Podcast Episode - Ask Suze & KT Anything: When Are Annuities a Good Investment?

CDs, Insurance, Investing, Saving, Trust

April 06, 2023

Listen to Podcast Episode:

On this episode of Ask Suze & KT Anything, Suze answers questions about when to take distributions, insurance, CDs, trusts and more!

Podcast Transcript:


KT: Good morning, Suze. Let's start with Good morning Suze. How you sleep?


Suze: Wait. You want me to say that before I say the date.


KT: Yeah. Good morning, Suze. It's so early. It's even a little dark out. It's really early. We have a big weekend ahead of us. So we're starting early.


Suze: The reason we have a big weekend is why KT?


KT: The family's coming and the kids are coming and when the kids come, it's really fun.


KT: Matter of fact, little Tommy J who's five, said he wants to ride on the fire truck. We have an island fire truck with Colo and he said he won't be afraid when they blow the horn.


Suze: Last year. He cried, cried and cried.


KT: And his brother who's three, looked at him and said, brother, you won't cry when they blow the horn?


Suze: All right, this is our podcast and this is April 6th, 2023. Welcome everybody to the Women and Money podcast, and everybody's smart enough to listen. And this is the Ask KT and Suze anything edition. And I just want to say that if you want to ask a question, you do write into ask Suze S U Z E podcast at gmail dot com.


Suze: And if KT chooses it, we will answer it on the podcast. However, I can tell you she does not like long emails. I watched her go through them the other day and one by the other, too much information here. So anyway, just keep that...


KT: I have a big variety here though. We might want to be able to do a fast fire to get through them because I've got a huge, I think I have like 12 questions. Well, we've already taken up 10 minutes. All right, let's go ready. First one's from Gaye. She said I am 70 plus among my assets is a relatively small bank CD.


KT: I do not need this money for my routine expenses. But the question is if I want to renew with the maturity date past the required RMD date, does the bank have to let me withdraw the RMD without penalty before maturity?


KT: No, she said that, Suze.


Suze: No, it's all right. Let me just answer it. Doesn't matter what the bank said.


KT: No, she's, this is funny though. She said the bank person I asked didn't give me confidence, he actually knew the answer. So I'm asking Suze.


Suze: And Suze will tell you no, for those of you who want to know RMD, is required minimum distributions.


Suze: And if you were born between 1951 and 1959, the new required minimum distribution age is 73. If you were born after 1959, it is 75. RMDS mean required minimum distributions which does translate to: once you turn


Suze: that age, you have got to take out a required distribution from your retirement accounts that are non ROTH and there is a minimum that you must take out. So Gaye, No, if you happen to, let's just say, buy a five year certificate of deposit right now and you need to take out more than the interest that, that deposit is absolutely generating for you.


Suze: The bank does not allow you to do so without charging you if you break into that certificate of deposit,


Suze: a probably a three or six month penalty. All right, go on.


KT: Suze, next question is from Joseph. I quickly must make a huge decision regarding my government pension, which is $100,000 annually, whether I should take 100% joint survivor for my wife or 50% joint survivor with the pop up.


KT: I, yeah, I didn't know what a pop up. I started reading your book, The Ultimate Retirement Guide for 50 Plus. And I know you recommend 100% joint and survivor if possible. We also have other assets. We believe our retirement accounts will grow to over three million and more within 10, 15 or even 20 years. With all this in mind, would you still recommend giving up a lot of extra money on 100


KT: percent joint and Survivor knowing we have these other assets?


Suze: Let me just see this because they list it right. KT... Yes. See when you do a long email, KT will jump over all the individual things where like, I'm looking at the email and Joseph, you're listing all the money that you have in your 401k plans. You're telling me that your parents own rental property and that you're the beneficiaries of it and they're worth $2 million and on and on and on.


Suze: Joseph. Let me first explain to everybody what you're talking about here and then I'll tell you my answer, Joseph has a job, everybody that's going to pay him a monthly pension and that monthly pension will total $100,000 a year, which means Joseph will be getting $8,333 a month.


Suze: Let's just say that was a life only option, which means if Joseph were to die,


Suze: Then that $8,333 a month goes away.


Suze: Every company that offers a pension, offers you different survivor benefits and usually the survivor has to be your spouse.


Suze: So if Joseph wanted to, he could have 100% joint and survivor benefit, which means whatever they are paying him when he dies, his spouse gets 100% of what they were getting or a 75% joint and survivor benefit or a 50% joint and survivor benefit or like I just said, a life only benefit,


Suze: Which is what I think Joseph is talking about here because the amount of money is so great.


Suze: A pop up option is this, if Joseph were to take, let's just say the 100% joint and Survivor benefit, they would possibly reduce that $8333 a month down to let's just say $6000 a month or $7000 a month where if Joseph were to die,


Suze: his spouse would continue to get $7,000 a month. However, if his spouse died before he did, his benefit would pop up to the $8,333 a month. That's what's called a pop up option.


Suze: Now that I've explained what all of that is... over all the years that I was doing retirement planning for Pacific Gas and Electric where they had to choose which joint and Survivor benefit they should choose. And I was with them long enough to see when they were younger. And what did they choose to when they were older? And they died, every single one


Suze: who didn't choose the 100% joint and Survivor benefit pop up option regretted it. Number one. Number two Joseph, since you have so much money that you say that you're going to have, you're gonna have $3 million in your retirement account. You're gonna inherit $2 million here and on and on and on.


Suze: What do you care? What will a little bit amount of money, whether it's 15,000 a year or $20,000 a year? What difference will it make to you


Suze: to give up that income since you have so much money? If you're really not worried about money at all, you definitely shouldn't be worried about choosing 100% joint and survivor benefit with a pop up. So through all my years, 40 of them, Joseph,


Suze: that I have been dealing with this, I would always tell you to choose the 100% joint and survivor pop up benefit. KT next question.


KT: OK, Susie, I'm confused.


Suze: Are we talking about you?


KT: No, Brenda


Suze: Because KT says to me all the time, Suze, I'm confused.


KT: This is Brenda's confusion and, and this actually, this is a great question because my sister asked Suze the same question


KT: She said Susie, I'm confused as to if I want my husband to be named as a co owner or the beneficiary of my Alliant CD. Is there an advantage to either one? It's exactly what Lynn asked you, right?


Suze: So the answer to that question is Brenda very simple. A beneficiary on your Alliant CD or any CD


Suze: would mean you die and that money goes directly to him in this particular case. So you own it in your individual name. He has no say over it. This is your money, Brenda.


Suze: And upon your death, your husband would get it. If he is co owner, it means both of you own it so he can make decisions with it as well. So it depends how you feel about your husband. Do you want to give him any rights over this money or not? Do you want him to get it when you die?


Suze: So, if all you want is for him to get it when you die, make him the beneficiary. If you don't care that he has total rights over this money and everything, make him the co owner.


KT: All right. Next question is from Paul. Hi, Suze. My wife and I have approximately $350,000 in a brokerage account.


KT: This is a well balanced account with stocks, mutual funds and bond funds. We also have considerable savings in an emergency fund. We're both retired and we have no debt. Our health care is paid by Medicare by my former employer. I think both of them since retirement, we've never taken any distributions from this account. So this is Paul's question:


KT: Do we wait for the market to return to somewhat normalcy or start taking distribution sooner?


KT: Our income including SSI is $60,000 but our annual taxable income is only about 25,000. My wife and I are both 70. We understand by law we need to start distribution. Six months after I turn 72 we're not getting any younger Suze. Please help.


Suze: Actually, Paul, let me start by correcting you, now under Secure Act 2.0, the age for required minimum distributions for you is going to be 73 and you do not have to start taking required minimum distributions until when? April first, after the year that you turned 73. So let's say that you turned 73 in January


Suze: of 2024, you would not have to start taking required minimum distributions until April first of 2025. Would you want to do that? Because again, it's April first, after the year that you turn 73, would you want to ever do that? No, you would not,


Suze: because if you wait until the year after you have turned 73 in this particular example, not only would you have to take out the required minimum distributions for when you were 73, that year, but you would also have to take it out that next year as well.


Suze: So in 2025, you would have to take out two required minimum distributions which you would not want to do. So that's number one, just so you understand how it works. Number two, your income is $60,000 a year.


Suze: But it says including SSI, which means that either you or your spouse has some disability, whether it be mental or physical, that's why you are on social security income.


Suze: That's what SSI is. So that is why your $60,000 a year of annual income is only taxed at $25,000 because a lot of it is not taxable, even though your wife and you are both 70.


Suze: Right. It depends on,


Suze: does it make sense for you to take out any more money? The truth of the matter is if you don't need it, leave it in there, the longer that it's in there, the more money will accumulate for you, either tax deferred or tax free, especially if it's a raw. So even though you're not getting any younger, if you don't need it, don't take it. Next question, KT!


KT: Next question. Suze is from Emma. Dear, Suze and KT, I love your show very much because KT takes it fun to learn about money.


Suze: Did they really say that? I told you, I'm telling you, everybody.


KT: It said because you both make it fun to learn about money, but we know who she's really talking about. It said...


Suze: Wait, do you all think KT is more fun than I am?


KT: Absolutely. Come on, everybody. Come on answer. Honestly, she can take it. All right, ready. Let me finish. The question...


Suze: I already know the answer.  KT is ten times more fun than I am.


KT: When are annuities a good investment? I'm 45 with an old 403 B from a previous employer.


KT: My current employer does not match. Can I move this money into an annuity? She's only 45.. A financial... Ready, Suze ready everyone. A financial advisor is encouraging me to do so.


Suze: Pop quizzie.


KT: There's no good time. Don't do it.


Suze: Everybody, this is KT's quizzie. Because the reason I want this to be KT's quizzie is the quizzie I chose for KT today, not knowing that she had. This question


Suze: was from a Cathy Lee that said is in annuity, a good option at age 63. When you don't trust the stock market...


KT: Can I answer that?


Suze: Wait, slow down, slow down. All right. So thequestion for the quizzie then is we have Emma who is 45. We have Cathy Lee, that is 63 right? Both of them want to know essentially is an annuity, a good place to go for your investments. How would all of you answer that question? Again, Emma in particular


Suze: has money in an old 403B from a previous employer. All right, you also say that your current employer does not match, but the truth of the matter is one, has nothing to do with the other. So briefly, I just want to say if your current employer does not match


Suze: and they do not offer a ROTH 401k, you would be far better off putting money into a ROTH Ira. If you qualify for it, income wise. Or even if you make too much money, possibly doing a back door ROTH Ira.


Suze: Than putting money into your employer's plan that does not match if you make too much money. By the way, for a ROTH Ira and your employer does offer a ROTH 401k, then you would do your employer's ROTH 401k. Ok.


Suze: So the real question at hand is, should Emma


Suze: take the money that's in her old 403B from a previous employer


Suze: and put it into an annuity? And Cathy, at the age of 63 doesn't trust the stock market. Should she put money into an annuity? Think about it. Everybody join those two questions. How would you answer them? Go KT.


KT: OK. No.


Suze: KT, all right. Your answer is correct. They shouldn't do it. But why should they not do it?


KT: Well, I don't know the answer. No, I don't know the answer. I'm, I'm just using my gut on Cathy Lee. This, this one, she's only 45. Is that a little too early to even buy or consider an annuity, isn't it?


Suze: There's lots of variable annuities. However, the money is in an old 403 B, right? So the truth of the matter is they shouldn't do it. But you don't know why. So


Suze: ding, ding, ding, ding, ding and (wrong answer noise).


Suze: All right. Listen to me, everybody. You can't go by your gut. It is really important that you understand why you do something and you understand why you do not do something. So let me first start with Emma.


Suze: Emma, you are only 45 years of age. Your money happens to be in a 403 B with an ex-employer. So it's already in a tax deferred vehicle because 403 Bs, you do not pay taxes on. Why in the world would you want to take this money and put it in to an annuity,


Suze: that is also tax deferred? It would have to be in an IRA that you buy the annuity. Why would you want to do that when you're getting a tax deferred investment within a tax deferred account? Oh, I know why your financial advisor is encouraging you to do so because normally with an annuity, there is a 5 to 7% commission.


Suze: If you have $200,000 in an old 403B, you do a transfer of that money or a rollover of that money to an IRA rollover and you put it into an annuity.


Suze: Your financial advisor probably would be making about $14,000 in commissions to do so. Fabulous reason.


Suze: In annuity is not something that you should be doing at the age of 45. Do you hear me? You should be taking this money doing an IRA rollover with it dollar cost averaging into index funds or exchange traded funds or whatever it may be, especially given that you have at least 20 years till you need this money.


Suze: The markets most likely will continue down here for a while, even though I know they go up in everything overall. At this moment, we are in a bear market. So there will be times that if you simply

dollar cost average and these markets go down and you are putting this money every single month into some great investment,


Suze: an exchange traded fund and invest in the index, the Schwab dividend equity fund that I like for dividends or whatever it may be, you will be far better off. So that's what you should be doing. Do not listen to this financial advisor. Do you hear me? And Cathy Lee? Obviously, we're talking about money outside of an annuity.


Suze: When you buy an annuity, it is a contract with an insurance company and for that contract, right? You do not pay taxes on that money while it is invested, it is tax deferred.


Suze: However, you cannot get at that money usually for five or seven years without paying a surrender fee. That is how the financial advisor makes the commission to sell you that. Love, you would be far better off taking this money and buying a one year certificate of deposit depending on the state that you live in,


Suze: at Alliant Credit Union. And you would do so because why you could get 5% for one year.


Suze: You could take this money and buy if you want to right, a dividend portfolio like the Schwab equity dividend portfolio that I'm telling all of you about S C H D is the symbol currently paying 3.5%. There are better things for you to do. You are not to buy an annuity at this point in time. If you ask me. All right, KT!


KT: Next question from Janice, Dear Suze. I have term life insurance. It will expire in 12 years. I will be 82.


Suze: I want to convert to a universal Life insurance to provide insurance after the age of 82. What do you recommend? Why do you want to provide insurance to age of 82? No, no, no. You know you're great that you have at least term insurance till 82


Suze: right? But if you look at the premiums that you are going to have to pay and a universal policy, you are not to do it, you are not to do it. You are not to do it. Why do you want to provide insurance? Who needs insurance that is dependent upon you? No overall chances are I don't think you should do this. All right. Go on.


KT: Next question is.. Hello Suze and KT. I hope all is well. I've been following since 2020 and even bought Suze's most recent book to assist my family. Now I picked this question, Suze, because this is,


KT: this comes up all the time and everyone pretty much our age and even younger has these issues with.


Suze: But I do just want to answer. Obviously, she's been following since 2020 and she's asking that she hopes all is well. I think she's referring to me and my health. I'll let KT answer that.


KT: It's not well, it's great! She's doing great,


KT: great, great, great, great and, and every day better and better and she's doing stretch yoga at night, which is making a huge difference. A great thing that we did.


Suze: Every night before we go to bed. I signed up for this little class that was online and the two of us do it together and it is my regimen. And the other night, KT said to me,


Suze: oh, I'm so tired. Can't we do it in the morning? I said no, it won't be a regimen if I don't do it tonight, it's not a regimen. Anyway, go on.


KT: All right. So she said I'm writing as I need further guidance regarding changing the title and the name of my parents' home to the name of the trust. They have their must


KT: have documents. Suze, I just need your assistance to get my parents situated. My dad has terminal illness and I want to make sure they are all set regarding finances.


Suze: So the quick answer to this question is to change the title from your father's name


Suze: into, let's say the title of the trust. All you have to do is go to a title company and have them change the deed. Now, you need to find a title company that wants to do this or possibly even a lawyer that specializes in doing it for you. Just that simple.


Suze: And as soon as you do that, it might cost you anywhere from $3-$500 to do so, but it is worth it as soon as you do so, and the title is transferred into the trust you are set.


KT: So this is our last question. It's from Nancy.


KT: Hi, ladies, quick question regarding IRA withdrawals. When do I start to make withdrawals from my IRA? Are you only allowed one per year or can you make installments of withdrawals monthly? Also, if you are not at the RMD age, if you take a withdrawal this year, have you opened a Pandora's Box? And then


KT: am I required to take disbursements yearly? Thanks for sharing your expertise.


Suze: Actually, Nancy. What a fabulous question. First of all, you need to know you can take withdrawals from your IRA any time after the age of 59 and a half, any time your little heart desires. Why the age of 59 and a half? Because for a pretax IRA or 401k or any retirement account,


Suze: if you take money out before 59 and a half, there is a 10% penalty on it. Plus you're gonna pay taxes. So after the age of 59 and a half, you just pay taxes, which is why I love ROTH Iras because there's no taxes and no RMDs. But that's besides the point. All right.


Suze: So you can take out withdrawals anytime you want. You could take it out once a month, once a week, you could drive your financial firm crazy and take it out every day. It does not matter. Also, if you are not at the RMD


Suze: age, it has nothing to do with opening a Pandora's box. The RMDs will be figured at how much money you actually have within your IRA at the time that RMDs are required to start and then they will tell you how much you need to take out. So one has nothing to do with the other. So if you want to start taking it out right now, girlfriend,


Suze: go for it. All right. KT, in just another day, guess what?


KT: Everyone will be here. She can have a nice weekend. So she's always so happy. I love when we have visitors. I love when we have guests and visitors.


KT: It just, it just adds a lot of color to our life.


Suze: And I'm learning right. I'm getting better.


KT: Suze's great. She, in the beginning it was a little challenging everybody but she loves, she looks forward to it. Matter of fact, you said to me, oh, let's invite this group of friends. Let's invite that friend.


Suze: And we are so I am doing better. KT


Suze: how do we end this podcast? What do we want everybody to say every single day? Go for it, KT!


KT: O K. Today, Suze, wherever we go, we will create a more peaceful, joyful and loving world.


Suze: And if they do that KT what happens?


KT: They are unstoppable.


Suze: All right, everybody see you Sunday. Have a great weekend. Bye bye.


Music: MUSIC.

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