know it was great.

Speaker 1:
Thank you. I appreciate it very, very much. And thank you for listening and or watching the show. Really do appreciate it. Uh, join us, uh, each and every week, couple of times a week on the old YouTube machine on your favorite podcast service as well. And, uh, keep following, keep spreading the word. We appreciate it. Until next time, take pride in yourselves and take care of each other. We'll see you then.

Speaker 5:
Thanks for listening. To Take Pride in Retirement, members of the LGBTQ plus community deserve to work with a fiduciary financial advisor who puts their needs first. To schedule a free, no obligation consultation with Matt McClure and the team at Active Wealth Management, call (855) 246-9211 or go online to take pride in retirement.com. Investment advisory services offered through Brookstone Capital Management, LLC. Bcm, a registered investment advisor, BCM and Active Wealth Management Incorporated are independent of each other. Insurance products and services are not offered through BCM, but are offered in sold through individually licensed and appointed agents.

Speaker 1:
Registered investment advisors and investment advisor representatives act as fiduciaries for all of our investment management clients. We have an obligation to act in the best interest of our clients and to make full disclosures of any conflicts of interest. Please refer to our firm brochure, the ADV two item four, for additional information. Fixed annuities, including multi-year 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. Registered Investment advisors and Investment advisor representatives act as fiduciaries for all of our investment management clients. We have an obligation to act in the best interest of our clients and to make full disclosures of any conflicts of interest. Please refer to our firm brochure, the ADV two item four, for additional information.

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