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In this new segment of Advisor Revelations, the DPL team will discuss how to evaluate new solutions and address current challenges and strategies that can help you grow your firm and a UM.
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Welcome to the Advisors Revelations Podcast.
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I am Willie Jones, the Sales Test Manager here at DPL Financial Partners, and today we will discuss Social Security and annuity options or bridging the Social Security Gap with annuities.
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I would like to introduce our guest who is a consultant at DPL Financial Partners, Ashley Hammond.
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How are you doing, Ashley?
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I am good, thanks.
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How are you doing today, Willie?
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Oh, it's a great day to be here and talk about some annuities and helping people out, right?
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Yeah, exactly.
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Okay.
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Before we start our conversation today, I wanted to remind our listeners to please subscribe to this podcast on your favorite streaming app for updates.
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If anything we talk about today interests you, be sure to connect with a DPL consultant on our website, dplfp.com.
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All right, Ashley, so that our listeners have a better understanding of your experience, can you share a little bit more about yourself and what you do here at DPL Financial Partners?
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Yes, absolutely.
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So I have been with DPL for about a year now, just under.
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And what I do at DPL is I'm the internal consultant.
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I handle the day-to-day conversations with advisors and advisor firms.
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We discuss case design, product, do annuity comparisons, reviews, and find the best solution situation for their clients.
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We discuss product ideas and all different types of annuities.
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My background is I came from one of our carrier partners.
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I was with Trans America for about four years.
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We actually work with Trans America and offer some of their solutions here at DPL.
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At Trans America, I did various product lines.
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I did annuities, 401ks, life insurance, so you name it, pretty much covered it all during my time there.
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Before that, I was at Charles Schwab.
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I was on their annuity desk for about four years.
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I did both the retail side where they have an advisor network at Schwab.
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And I was on the RIA team, much like what I do at DPO.
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So I work with advisor firms, much like what I do now with DPL.
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Awesome.
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So was it a big change coming over and seeing more of the commission-free world, or is this something you think was going to eventually come into the industry?
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Yeah.
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So I had seen a little bit of it, but it's definitely a lot that's new and it's been great.
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So to be able to offer commission-free products to your clients and be able to charge your advisory if you have more assets under your management, having so many products and solutions has been awesome.
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Great, great.
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That's what we like to hear.
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So let's get started talking about Social Security.
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How are your advisors really approaching the Social Security conversation with their clients and how are they planning it?
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Are they early adopters?
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Wait a little while, or what are you seeing out there?
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Yeah.
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So the biggest thing is making sure they're having the conversations with their clients.
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My advisors are making sure to have those conversations, bring up the topic of social security with their clients, and making sure that their clients are maximizing their income options while also protecting against outliving their resources.
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It's important with all the options out there that clients understand what they can choose from to both protect against mortality and longevity risk.
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Oh, definitely.
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When it comes to Social Security, there are several payout options you can select from.
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It's kind of overwhelming for the climate.
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So you want to know timelines to choose from, if they're going to need an additional source of income in addition to social security, which they usually do.
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And part of my advisor conversations are making sure that the clients know all of the options available to them and utilizing income annuities to bridge the gap between what Social Security can get you for a payout as well as what an income annuity can do.
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And to touch on that point of when they're taking it, they're usually suggesting to take Social Security sooner than later.
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Okay.
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So that way you don't lose out on your benefit.
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Yeah, I'm actually a big believer than that.
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I have personal stories where I've done insurance where people want to wait till 70 and always say, We're not guaranteed tomorrow.
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Get it while you can because that's an asset that if something happens to you, it's gone.
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You know, that no one's gonna get that in your family.
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Yeah.
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You bring bring that up because everyone, like you said, is uniquely different in how they plan for their process.
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When I talk to my advisors, a lot of them want to wait till age 70 and they're trying to use a portfolio to get the income.
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What have you shared about using annuity to bridge that gap if they are gonna wait instead of taking it from their portfolio and letting the advisor be responsible to make that income payment?
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So I suggest they take the Social Security like you like and recommend to your advisors as well.
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And then they use that income annuity as a deferred tool.
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So maybe they turn on income on an annuity in a couple of years to start taking income.
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And that's also going to provide them with a guaranteed lifetime payout.
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So the annuity is an exceptional resource to utilize in their clients' retirement income planning.
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That makes sure that they're helping their clients to hedge against mortality risk while also having the longevity protection against their assets.
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The income annuity can help the clients accomplish both, especially right now while payout rates are so high.
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The 10-year US treasury, and I'm sure you're aware interest rates are pretty high right now.
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That comes into favor with the income annuity payout.
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So income payouts are as high as 7%, maybe even higher in some circumstances.
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And you can really maximize what an income annuity can do for you for payout to supplement with Social Security.
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Oh, definitely.
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See that right now?
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It's a prime opportunity to make that move and let advisors know you can take some pressure off of the portfolio and just take a part of that allocated bond fund and get them some guaranteed income for life.
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Yeah.
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One thing seems to come up a lot of times about annuities and maybe not understanding exactly how they work.
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And I've met advisors that say I wouldn't use qualified funds in an annuity.
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Have you heard that?
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And how do you approach that with them?
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So I would use qualified funds in an annuity.
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And I have heard that quite a bit.
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So people seem to be opposed until they understand what the options are.
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With the RMDs and qualified annuities, you're gonna have to take out a required minimum distribution from your IRA at the year that your client turns 73.
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I'm sure you're aware of that.
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So the conversation comes up each year.
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Where do we pull the RMD from?
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Do we pull it from something that's invested in the client portfolio?
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Well, then you have the risk that the portfolio value could be down that year, the stock could be down, much like the year we're having right now so far.
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So to use an annuity for your RMD, it allows you to use a protected source of money to pay out at least what your required minimum distribution is, so that you don't have to have that contemplation and polling from an invested portfolio account that's invested in the market.
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The annuity is going to be a great tool for use of the RMDs because you're taking a guaranteed source of income protected from those market fluctuations.
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So you do not pose the risk of your account balance going down when you have to take out your required minimum amount.
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You can set these income payments up as systematic so that it comes out every year, no matter what.
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You don't have to think about it.
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It can be monthly, quarterly, annual, and they will get a payout for as long as they live.
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That way, each year the RMD is already taken care of and you don't need to pull from invested assets.
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And you also get those favorable rates right now where you're you may get a little extra income too to take you out for your lifetime.
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Yeah, and that's what I've shared with them.
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I was like, you have to take that money anyway.
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It's tougher to pass on to the next generation.
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Why not use those qualified funds to get your client guaranteed income for life and it can offset those RMDs?
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Yeah, exactly.
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So you don't have to pull from the invested assets, you have to take those RMDs anyways.
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A lot of people don't want to take them or they're not ready to.
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So this is just making sure it comes from a protected source of your money.
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Yeah.
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And like I said, like you said exactly.
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What if I had to take those RMDs in the markets in a correction?
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Well, that's not a win for the client in any way.
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Now that you bring that up, I'm starting to think about there's always this question about whether you do level income or rising income.
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And really, some advisors might even know that's a choice on the annuities that we offer here to get a client an increasing income.
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Can you really talk about maybe the difference with them and how maybe using qualified funds for rising income can help offset other RMD money other places?
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Yeah, absolutely.
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So for those RMDs, I mean, you take a calculation of what you put into the annuity, and that's the RMD payment you're gonna get out, possibly more if you're utilizing a maximum income in an annuity.
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But there's two ways to take income payments from an income annuity.
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What most people are familiar with is the traditional level income method, where you receive a fixed guaranteed lifetime income payment.
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It stays fixed level for as long as you live and it never changes.
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So that's level income.
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But you can also take what's called increasing payments.
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And some people are not as familiar as increase with increasing as a method for annuities.
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So these payments, they'll start at a slightly lower rate than level income initially, but they increase each year that you have positive market performance in your annuity portfolio.
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You probably hear of cost of living, have clients asking about that quite a bit.
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So this can offset the cost of living adjustments.
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If each year or most years your income steps up for the increasing payment method, you're getting a little bit more to offset the cola adjustment.
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Yeah.
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Typically, over your lifetime, if you take increasing income, you end up with a higher amount of income than you would just from level.
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So it's also another method to truly maximize what you can get from an income annuity.
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And it's going to be ideal for clients.
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Maybe they don't need so much income right away.
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Like maybe they need to start taking their required minimum distributions.
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That's it.
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They don't need much more income yet.
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Maybe they're still working a little bit.
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Yeah.
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Or they have other sources.
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So it allows it to gradually increase to its maximum over time.
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So that way you're not getting more income than you need up front and it increases over time.
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By the end of your life, you're getting the maximum possible income you could from an income annuity by using that increasing method.
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Yeah, I've actually posed some of my advisors about as you get older, we all know things get more expensive, but one of the fears I hear from clients are health care expenses.
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So it would be great to have more income in those later years because you generally might have more healthcare problems as you get older.
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So it's great to have maybe two, three times more income than I started with 15 or 20 years ago to offset those expenses.
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So yeah, I'm a big rising income or increasing income fan.
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Right.
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And speaking of that, one of the things I've noticed talking to advisors is also they maybe not be as familiar with how an annuity works.
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I think everyone assumes, hey, you know, when you're working with them, they have to give you this big chunk of money that I'm not going to get paid on anymore because my client's going to buy this annuity and we're going to defer it for five years and then they'll start getting the income.
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Can you explain the difference between like maybe the way the income writer works, which is, I think what we use most of, and actually just being getting something that's annuitized?
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Yes, definitely.
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So that's a great point.
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Annuitization is like the oldest definition in the annuity textbook.
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That's what most people are familiar with.
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So annuitization, I'll start with that one, is where you turn your annuity contract value, so your cash value into a guaranteed payment for the rest of your life.
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Now that's great.
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You're getting income for the rest of your life, but you're also taking away some things by doing annuitization.
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When you annuitize, you no longer have that contract value or cash value to draw from.
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So if you need more income one year, you simply can't take it.
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You gave it away and basically you traded it for a guaranteed income payment.
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So you can't take more income than you're receiving.
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You also deteriorate your death benefit quite quickly, most cases for a newtization.
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So because you're getting rid of that cash value, death benefit kind of goes away quickly, and you just have those fixed payments, no more, no less for the rest of your life, no cash value.
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So that's a nuitization.
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That's what most people are familiar with.
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However, there's a lot more options out there today.
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And that leads to your point of the income writer.
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So the income writer allows you flexibility while also maximizing your income.
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The income writer is going to pay you the familiar guaranteed lifetime benefit of income.
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So you're getting lifetime income no matter what.
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But now you also have flexibility.
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You don't have to annuitize.
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You can keep your cash value.
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That means your death benefit is going to last longer.
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And if you have years where you need more income, you can take it.
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If you decide maybe 10 years down the road, you actually need to cash out.
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You could do that too.
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So you may not want to cash it out.
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You probably won't because you want to receive that lifetime income.
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But the fact is that you have options and flexibility and you get to choose.
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Yeah, I think that's the biggest part because when I talk to advisors talking to their clients, they're always worried about giving up that asset, never having access to that asset again.
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And I say, well, right now you can have the best of both worlds, especially on the commission free side where the asset is still there, it's growing.
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It's something that if something happens to, you know, that annuitant, that owner prematurely, hey, that can go on to their family or to, you know, whatever beneficiary they decide.
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So yeah, definitely flexibility, I think, is a big thing there.
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Yeah.
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And it allows you to keep your account balance invested.
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So not only do you still have that cash value and account balance, but you can invest it.
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So you have investment choices, you can invest in the index depending on the type of annuity we're signing up for.
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You can invest so that it still can perform and earn money each year potentially and last longer.
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Yeah, I really don't think people understand that they think annuity, oh, it's annuitization.
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No, it's a brand new world out here.
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There's better ways to do it because I think statistically, only maybe 5% of annuities are actually ever annuitize.
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So way more is done with an income writer, like you said, or just as an investment alternative.
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Yeah, quite the opposite.
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Like you want to do what you can to make sure you don't annuitize your contract.
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So, what other options do we have?
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And annuities have come such a long way, especially being in the fee-based space now, that we have all these options that you can get that high guaranteed income while also maintaining flexibility and investment.
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You can keep that invested and have choices.
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That was not really the case with annuities a while ago.
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Definitely, definitely.
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I think somehow that's how they got a bad name sometimes.
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That's what gave them a bad rap part of it.
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I did something did come up.
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Um I was talking to an advisor before, and we kind of touched on it about using IRA money and annuity.
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One of the concepts I posed to him was did you know you can turn an IRA, which is basically generally, you know, qualified money only owned by one person, into basically a joint pension for somebody for you know a spouse to for the rest of their life without them being the owner.
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Can you kind of explain maybe how that works and maybe why that's a benefit?
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Yeah.
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So you can now take an IRA and invest it in an annuity.
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Typically, with an IRA, you can't make a joint because you can't commingle your funds, IRS rules.
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But now there's new ways where you can make that IRA joint in a way by using an income writer on your annuity.
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So you are able to purchase the annuity with one of the spouse's funds from their IRA, and then you can turn that IRA into joint spousal benefit.
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So one spouse purchases it with their IRA, and then both of them receive lifetime income.
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The way it works is you do that purchase, one of the spouses' IRAs, you elect joint lifetime income on those annuity payments so that their lifetime payments last for both of their lives.
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So it's a joint benefit on an income annuity on an IRA, and you're able to turn that into joint taking it out for both of your spouses' lives.
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It's a way to cover your spouse with those IRA funds.
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And you can also take RMDs that way and use that towards your RMD required amount that you have to take out each year.
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Yeah, definitely.
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That's one of the big things because we know in the marketplace there's less and less pensions.
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And it used to be like, you know, if you worked at the company and you had the pension and you wanted to include a spouse at your death or something, the value can go down as much as 50%.
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Right.
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Whereas I do believe on the annuities, it's at maybe most 10% a difference of starting.
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And from what you said earlier, they can get increasing income.
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So if your spouse is younger than you, you you've really done that longevity hedge and grown that asset over time, that income base for them to be able to see that income for the rest of their life.
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Yeah, exactly.
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And that's a great point about the pension.
00:18:05.440 --> 00:18:07.200
Most people don't get pensions these days.
00:18:07.359 --> 00:18:13.599
So to use that as a pension-like guaranteed lifetime source, you can use it increasing.
00:18:13.680 --> 00:18:26.000
So some of these benefits we've talked about so far, you can use that increasing benefit for you and your spouse to receive increasing cost of living like adjustments for the rest of both of your lives.
00:18:26.160 --> 00:18:27.279
You're both covered.
00:18:27.519 --> 00:18:34.079
You also have that cash value invested and you're getting a guaranteed pension like payment to take you out your lifetime.
00:18:34.240 --> 00:18:39.839
So, yeah, because like with a pension, if something did happen to them both prematurely, their beneficiaries don't get anything.
00:18:40.319 --> 00:18:45.519
If something happens to them prematurely in the annuity and they were young, there could be that asset value that could help with their legacy planning.
00:18:45.599 --> 00:18:46.240
Yeah, exactly.
00:18:46.640 --> 00:18:48.160
More like a win-win-win.
00:18:48.319 --> 00:18:48.720
Yeah.
00:18:48.960 --> 00:18:54.079
Your cash value is still invested and you're receiving joint income benefits.
00:18:54.160 --> 00:18:55.039
It's increasing.
00:18:55.119 --> 00:19:03.200
So you're getting cost of like lifetime adjustments while being invested, also having that flexibility and a death benefit.
00:19:03.359 --> 00:19:03.599
Yeah.
00:19:03.759 --> 00:19:04.640
Can't lose there.
00:19:04.880 --> 00:19:09.519
A really big win for the client and the advisor because that's an asset under management now, as we said earlier.
00:19:10.079 --> 00:19:11.519
Well, actually, I'm gonna wrap it up.
00:19:11.680 --> 00:19:12.880
I really appreciate your time.
00:19:12.960 --> 00:19:14.799
It was awesome to get to chat with you.
00:19:15.039 --> 00:19:18.400
Before we go, do you have any thoughts or closing comments you'd like to make?
00:19:18.559 --> 00:19:21.039
Yeah, and thank you very much for having me today, Willie.
00:19:21.119 --> 00:19:22.720
It's been an absolute pleasure.
00:19:22.960 --> 00:19:34.960
I would say reach out to your contact DPL to make sure you're having the Social Security discussions with your clients and finding ways to hedge against both mortality and longevity risk in your client's portfolio.
00:19:35.119 --> 00:19:39.200
Also, I'll be able to take those RMDs and getting pension-like payments.
00:19:39.279 --> 00:19:43.759
So reach out to us and let us know how we can help with specific client discussion.
00:19:44.000 --> 00:19:45.279
And we'd love to help.
00:19:45.440 --> 00:19:49.119
Okay, thank everyone for listening to this podcast and hanging out with me and Ashley today.
00:19:49.200 --> 00:19:56.799
And once again, if you want to connect, please visit dplfp.com and subscribe for more episodes where you listen to your podcast.
00:19:57.039 --> 00:19:58.720
We look forward to helping all of you guys.
00:19:58.880 --> 00:20:12.160
Have a great day.com and subscribe on your favorite podcast streaming app.
00:00:03.919 --> 00:00:15.439
In this new segment of Advisor Revelations, the DPL team will discuss how to evaluate new solutions and address current challenges and strategies that can help you grow your firm and a UM.
00:00:20.239 --> 00:00:23.440
Welcome to the Advisors Revelations Podcast.
00:00:23.600 --> 00:00:34.159
I am Willie Jones, the Sales Test Manager here at DPL Financial Partners, and today we will discuss Social Security and annuity options or bridging the Social Security Gap with annuities.
00:00:34.399 --> 00:00:40.880
I would like to introduce our guest who is a consultant at DPL Financial Partners, Ashley Hammond.
00:00:40.960 --> 00:00:41.840
How are you doing, Ashley?
00:00:42.000 --> 00:00:42.880
I am good, thanks.
00:00:42.960 --> 00:00:44.000
How are you doing today, Willie?
00:00:44.240 --> 00:00:48.000
Oh, it's a great day to be here and talk about some annuities and helping people out, right?
00:00:48.240 --> 00:00:49.359
Yeah, exactly.
00:00:49.600 --> 00:00:49.920
Okay.
00:00:50.079 --> 00:00:57.200
Before we start our conversation today, I wanted to remind our listeners to please subscribe to this podcast on your favorite streaming app for updates.
00:00:57.359 --> 00:01:04.319
If anything we talk about today interests you, be sure to connect with a DPL consultant on our website, dplfp.com.
00:01:04.480 --> 00:01:12.239
All right, Ashley, so that our listeners have a better understanding of your experience, can you share a little bit more about yourself and what you do here at DPL Financial Partners?
00:01:12.560 --> 00:01:13.599
Yes, absolutely.
00:01:13.760 --> 00:01:17.920
So I have been with DPL for about a year now, just under.
00:01:18.560 --> 00:01:21.680
And what I do at DPL is I'm the internal consultant.
00:01:21.920 --> 00:01:26.400
I handle the day-to-day conversations with advisors and advisor firms.
00:01:26.640 --> 00:01:36.400
We discuss case design, product, do annuity comparisons, reviews, and find the best solution situation for their clients.
00:01:36.560 --> 00:01:41.599
We discuss product ideas and all different types of annuities.
00:01:41.920 --> 00:01:46.560
My background is I came from one of our carrier partners.
00:01:46.719 --> 00:01:49.840
I was with Trans America for about four years.
00:01:50.319 --> 00:01:55.200
We actually work with Trans America and offer some of their solutions here at DPL.
00:01:55.519 --> 00:01:58.159
At Trans America, I did various product lines.
00:01:58.239 --> 00:02:05.680
I did annuities, 401ks, life insurance, so you name it, pretty much covered it all during my time there.
00:02:06.000 --> 00:02:08.960
Before that, I was at Charles Schwab.
00:02:09.280 --> 00:02:11.840
I was on their annuity desk for about four years.
00:02:11.919 --> 00:02:15.919
I did both the retail side where they have an advisor network at Schwab.
00:02:16.479 --> 00:02:21.039
And I was on the RIA team, much like what I do at DPO.
00:02:21.360 --> 00:02:25.439
So I work with advisor firms, much like what I do now with DPL.
00:02:25.759 --> 00:02:26.080
Awesome.
00:02:26.240 --> 00:02:33.039
So was it a big change coming over and seeing more of the commission-free world, or is this something you think was going to eventually come into the industry?
00:02:33.280 --> 00:02:33.439
Yeah.
00:02:33.520 --> 00:02:39.840
So I had seen a little bit of it, but it's definitely a lot that's new and it's been great.
00:02:40.000 --> 00:02:53.360
So to be able to offer commission-free products to your clients and be able to charge your advisory if you have more assets under your management, having so many products and solutions has been awesome.
00:02:53.680 --> 00:02:54.240
Great, great.
00:02:54.319 --> 00:02:55.360
That's what we like to hear.
00:02:55.599 --> 00:02:57.759
So let's get started talking about Social Security.
00:02:57.919 --> 00:03:03.759
How are your advisors really approaching the Social Security conversation with their clients and how are they planning it?
00:03:03.840 --> 00:03:05.039
Are they early adopters?
00:03:05.199 --> 00:03:07.120
Wait a little while, or what are you seeing out there?
00:03:07.439 --> 00:03:07.680
Yeah.
00:03:07.840 --> 00:03:12.080
So the biggest thing is making sure they're having the conversations with their clients.
00:03:12.719 --> 00:03:27.599
My advisors are making sure to have those conversations, bring up the topic of social security with their clients, and making sure that their clients are maximizing their income options while also protecting against outliving their resources.
00:03:28.240 --> 00:03:38.080
It's important with all the options out there that clients understand what they can choose from to both protect against mortality and longevity risk.
00:03:38.400 --> 00:03:39.199
Oh, definitely.
00:03:39.599 --> 00:03:43.439
When it comes to Social Security, there are several payout options you can select from.
00:03:43.599 --> 00:03:45.360
It's kind of overwhelming for the climate.
00:03:45.599 --> 00:03:54.319
So you want to know timelines to choose from, if they're going to need an additional source of income in addition to social security, which they usually do.
00:03:54.879 --> 00:04:10.960
And part of my advisor conversations are making sure that the clients know all of the options available to them and utilizing income annuities to bridge the gap between what Social Security can get you for a payout as well as what an income annuity can do.
00:04:11.280 --> 00:04:18.560
And to touch on that point of when they're taking it, they're usually suggesting to take Social Security sooner than later.
00:04:18.720 --> 00:04:18.879
Okay.
00:04:19.040 --> 00:04:20.879
So that way you don't lose out on your benefit.
00:04:21.120 --> 00:04:22.959
Yeah, I'm actually a big believer than that.
00:04:23.040 --> 00:04:29.120
I have personal stories where I've done insurance where people want to wait till 70 and always say, We're not guaranteed tomorrow.
00:04:29.279 --> 00:04:33.680
Get it while you can because that's an asset that if something happens to you, it's gone.
00:04:33.920 --> 00:04:36.079
You know, that no one's gonna get that in your family.
00:04:36.240 --> 00:04:36.399
Yeah.
00:04:36.959 --> 00:04:41.680
You bring bring that up because everyone, like you said, is uniquely different in how they plan for their process.
00:04:42.000 --> 00:04:48.240
When I talk to my advisors, a lot of them want to wait till age 70 and they're trying to use a portfolio to get the income.
00:04:48.399 --> 00:04:56.879
What have you shared about using annuity to bridge that gap if they are gonna wait instead of taking it from their portfolio and letting the advisor be responsible to make that income payment?
00:04:57.120 --> 00:05:03.920
So I suggest they take the Social Security like you like and recommend to your advisors as well.
00:05:04.079 --> 00:05:07.839
And then they use that income annuity as a deferred tool.
00:05:08.000 --> 00:05:12.879
So maybe they turn on income on an annuity in a couple of years to start taking income.
00:05:13.040 --> 00:05:17.120
And that's also going to provide them with a guaranteed lifetime payout.
00:05:17.360 --> 00:05:23.199
So the annuity is an exceptional resource to utilize in their clients' retirement income planning.
00:05:23.600 --> 00:05:32.079
That makes sure that they're helping their clients to hedge against mortality risk while also having the longevity protection against their assets.
00:05:32.560 --> 00:05:39.279
The income annuity can help the clients accomplish both, especially right now while payout rates are so high.
00:05:39.519 --> 00:05:44.160
The 10-year US treasury, and I'm sure you're aware interest rates are pretty high right now.
00:05:44.399 --> 00:05:47.120
That comes into favor with the income annuity payout.
00:05:47.279 --> 00:05:52.639
So income payouts are as high as 7%, maybe even higher in some circumstances.
00:05:52.879 --> 00:05:59.360
And you can really maximize what an income annuity can do for you for payout to supplement with Social Security.
00:05:59.680 --> 00:06:00.240
Oh, definitely.
00:06:00.399 --> 00:06:01.199
See that right now?
00:06:01.360 --> 00:06:11.759
It's a prime opportunity to make that move and let advisors know you can take some pressure off of the portfolio and just take a part of that allocated bond fund and get them some guaranteed income for life.
00:06:11.920 --> 00:06:12.160
Yeah.
00:06:12.399 --> 00:06:18.079
One thing seems to come up a lot of times about annuities and maybe not understanding exactly how they work.
00:06:18.240 --> 00:06:22.959
And I've met advisors that say I wouldn't use qualified funds in an annuity.
00:06:23.120 --> 00:06:23.839
Have you heard that?
00:06:23.920 --> 00:06:25.839
And how do you approach that with them?
00:06:26.079 --> 00:06:29.360
So I would use qualified funds in an annuity.
00:06:29.519 --> 00:06:31.120
And I have heard that quite a bit.
00:06:31.279 --> 00:06:36.240
So people seem to be opposed until they understand what the options are.
00:06:36.800 --> 00:06:46.560
With the RMDs and qualified annuities, you're gonna have to take out a required minimum distribution from your IRA at the year that your client turns 73.
00:06:46.800 --> 00:06:48.160
I'm sure you're aware of that.
00:06:48.319 --> 00:06:50.560
So the conversation comes up each year.
00:06:50.720 --> 00:06:52.639
Where do we pull the RMD from?
00:06:53.120 --> 00:06:56.800
Do we pull it from something that's invested in the client portfolio?
00:06:56.959 --> 00:07:05.279
Well, then you have the risk that the portfolio value could be down that year, the stock could be down, much like the year we're having right now so far.
00:07:05.600 --> 00:07:26.720
So to use an annuity for your RMD, it allows you to use a protected source of money to pay out at least what your required minimum distribution is, so that you don't have to have that contemplation and polling from an invested portfolio account that's invested in the market.
00:07:27.120 --> 00:07:36.240
The annuity is going to be a great tool for use of the RMDs because you're taking a guaranteed source of income protected from those market fluctuations.
00:07:36.399 --> 00:07:43.040
So you do not pose the risk of your account balance going down when you have to take out your required minimum amount.
00:07:43.360 --> 00:07:49.680
You can set these income payments up as systematic so that it comes out every year, no matter what.
00:07:49.839 --> 00:07:51.120
You don't have to think about it.
00:07:51.360 --> 00:07:57.680
It can be monthly, quarterly, annual, and they will get a payout for as long as they live.
00:07:57.920 --> 00:08:03.600
That way, each year the RMD is already taken care of and you don't need to pull from invested assets.
00:08:03.839 --> 00:08:10.480
And you also get those favorable rates right now where you're you may get a little extra income too to take you out for your lifetime.
00:08:10.800 --> 00:08:12.319
Yeah, and that's what I've shared with them.
00:08:12.399 --> 00:08:14.560
I was like, you have to take that money anyway.
00:08:14.720 --> 00:08:17.040
It's tougher to pass on to the next generation.
00:08:17.519 --> 00:08:24.480
Why not use those qualified funds to get your client guaranteed income for life and it can offset those RMDs?
00:08:24.720 --> 00:08:25.360
Yeah, exactly.
00:08:25.519 --> 00:08:30.720
So you don't have to pull from the invested assets, you have to take those RMDs anyways.
00:08:30.800 --> 00:08:33.200
A lot of people don't want to take them or they're not ready to.
00:08:33.360 --> 00:08:37.519
So this is just making sure it comes from a protected source of your money.
00:08:37.840 --> 00:08:38.000
Yeah.
00:08:38.080 --> 00:08:40.080
And like I said, like you said exactly.
00:08:40.159 --> 00:08:42.720
What if I had to take those RMDs in the markets in a correction?
00:08:43.200 --> 00:08:45.919
Well, that's not a win for the client in any way.
00:08:46.080 --> 00:08:52.240
Now that you bring that up, I'm starting to think about there's always this question about whether you do level income or rising income.
00:08:52.480 --> 00:08:58.960
And really, some advisors might even know that's a choice on the annuities that we offer here to get a client an increasing income.
00:08:59.200 --> 00:09:08.240
Can you really talk about maybe the difference with them and how maybe using qualified funds for rising income can help offset other RMD money other places?
00:09:08.559 --> 00:09:09.679
Yeah, absolutely.
00:09:10.000 --> 00:09:21.919
So for those RMDs, I mean, you take a calculation of what you put into the annuity, and that's the RMD payment you're gonna get out, possibly more if you're utilizing a maximum income in an annuity.
00:09:22.159 --> 00:09:26.240
But there's two ways to take income payments from an income annuity.
00:09:26.559 --> 00:09:34.960
What most people are familiar with is the traditional level income method, where you receive a fixed guaranteed lifetime income payment.
00:09:35.279 --> 00:09:40.240
It stays fixed level for as long as you live and it never changes.
00:09:40.720 --> 00:09:42.240
So that's level income.
00:09:42.480 --> 00:09:45.200
But you can also take what's called increasing payments.
00:09:45.279 --> 00:09:51.840
And some people are not as familiar as increase with increasing as a method for annuities.
00:09:52.159 --> 00:10:04.080
So these payments, they'll start at a slightly lower rate than level income initially, but they increase each year that you have positive market performance in your annuity portfolio.
00:10:04.639 --> 00:10:08.639
You probably hear of cost of living, have clients asking about that quite a bit.
00:10:08.799 --> 00:10:11.360
So this can offset the cost of living adjustments.
00:10:11.600 --> 00:10:21.759
If each year or most years your income steps up for the increasing payment method, you're getting a little bit more to offset the cola adjustment.
00:10:21.919 --> 00:10:22.080
Yeah.
00:10:22.320 --> 00:10:29.679
Typically, over your lifetime, if you take increasing income, you end up with a higher amount of income than you would just from level.
00:10:29.840 --> 00:10:35.679
So it's also another method to truly maximize what you can get from an income annuity.
00:10:35.919 --> 00:10:38.559
And it's going to be ideal for clients.
00:10:38.720 --> 00:10:41.360
Maybe they don't need so much income right away.
00:10:41.519 --> 00:10:45.120
Like maybe they need to start taking their required minimum distributions.
00:10:45.279 --> 00:10:45.840
That's it.
00:10:46.000 --> 00:10:47.440
They don't need much more income yet.
00:10:47.600 --> 00:10:49.279
Maybe they're still working a little bit.
00:10:49.360 --> 00:10:49.600
Yeah.
00:10:49.759 --> 00:10:51.120
Or they have other sources.
00:10:51.279 --> 00:10:55.600
So it allows it to gradually increase to its maximum over time.
00:10:55.679 --> 00:11:01.840
So that way you're not getting more income than you need up front and it increases over time.
00:11:02.000 --> 00:11:08.480
By the end of your life, you're getting the maximum possible income you could from an income annuity by using that increasing method.
00:11:08.720 --> 00:11:18.240
Yeah, I've actually posed some of my advisors about as you get older, we all know things get more expensive, but one of the fears I hear from clients are health care expenses.
00:11:18.480 --> 00:11:25.440
So it would be great to have more income in those later years because you generally might have more healthcare problems as you get older.
00:11:25.600 --> 00:11:33.120
So it's great to have maybe two, three times more income than I started with 15 or 20 years ago to offset those expenses.
00:11:33.679 --> 00:11:36.960
So yeah, I'm a big rising income or increasing income fan.
00:11:37.120 --> 00:11:37.360
Right.
00:11:37.519 --> 00:11:45.840
And speaking of that, one of the things I've noticed talking to advisors is also they maybe not be as familiar with how an annuity works.
00:11:46.000 --> 00:11:58.000
I think everyone assumes, hey, you know, when you're working with them, they have to give you this big chunk of money that I'm not going to get paid on anymore because my client's going to buy this annuity and we're going to defer it for five years and then they'll start getting the income.
00:11:58.240 --> 00:12:07.120
Can you explain the difference between like maybe the way the income writer works, which is, I think what we use most of, and actually just being getting something that's annuitized?
00:12:07.360 --> 00:12:08.320
Yes, definitely.
00:12:08.559 --> 00:12:09.440
So that's a great point.
00:12:09.600 --> 00:12:13.519
Annuitization is like the oldest definition in the annuity textbook.
00:12:13.679 --> 00:12:15.519
That's what most people are familiar with.
00:12:15.679 --> 00:12:27.840
So annuitization, I'll start with that one, is where you turn your annuity contract value, so your cash value into a guaranteed payment for the rest of your life.
00:12:28.080 --> 00:12:29.039
Now that's great.
00:12:29.200 --> 00:12:36.399
You're getting income for the rest of your life, but you're also taking away some things by doing annuitization.
00:12:36.639 --> 00:12:41.840
When you annuitize, you no longer have that contract value or cash value to draw from.
00:12:42.000 --> 00:12:45.360
So if you need more income one year, you simply can't take it.
00:12:45.519 --> 00:12:50.320
You gave it away and basically you traded it for a guaranteed income payment.
00:12:50.480 --> 00:12:53.840
So you can't take more income than you're receiving.
00:12:54.159 --> 00:12:59.840
You also deteriorate your death benefit quite quickly, most cases for a newtization.
00:13:00.000 --> 00:13:10.399
So because you're getting rid of that cash value, death benefit kind of goes away quickly, and you just have those fixed payments, no more, no less for the rest of your life, no cash value.
00:13:10.639 --> 00:13:12.080
So that's a nuitization.
00:13:12.159 --> 00:13:14.159
That's what most people are familiar with.
00:13:14.480 --> 00:13:17.600
However, there's a lot more options out there today.
00:13:17.679 --> 00:13:20.080
And that leads to your point of the income writer.
00:13:20.639 --> 00:13:25.840
So the income writer allows you flexibility while also maximizing your income.
00:13:26.080 --> 00:13:33.919
The income writer is going to pay you the familiar guaranteed lifetime benefit of income.
00:13:34.080 --> 00:13:36.559
So you're getting lifetime income no matter what.
00:13:36.799 --> 00:13:39.200
But now you also have flexibility.
00:13:39.360 --> 00:13:41.120
You don't have to annuitize.
00:13:41.279 --> 00:13:43.279
You can keep your cash value.
00:13:43.519 --> 00:13:46.320
That means your death benefit is going to last longer.
00:13:46.480 --> 00:13:50.000
And if you have years where you need more income, you can take it.
00:13:50.240 --> 00:13:54.080
If you decide maybe 10 years down the road, you actually need to cash out.
00:13:54.320 --> 00:13:55.440
You could do that too.
00:13:55.600 --> 00:13:57.519
So you may not want to cash it out.
00:13:57.600 --> 00:14:00.399
You probably won't because you want to receive that lifetime income.
00:14:00.559 --> 00:14:04.639
But the fact is that you have options and flexibility and you get to choose.
00:14:04.879 --> 00:14:13.679
Yeah, I think that's the biggest part because when I talk to advisors talking to their clients, they're always worried about giving up that asset, never having access to that asset again.
00:14:14.080 --> 00:14:20.559
And I say, well, right now you can have the best of both worlds, especially on the commission free side where the asset is still there, it's growing.
00:14:20.639 --> 00:14:30.639
It's something that if something happens to, you know, that annuitant, that owner prematurely, hey, that can go on to their family or to, you know, whatever beneficiary they decide.
00:14:30.799 --> 00:14:33.840
So yeah, definitely flexibility, I think, is a big thing there.
00:14:34.080 --> 00:14:34.320
Yeah.
00:14:34.399 --> 00:14:38.720
And it allows you to keep your account balance invested.
00:14:38.879 --> 00:14:43.600
So not only do you still have that cash value and account balance, but you can invest it.
00:14:43.679 --> 00:14:49.440
So you have investment choices, you can invest in the index depending on the type of annuity we're signing up for.
00:14:49.840 --> 00:14:57.840
You can invest so that it still can perform and earn money each year potentially and last longer.
00:14:58.159 --> 00:15:02.080
Yeah, I really don't think people understand that they think annuity, oh, it's annuitization.
00:15:02.399 --> 00:15:03.840
No, it's a brand new world out here.
00:15:03.919 --> 00:15:09.679
There's better ways to do it because I think statistically, only maybe 5% of annuities are actually ever annuitize.
00:15:10.000 --> 00:15:14.559
So way more is done with an income writer, like you said, or just as an investment alternative.
00:15:14.799 --> 00:15:16.000
Yeah, quite the opposite.
00:15:16.080 --> 00:15:19.519
Like you want to do what you can to make sure you don't annuitize your contract.
00:15:19.759 --> 00:15:21.840
So, what other options do we have?
00:15:22.000 --> 00:15:35.200
And annuities have come such a long way, especially being in the fee-based space now, that we have all these options that you can get that high guaranteed income while also maintaining flexibility and investment.
00:15:35.440 --> 00:15:38.320
You can keep that invested and have choices.
00:15:38.559 --> 00:15:41.519
That was not really the case with annuities a while ago.
00:15:41.840 --> 00:15:42.559
Definitely, definitely.
00:15:42.639 --> 00:15:44.799
I think somehow that's how they got a bad name sometimes.
00:15:45.679 --> 00:15:47.919
That's what gave them a bad rap part of it.
00:15:48.159 --> 00:15:49.440
I did something did come up.
00:15:49.519 --> 00:15:55.120
Um I was talking to an advisor before, and we kind of touched on it about using IRA money and annuity.
00:15:55.360 --> 00:16:10.320
One of the concepts I posed to him was did you know you can turn an IRA, which is basically generally, you know, qualified money only owned by one person, into basically a joint pension for somebody for you know a spouse to for the rest of their life without them being the owner.
00:16:10.480 --> 00:16:14.559
Can you kind of explain maybe how that works and maybe why that's a benefit?
00:16:14.879 --> 00:16:15.279
Yeah.
00:16:15.600 --> 00:16:20.720
So you can now take an IRA and invest it in an annuity.
00:16:20.960 --> 00:16:27.360
Typically, with an IRA, you can't make a joint because you can't commingle your funds, IRS rules.
00:16:27.679 --> 00:16:35.039
But now there's new ways where you can make that IRA joint in a way by using an income writer on your annuity.
00:16:35.440 --> 00:16:48.320
So you are able to purchase the annuity with one of the spouse's funds from their IRA, and then you can turn that IRA into joint spousal benefit.
00:16:48.559 --> 00:16:54.799
So one spouse purchases it with their IRA, and then both of them receive lifetime income.
00:16:55.200 --> 00:17:08.079
The way it works is you do that purchase, one of the spouses' IRAs, you elect joint lifetime income on those annuity payments so that their lifetime payments last for both of their lives.
00:17:08.319 --> 00:17:18.000
So it's a joint benefit on an income annuity on an IRA, and you're able to turn that into joint taking it out for both of your spouses' lives.
00:17:18.240 --> 00:17:22.000
It's a way to cover your spouse with those IRA funds.
00:17:22.160 --> 00:17:29.039
And you can also take RMDs that way and use that towards your RMD required amount that you have to take out each year.
00:17:29.279 --> 00:17:30.079
Yeah, definitely.
00:17:30.319 --> 00:17:35.039
That's one of the big things because we know in the marketplace there's less and less pensions.
00:17:35.279 --> 00:17:43.920
And it used to be like, you know, if you worked at the company and you had the pension and you wanted to include a spouse at your death or something, the value can go down as much as 50%.
00:17:44.400 --> 00:17:44.559
Right.
00:17:44.799 --> 00:17:49.839
Whereas I do believe on the annuities, it's at maybe most 10% a difference of starting.
00:17:50.000 --> 00:17:52.720
And from what you said earlier, they can get increasing income.
00:17:53.119 --> 00:18:02.559
So if your spouse is younger than you, you you've really done that longevity hedge and grown that asset over time, that income base for them to be able to see that income for the rest of their life.
00:18:02.799 --> 00:18:03.519
Yeah, exactly.
00:18:03.599 --> 00:18:05.279
And that's a great point about the pension.
00:18:05.440 --> 00:18:07.200
Most people don't get pensions these days.
00:18:07.359 --> 00:18:13.599
So to use that as a pension-like guaranteed lifetime source, you can use it increasing.
00:18:13.680 --> 00:18:26.000
So some of these benefits we've talked about so far, you can use that increasing benefit for you and your spouse to receive increasing cost of living like adjustments for the rest of both of your lives.
00:18:26.160 --> 00:18:27.279
You're both covered.
00:18:27.519 --> 00:18:34.079
You also have that cash value invested and you're getting a guaranteed pension like payment to take you out your lifetime.
00:18:34.240 --> 00:18:39.839
So, yeah, because like with a pension, if something did happen to them both prematurely, their beneficiaries don't get anything.
00:18:40.319 --> 00:18:45.519
If something happens to them prematurely in the annuity and they were young, there could be that asset value that could help with their legacy planning.
00:18:45.599 --> 00:18:46.240
Yeah, exactly.
00:18:46.640 --> 00:18:48.160
More like a win-win-win.
00:18:48.319 --> 00:18:48.720
Yeah.
00:18:48.960 --> 00:18:54.079
Your cash value is still invested and you're receiving joint income benefits.
00:18:54.160 --> 00:18:55.039
It's increasing.
00:18:55.119 --> 00:19:03.200
So you're getting cost of like lifetime adjustments while being invested, also having that flexibility and a death benefit.
00:19:03.359 --> 00:19:03.599
Yeah.
00:19:03.759 --> 00:19:04.640
Can't lose there.
00:19:04.880 --> 00:19:09.519
A really big win for the client and the advisor because that's an asset under management now, as we said earlier.
00:19:10.079 --> 00:19:11.519
Well, actually, I'm gonna wrap it up.
00:19:11.680 --> 00:19:12.880
I really appreciate your time.
00:19:12.960 --> 00:19:14.799
It was awesome to get to chat with you.
00:19:15.039 --> 00:19:18.400
Before we go, do you have any thoughts or closing comments you'd like to make?
00:19:18.559 --> 00:19:21.039
Yeah, and thank you very much for having me today, Willie.
00:19:21.119 --> 00:19:22.720
It's been an absolute pleasure.
00:19:22.960 --> 00:19:34.960
I would say reach out to your contact DPL to make sure you're having the Social Security discussions with your clients and finding ways to hedge against both mortality and longevity risk in your client's portfolio.
00:19:35.119 --> 00:19:39.200
Also, I'll be able to take those RMDs and getting pension-like payments.
00:19:39.279 --> 00:19:43.759
So reach out to us and let us know how we can help with specific client discussion.
00:19:44.000 --> 00:19:45.279
And we'd love to help.
00:19:45.440 --> 00:19:49.119
Okay, thank everyone for listening to this podcast and hanging out with me and Ashley today.
00:19:49.200 --> 00:19:56.799
And once again, if you want to connect, please visit dplfp.com and subscribe for more episodes where you listen to your podcast.
00:19:57.039 --> 00:19:58.720
We look forward to helping all of you guys.
00:19:58.880 --> 00:20:12.160
Have a great day.com and subscribe on your favorite podcast streaming app.
