Coach Pete D’Arruda and Mike Milligan discuss qualified longevity annuity contracts, retirement-account withdrawal requirements, and the differences among annuity products. They consider why evaluating a financial product requires more than a blanket endorsement or rejection, and why income, access to money, growth, and personal goals need to work together. Part four of their Financial Safari conversation.

Call 800-661-7383 or text PLAN to 600-700.

Transcript

Automatically transcribed from this episode; timestamps are approximate.

00:00 Welcome back into the Financial Safari. Loving the conversation today. I'm Thomas Lipscomb in studio with bestselling author Coach Pete D’Arruda, also joining us today, host of the One of a Kind Financial Show. He's an author. Mike Milligan, catch up on the show by heading over to FinancialSafari.com. Hey, Mike, do you do any QLACs? Yeah, I've been doing QLACs for like the last 11 years. Oh, okay, yeah. A lot of people don't understand them, so we don't talk about them too many times on the show. QLAC stands for Qualified Longevity Annuity Contract. Yep. You know, you've lived in a world for so long where you've deferred, deferred, deferred, and then all of a sudden you hit an age, and the IRS and the government says it's time to take a required minimum deposit. And you notice I say deposit there, right? Yep. Not distribution. Correct.

00:45 Because it's a required minimum deposit back to their company, right, to the IRS first, right, in taxes, and then you get what's left over. The required minimum deposit that goes to the IRS in the form of taxes is because they're your business owner. So what a QLAC allows you to do is take a little bit of your IRAs, a little bit of your 401k money, and defer it out a little bit longer so those RMDs don't begin, you know, to as late as 85. Yeah. And most find it. You know, the interesting thing about QLACs, Pete, is most firms don't even know they exist. They, they, and then, and then when they hear the word that it's QLAC and they hear annuity, they're like, oh, that's bad. It's got to be bad. It's not bad, folks.

01:31 Right? It's, it's longevity insurance. Right? It's a promise. Yeah. But Pete, did you find the name of the book? Yeah, Quiet Place. Quiet Place. And it's, it's a book about the QLAC, but it's also about how to, how to make sure you have the lifetime income. Now, here, here's one of the misconceptions about QLACs. It's a funny name. It sounds like Aflac a little bit. Yes, it does. That's what I thought. A duck. But a lot of people thought, Mike, and this is a misconception, and I think it's been fertilized by some people who, who don't want you to put money in a QLAC, fertilized, in other words, growing the rumor, the bad rumor, is that you could not touch the money once you put it in until age 85. But the, that's the exact opposite. You have to start taking the money by age 85. You could put it in today at age 65 and take it, start taking it out at age 66.

02:18 Correct? Yeah. It is. Yeah. You know, the technical, I mean, what a QLAC really technically is, is a deferred income annuity. That's really all it is. Zadia. Right? It just has contract language from the IRS code that allows you to avoid RMD on that for a long period of time. It's a good way to pay less RMDs if you're not needing the money. Then put it in a long-term contract where the government can't touch it. Makes sense. And guess what you could do if you, and guess what you could do if you don't need the RMDs? You could use it for something like maybe a Roth conversion. A lot of people do that. Or, you know, you could lower, yeah, I mean, you could lower your tax bracket. The other thing that most people don't realize, too, about, like, later in life is your medical expenses are going to be a whole lot higher. They're just going to be higher when you're that age. And that's going to be for most people, not for everybody, but they're going to be higher.

03:04 The good news is if your medical expenses are over 7.5% of your total income, guess what? You get to itemize that. Right? So there's a potential for even that QLAC income when it starts at 85 to be tax-free if you're using it for medical. QLAC, to me, is also, like, it's just another way to, like, protect long-term care without necessarily having to pay the premiums of long-term care insurance. It's a great strategy to use. You can self-protect yourself or self-fund yourself if you put enough money away. Self-fund. That's exactly right. That's a good way. And you're not paying tax every year on it while you're deferring, which is a very big part. That's right. Compared to anywhere else people have money, you're going to get taxed every year on that. So this way you're not. Exactly. I want to jump in and ask, what happens to a spouse or beneficiary when the person who owns the QLAC passes?

03:54 It goes to the beneficiary. It's still an IRA, right? So it hasn't mysteriously gone to some new world of taxation, right? Okay. The government still wants their required minimum deposit on it. They still want their taxes. They want their share, right? But it goes to the beneficiary. The most important form in that QLAC when you sign up is something called the beneficiary designation form. So basically you assign ahead of time what's going to happen if you're not here anymore. Okay. And that's where people say, what happens if I die early? Does all that money disappear? No. It goes on to whoever. Money never disappears. It goes on to whoever you assign. Okay. Now, if you don't assign anybody, it will go to your will or your estate. And that creates a couple situations you don't need to create if you make sure you have those beneficiary designations. And if you have financial products now, which most people listening do, do you have your bank account set up POD?

04:45 That means payable on death. Do you have your brokerage account set up TOD, transfer on death? These bypass probate if you set them up right. And your beneficiary designations, I've seen people in the past, Thomas and Mike, where they met with me. And when we had this beneficiary form designation conversation, we'd bring out some of their old forms and they were ex-spouses still on there. That creates a nightmare if you didn't correct that, right? So we luckily were able to correct that. So if you'd like a true beneficiary review, give us a call right now. We'll do it at no cost or obligation. We've seen others charge a lot of money for this, Thomas, because this could cost you a whole lot of money if you don't do it right. Let's make sure to get it done at no cost and make sure it doesn't cost you in the future. The lines are open. Take advantage of this opportunity. 800-661-7383. 800-661-7383.

05:32 Or text keyword plan to 600-700. That's keyword plan to 600-700. All right, Mike, annuity. We've been talking about annuities a little bit because I think they're good to talk about. There's nothing to be ashamed of of annuity. There are some bad ones. There are some good ones. But when someone says, I don't want to look at any annuities because of the fees, what would you tell them? Well, good. Let's dissect them. Right? Some don't have them. That's right, because some don't have them. Like, it's so good. If you think annuities are good minus the fees, guess what? We can find one like that. It's just like anything in life, Pete, right? If you, you know, take a pie, for instance, right? There's some pies that I hate. There's some pies in it. But like, would you, if like, I don't want, like, I don't want a cherry pie.

06:21 And you may say I love cherry pies, but I don't want a cherry pie. I like the song. But if I don't like cherry pies, are all pies bad? No. Are all pies bad because cherry pies bad? No, not at all, right? I mean, there's different types. There's fruit pies. There's sweet potato pies. There's savory pies. Guys, annuities, if you're fee adverse, there's annuity solutions for you. Annuities also come with a lot of benefits. A lot of people don't know, right? There's tax deferral if you're in a tax bracket. You don't get like a double tax deferral if you're in an IRA and the annuity. There's also every annuity comes with guaranteed lifetime income in the contracts, right? Already, every annuity, I don't care which one you have, it's in there. And then it comes with, and then, you know, state regulators say, you know, always supposed to talk about this,

07:10 but there is state insurance guarantee funds on annuities. Every state's have them, right? For up to a certain amount. The people that say annuities are bad, grouping them all together, are people with an agenda, right? If somebody tells you, though, that the only thing they do is an annuities, guess what? They also have an agenda. You need to work with a firm, work with a group that has a total picture, right? Everything from CDs to Bitcoin, boy, those things have attributes for investments. They don't mean they have attributes for you, right? But we have to come up with a plan that includes everything. We have to analyze everything. That's good. And then get you that life that you really want to live. And again, you can begin that process by calling 800-661-7383, 800-661-7383.

08:00 You can also connect by texting that keyword plan to 600-700. That is keyword plan to 600-700. You know, it's funny. The people that have asked me about fees and annuities over the years seem to be the people that have been getting feed to death with financial termites on the risk side. So they assume that the safe side is going to be as bad as the risk side. And there are some bad safe options too, Thomas. And that's why you need to deal with a fiduciary who sits down and analyzes. I would never put anyone in something I wouldn't put myself in. Exactly. Like the Mikey, the financial world. It's true. Hey, what would you tell somebody when you're having an annuity conversation with them about this lifetime income, Mike? And they say, I can do better in the market. Well, I mean, you know, the market has performed well historically over time. And so I'd agree with you, right, that there's the potential that you could do better in the market. Well, probability.

08:46 There's also the potential that the market can do what it did in 2007, 2008. There's the potential that the market could do what it did after Y2K. There's the potential that 1987 rears this ugly head again. And do you want to really put your plan based off potential now? On the other hand, our plan, we can set some money over for guaranteed income that you need and that you want for life. And we can still take that potential to help you keep pace with inflation, to give you growth that you want, to leave that legacy, that big legacy you want for your family. So why don't we take some potential for downside off the table? You know, people are mostly optimistic. They only think about the good that can happen.

09:31 They don't think about the bad. And so that's the one thing that we're here to remind people that potential also has the potential for loss. It has the potential to go against you. And that's how I talk to people about it. You're cleaning out your grandparents' house. You find this little vase. You start rubbing it because you're trying to clean it a little bit, and a genie pops out. You say, I got you one wish, but in this one wish, I can give you four things. I can give you an ability to share in the gains of the market. I can let you share. After you share in the gains, lock those gains in so you never lose them. You'll never lose due to the market. And whenever you decide you can get a lifetime income, you can never outlive. That'd be a pretty good genie, wouldn't it? What would you say to that genie? Would you give that genie some money to put that in action for you?

10:20 Absolutely, I would, because at the end of the day, that genie is giving you upside potential, right? But he's also giving you what you need for your life. And, you know, sometimes when we think about that whole genie analogy, you want something that's beyond our reach. If you're in the market, there is for certain a market downturn coming in the future. There is for certain. And if you want to reduce your income, take less income, if you're using a market-based approach on your income, you also have to be disciplined enough that when that 20% or 30% downturn comes, to reduce your income by 20%, 30%. Most people don't want less income in retirement. No, they want more and more.

11:05 Here's three questions I want you to ask yourself, folks, out there. And number one, when your paycheck from work stops, what's the plan for the paycheck that's supposed to take its place? Big one. Okay? That's good. Number two, do you have even $1 in your plan that is guaranteed to show up every month as long as you live? Think about it. Be honest with yourself. Husband and wife now, looking at each other. Somebody's getting mad at somebody right now. And number three, if you live longer than you expect, and most people do, what happens to your income in the later years? Three powerful questions that you need to ask yourself, and you need to ask your broker if they have you in a brokerage-type plan with no income, no true retirement plan. Mike, I mean, how important is that? It's imperative, right? Nobody wants to outlive their money.

11:51 Nobody wants to end the rest of their life having to be a dependent. See, we're dependents when we're infants in life. You know, really, a child is homeless just by the good grace of their mom or dad who allows them to save their house. You don't want to end your life in the guest bedroom of your kids. You don't want to end your life, you know, sharing a room with a stranger in a nursing home facility. That's why having guaranteed income is so important. All right. Wow. Thomas, do you have a trivia question for the week? I absolutely do. Here. Just a minute. All right. So we're going to be texting true or false to the number 600-700.

12:38 So tell me, what do you think? Is this true or false? An income rider can be designed to provide income for as long as you live. An income rider can be designed to provide income for as long as you live. True or false to the number 600-700. Again, that's the keyword true or keyword false to 600-700. Hey, Mike, remember having a substitute teacher and they give you an easy quiz? I do. I do. So here's what you're going to win. Again, the first 15 people to answer correctly are going to get my brand new book called Red, Yellow, Green Light. A hundred more real life money decisions. Good call? Cost of a mistake? Or does it depend? It's basically a game show in book form. A hundred different scenarios. And you decide red, green, or yellow light. And then turn the page and see if you're right or not. You can play this at home. It's a great game to learn financial.

13:24 Again, red, yellow, green light. Very important book. We will send it to you. We've already bought them. Going to send it to you at our expense. Call right now. All right, that number is 800-661-7383. 800-661-7383. Or text keyword plan to 600-700. That's plan to 600-700. Well, for Jose, Thomas, Jackie sitting there watching us this week. She didn't really get to talk much. And we have Mike Milligan joined us here from Puerto Rico. Mike, thanks for your time today. Absolutely. It was good seeing you, Pete. Yeah, and folks, we'll see you next week. And you too, Thomas. Thomas too. Absolutely. Folks, we'll see you next week right here on the Financial Safari.