1 00:00:29,290 --> 00:00:34,129 Suze: May 25, 2025. Welcome everybody to the Women and Money 2 00:00:34,130 --> 00:00:38,490 Suze: podcast as well as everybody smart enough to listen. Suze 3 00:00:38,490 --> 00:00:41,689 Suze: O here. So are you having a good weekend? 4 00:00:42,340 --> 00:00:47,610 Suze: You have tomorrow off. Many of you are celebrating, but 5 00:00:47,610 --> 00:00:50,470 Suze: it always kind of gets to me. I have to 6 00:00:50,470 --> 00:00:55,950 Suze: say this, everybody, especially on this one holiday, Memorial Day. 7 00:00:56,869 --> 00:01:03,430 Suze: Do we really, really remember this sacrifice that the men 8 00:01:03,430 --> 00:01:08,559 Suze: and the women of the armed forces were literally many 9 00:01:08,559 --> 00:01:11,669 Suze: of them have given up their lives for our freedom. 10 00:01:12,470 --> 00:01:15,489 Suze: And I look at the veterans, and one of the 11 00:01:15,489 --> 00:01:18,610 Suze: things that I love doing is I love going to 12 00:01:18,610 --> 00:01:22,599 Suze: the cemeteries where many of them are buried and all 13 00:01:22,599 --> 00:01:26,089 Suze: the flags that you see put up today and you're 14 00:01:26,089 --> 00:01:27,449 Suze: really reminded, 15 00:01:28,190 --> 00:01:34,169 Suze: that that flag is blowing in that breeze and representing freedom, 16 00:01:34,559 --> 00:01:37,449 Suze: but then it's on their grave. 17 00:01:38,199 --> 00:01:42,900 Suze: So I really, really hope that on this day where 18 00:01:42,900 --> 00:01:47,559 Suze: we are honoring them we are honoring their legacy that 19 00:01:47,559 --> 00:01:53,750 Suze: it really reminds us that freedom isn't free it's earned 20 00:01:53,800 --> 00:01:59,839 Suze: through the bravery, commitment, and selfishness of others if you 21 00:01:59,839 --> 00:02:01,989 Suze: think about it as well as ourselves. 22 00:02:02,620 --> 00:02:04,970 Suze: So I have a favor to ask all of you. 23 00:02:05,180 --> 00:02:07,379 Suze: I want you all to get out your little Suze 24 00:02:07,379 --> 00:02:10,460 Suze: notebooks again, hopefully they're not that little right now. 25 00:02:11,300 --> 00:02:13,369 Suze: And in honor of today, 26 00:02:14,449 --> 00:02:19,309 Suze: I want us to take 3 meaningful steps this holiday. 27 00:02:19,919 --> 00:02:24,110 Suze: Besides just gaining weight and eating and doing this and celebrating. 28 00:02:24,440 --> 00:02:29,130 Suze: I want this holiday to be meaningful for you this 29 00:02:29,130 --> 00:02:36,710 Suze: weekend to fortify your steps towards financial freedom really, number one, 30 00:02:37,210 --> 00:02:39,520 Suze: I want to reflect on your why. 31 00:02:41,008 --> 00:02:42,070 Suze: Write that down. 32 00:02:42,740 --> 00:02:45,210 Suze: I want you to reflect on your why. 33 00:02:46,550 --> 00:02:50,070 Suze: To do so, I want you to write down the 34 00:02:50,070 --> 00:02:53,699 Suze: personal freedoms that you value most. 35 00:02:54,860 --> 00:02:56,889 Suze: Whether it's providing for your children. 36 00:02:57,788 --> 00:02:59,779 Suze: Maybe it's supporting a cause. 37 00:03:00,740 --> 00:03:04,779 Suze: Or sometimes for me it's simply sleeping soundly at night, 38 00:03:05,059 --> 00:03:06,100 Suze: especially for KT. 39 00:03:07,119 --> 00:03:09,258 Suze: I want you to write them down. 40 00:03:10,440 --> 00:03:13,799 Suze: And then I want you to answer the question why. 41 00:03:14,740 --> 00:03:18,979 Suze: Why do these freedoms give you the fuel that you 42 00:03:18,979 --> 00:03:24,500 Suze: need to stay committed to them? Why? What does it 43 00:03:24,500 --> 00:03:25,380 Suze: give you? 44 00:03:26,869 --> 00:03:28,779 Suze: Then number 2. 45 00:03:29,508 --> 00:03:31,989 Suze: I want you to take just one action. 46 00:03:32,949 --> 00:03:34,470 Suze: That empowers you. 47 00:03:35,330 --> 00:03:40,889 Suze: Pick one concise action or task. Perhaps it's automating a 48 00:03:40,889 --> 00:03:46,410 Suze: monthly contribution to your retirement account or reviewing your beneficiary 49 00:03:46,410 --> 00:03:50,649 Suze: designations or setting up that health insurance checkup or doing 50 00:03:50,649 --> 00:03:55,410 Suze: the must-have documents. I want you to commit to the day, 51 00:03:56,259 --> 00:03:57,070 Suze: to do it. 52 00:03:57,800 --> 00:04:01,300 Suze: As a tribute to those who gave us the chance 53 00:04:01,300 --> 00:04:05,820 Suze: to secure our futures, they gave up their lives for 54 00:04:05,820 --> 00:04:09,009 Suze: us to be secure and have a future. 55 00:04:09,770 --> 00:04:13,309 Suze: So I want you to take one action, commit to 56 00:04:13,309 --> 00:04:15,839 Suze: when that action is going to be completed. 57 00:04:16,660 --> 00:04:18,369 Suze: And I want you to take it. 58 00:04:19,229 --> 00:04:23,368 Suze: And that is a way that we can honor those 59 00:04:23,368 --> 00:04:24,769 Suze: who lost their lives. 60 00:04:25,459 --> 00:04:28,329 Suze: And then last but not least, so these are very 61 00:04:28,329 --> 00:04:33,928 Suze: simple things, and you may say, Oh, Suze, really? Yeah, really, everybody. 62 00:04:34,988 --> 00:04:40,510 Suze: We need to stop and take time and evaluate why 63 00:04:40,510 --> 00:04:44,200 Suze: we do things. What do we do? How do we 64 00:04:44,200 --> 00:04:45,320 Suze: honor those. 65 00:04:46,119 --> 00:04:50,709 Suze: Especially those who remained and lost those that they loved. 66 00:04:51,750 --> 00:04:55,409 Suze: Cause that's part of true freedom. 67 00:04:56,380 --> 00:04:58,609 Suze: So last but not least, #3. 68 00:04:59,700 --> 00:05:01,308 Suze: I want you to honor 69 00:05:02,570 --> 00:05:05,239 Suze: this time right now through generosity. 70 00:05:06,250 --> 00:05:09,570 Suze: Because if you think about it, everybody, Memorial Day is 71 00:05:09,570 --> 00:05:11,079 Suze: a time to give back. 72 00:05:12,010 --> 00:05:15,979 Suze: So maybe you want to consider donating to a veterans organization. 73 00:05:16,600 --> 00:05:21,630 Suze: Or volunteering your time to help others with things that 74 00:05:21,630 --> 00:05:27,549 Suze: they may need, but every act of generosity echoes the 75 00:05:27,549 --> 00:05:32,428 Suze: spirit of service, which is really what we're commemorating tomorrow, 76 00:05:32,510 --> 00:05:33,269 Suze: is it not? 77 00:05:34,040 --> 00:05:38,070 Suze: We are honoring the spirit of service. 78 00:05:38,980 --> 00:05:42,160 Suze: So that's what I want you to do today. 79 00:05:42,940 --> 00:05:43,709 Suze: Tomorrow 80 00:05:44,579 --> 00:05:49,399 Suze: I want you to honor who you are, what you want, 81 00:05:49,769 --> 00:05:53,839 Suze: and those that gave up their lives for your freedom. 82 00:05:54,950 --> 00:05:56,899 Suze: Now let's go to Suze School. 83 00:05:57,869 --> 00:06:01,670 Suze: All right, I get it, everybody, so I make this 84 00:06:01,670 --> 00:06:03,109 Suze: simple little mention. 85 00:06:03,950 --> 00:06:09,750 Suze: About how for 40 years now I've been contributing money 86 00:06:09,750 --> 00:06:15,428 Suze: every single month to an annuity at American Express, and 87 00:06:15,428 --> 00:06:19,149 Suze: now it's worth almost $1 million. OK. 88 00:06:19,760 --> 00:06:23,980 Suze: And from that you take away, does Suze like annuities? 89 00:06:24,260 --> 00:06:28,220 Suze: I thought Suze hated annuities. I thought this. I thought that. 90 00:06:28,440 --> 00:06:30,339 Suze: Now I want you to listen to me. 91 00:06:31,230 --> 00:06:35,540 Suze: Today would I be putting that money in that annuity 92 00:06:35,540 --> 00:06:39,179 Suze: every single month, month in and month out if I 93 00:06:39,178 --> 00:06:44,170 Suze: hadn't started it that many years ago? No, I would not. 94 00:06:44,790 --> 00:06:48,339 Suze: And the only reason that I'm continuing it is because 95 00:06:48,339 --> 00:06:52,579 Suze: it's got a guaranteed minimum interest rate of 5%, and 96 00:06:52,579 --> 00:06:55,058 Suze: I could take it out any time I want. So 97 00:06:55,059 --> 00:06:58,299 Suze: why not just do it and it's just part of 98 00:06:58,299 --> 00:07:03,089 Suze: a discipline of savings. But would I be starting that 99 00:07:03,089 --> 00:07:06,820 Suze: today and doing it, I would not. 100 00:07:07,510 --> 00:07:13,208 Suze: So you need to understand what annuities I like, what 101 00:07:13,209 --> 00:07:15,149 Suze: annuities I don't like. 102 00:07:15,450 --> 00:07:18,920 Suze: And every single one of you is different in a 103 00:07:18,920 --> 00:07:22,829 Suze: different situation. So sometimes I might say I don't like 104 00:07:22,829 --> 00:07:27,309 Suze: this annuity, but guess what, for you it's the perfect thing. 105 00:07:27,600 --> 00:07:31,760 Suze: So you all have got to stop generalizing on Suze 106 00:07:31,760 --> 00:07:35,149 Suze: just hates annuities. Yeah, you can generalize on I hate 107 00:07:35,149 --> 00:07:38,559 Suze: variable annuities because I don't understand them at all, and 108 00:07:38,559 --> 00:07:42,119 Suze: to me, in most cases they make absolutely no sense. 109 00:07:42,670 --> 00:07:46,980 Suze: But there are annuities that do make sense for you 110 00:07:46,980 --> 00:07:51,458 Suze: in individual situations. One thing I can say to you 111 00:07:51,459 --> 00:07:57,540 Suze: is it never ever makes sense to have an annuity, 112 00:07:57,760 --> 00:08:04,140 Suze: especially a variable annuity, within a retirement account. Now, years 113 00:08:04,140 --> 00:08:07,179 Suze: ago when Pacific Gas and Electric, and as you know, 114 00:08:07,220 --> 00:08:10,500 Suze: I did the retirement planning for them, they were having 115 00:08:10,500 --> 00:08:11,940 Suze: early retirement. 116 00:08:12,829 --> 00:08:18,510 Suze: There was an annuity by Lincoln Benefit Life that I 117 00:08:18,510 --> 00:08:23,309 Suze: put all of these people's money in within their retirement 118 00:08:23,309 --> 00:08:27,390 Suze: account because they were under the age of 55 and 119 00:08:27,390 --> 00:08:30,929 Suze: we needed to do something called separate and equal periodic 120 00:08:30,929 --> 00:08:34,830 Suze: payments which allowed them to take money out of this 121 00:08:34,830 --> 00:08:37,510 Suze: account without the 10% penalty. 122 00:08:38,530 --> 00:08:43,569 Suze: However, Lincoln Benefit Life also gave us the guarantee of 123 00:08:43,570 --> 00:08:47,450 Suze: an incredible interest rate at the time, and if there 124 00:08:47,450 --> 00:08:52,049 Suze: were any mistakes or any single person got a 10% 125 00:08:52,049 --> 00:08:56,369 Suze: charge by the government, they would cover it. But that's 126 00:08:56,369 --> 00:09:00,369 Suze: the only time I would have done that. There are 127 00:09:00,369 --> 00:09:03,159 Suze: exceptions to every rule. 128 00:09:03,789 --> 00:09:06,950 Suze: Shake that dust out of your heads and just be 129 00:09:06,950 --> 00:09:11,580 Suze: open and smart enough to know when does something apply 130 00:09:11,580 --> 00:09:14,659 Suze: and when does it not. So I was going to 131 00:09:14,659 --> 00:09:19,080 Suze: sit down today and give you a Suze School on 132 00:09:19,080 --> 00:09:22,468 Suze: annuities until I realized I've already done that. 133 00:09:23,570 --> 00:09:28,358 Suze: The 458th podcast of the Women and Money podcast on 134 00:09:28,359 --> 00:09:31,119 Suze: April 9, 2023. 135 00:09:31,830 --> 00:09:36,090 Suze: I gave you an extraordinary Suze school, so we are 136 00:09:36,090 --> 00:09:38,500 Suze: going to cut that in, the parts I want you 137 00:09:38,500 --> 00:09:42,390 Suze: to know into this podcast. Now I'm also just going 138 00:09:42,390 --> 00:09:46,059 Suze: to say, hey, if you want even more information on 139 00:09:46,059 --> 00:09:52,500 Suze: why I hate variable annuities so much, then the 576th podcast... 140 00:09:52,960 --> 00:09:57,840 Suze: Which was on May 26, 2024. You can go to 141 00:09:57,840 --> 00:10:01,590 Suze: that one and listen to that and mark these two 142 00:10:01,590 --> 00:10:05,439 Suze: podcasts down so when you get confused you can just 143 00:10:05,440 --> 00:10:09,069 Suze: go back and listen to it and listen to it again. 144 00:10:09,640 --> 00:10:11,080 Suze: So are you ready now? 145 00:10:11,929 --> 00:10:18,919 Suze: Here we go on your master class again on understanding annuities. 146 00:10:26,229 --> 00:10:30,390 Suze: All of you need to understand that I do not 147 00:10:30,390 --> 00:10:32,619 Suze: hate all annuities. 148 00:10:33,690 --> 00:10:36,760 Suze: Can you write that down in your little Suze notebook? 149 00:10:37,010 --> 00:10:42,690 Suze: Suze Orman does not hate all annuities. In fact, there 150 00:10:42,690 --> 00:10:43,609 Suze: was a time 151 00:10:44,309 --> 00:10:49,289 Suze: in the United States for years actually that I was 152 00:10:49,289 --> 00:10:54,520 Suze: the number one adviser and salesperson, so to speak. 153 00:10:55,330 --> 00:11:02,390 Suze: In getting people to buy single premium deferred annuities, I 154 00:11:02,390 --> 00:11:06,640 Suze: was putting my clients to the tune of about $20 155 00:11:06,640 --> 00:11:08,150 Suze: million a year. 156 00:11:09,390 --> 00:11:15,780 Suze: Obviously with a lot of people into annuities, so there 157 00:11:15,780 --> 00:11:21,030 Suze: are some annuities at specific times in the economy that 158 00:11:21,030 --> 00:11:23,739 Suze: I absolutely love. 159 00:11:24,390 --> 00:11:29,890 Suze: And then there are some annuities that I absolutely do 160 00:11:29,890 --> 00:11:34,978 Suze: not love, so you need to get that straight. 161 00:11:35,599 --> 00:11:41,750 Suze: There are different varieties of annuities. There are single premium 162 00:11:41,750 --> 00:11:48,229 Suze: deferred annuities which I tend to absolutely love in many circumstances. 163 00:11:48,349 --> 00:11:53,479 Suze: There are variable annuities which I tend to not love 164 00:11:53,479 --> 00:11:59,549 Suze: in most circumstances. There are indexed annuities which I can 165 00:11:59,549 --> 00:12:01,909 Suze: be hot and cold on. I think there are better 166 00:12:01,909 --> 00:12:03,429 Suze: ways to invest your money. 167 00:12:04,010 --> 00:12:09,679 Suze: There are income annuities which if you are looking for 168 00:12:09,679 --> 00:12:14,440 Suze: guaranteed income specifically while interest rates are high right now 169 00:12:14,440 --> 00:12:18,280 Suze: and I talk about this in the Ultimate Retirement Guide 170 00:12:18,280 --> 00:12:21,919 Suze: for 50+, I do not have a problem with them. 171 00:12:22,849 --> 00:12:28,710 Suze: And then there are tax sheltered annuities which are annuities 172 00:12:28,710 --> 00:12:34,070 Suze: that many people, especially teachers, that's where their retirement accounts 173 00:12:34,070 --> 00:12:37,190 Suze: tend to go. I don't really have a problem with 174 00:12:37,190 --> 00:12:38,179 Suze: those either. 175 00:12:39,090 --> 00:12:43,780 Suze: So we will be breaking down now every single one 176 00:12:43,780 --> 00:12:48,250 Suze: of those annuities and how they differ and the pros 177 00:12:48,250 --> 00:12:52,849 Suze: and cons of each one. Let's first start with what 178 00:12:52,849 --> 00:12:54,500 Suze: is an annuity. 179 00:12:55,299 --> 00:13:00,409 Suze: And an annuity is a contract with an insurance company. 180 00:13:01,669 --> 00:13:07,500 Suze: Where you are usually the insured known as the annuitant, 181 00:13:08,030 --> 00:13:11,020 Suze: you also usually are the owner. 182 00:13:12,000 --> 00:13:17,140 Suze: And the beneficiary is whoever you want the annuity to 183 00:13:17,140 --> 00:13:19,650 Suze: go to upon your death. 184 00:13:20,719 --> 00:13:26,200 Suze: Because it is a contract with an insurance company that 185 00:13:26,200 --> 00:13:29,679 Suze: has an insured again known as an annuitant. 186 00:13:30,289 --> 00:13:35,359 Suze: The interest or the growth that your money earns is 187 00:13:35,359 --> 00:13:39,840 Suze: tax deferred, which means you do not pay taxes on 188 00:13:39,840 --> 00:13:44,679 Suze: it until you withdraw it. And when they are purchased 189 00:13:44,679 --> 00:13:52,469 Suze: outside of a retirement account, they are known as non-qualified annuities. 190 00:13:52,710 --> 00:13:54,000 Suze: Write it down. 191 00:13:54,770 --> 00:14:01,770 Suze: If you purchase an annuity within a retirement account, it's 192 00:14:01,770 --> 00:14:04,960 Suze: known as a qualified annuity. 193 00:14:05,869 --> 00:14:10,580 Suze: Especially if the retirement account is a traditional retirement account, 194 00:14:10,710 --> 00:14:17,320 Suze: meaning it's a non-Roth retirement account or a pre-taxed retirement account, 195 00:14:17,909 --> 00:14:22,349 Suze: so a qualified annuity is you have never paid taxes 196 00:14:22,349 --> 00:14:24,869 Suze: on the money that is in that annuity. 197 00:14:25,580 --> 00:14:31,320 Suze: A non-qualified annuity is an annuity that you have funded 198 00:14:31,320 --> 00:14:36,530 Suze: with money that you have already paid taxes on. Let's 199 00:14:36,530 --> 00:14:44,210 Suze: talk about non-qualified annuities that are outside of retirement accounts. 200 00:14:45,289 --> 00:14:53,210 Suze: All non-qualified annuities usually have the exact same laws governing them. 201 00:14:53,900 --> 00:14:59,359 Suze: And the laws are not only by the United States government, 202 00:14:59,609 --> 00:15:04,359 Suze: but they're also by the insurance company itself. 203 00:15:05,169 --> 00:15:10,429 Suze: Now whether you know it or not, most annuities pay 204 00:15:10,429 --> 00:15:16,130 Suze: a very hefty commission to the financial adviser who is 205 00:15:16,130 --> 00:15:20,289 Suze: selling you that annuity. There are many annuities that are 206 00:15:20,289 --> 00:15:24,690 Suze: issued possibly by Vanguard or other companies that do not 207 00:15:24,690 --> 00:15:26,130 Suze: have commissions on it. 208 00:15:27,590 --> 00:15:31,429 Suze: But most do. How would you know 209 00:15:32,320 --> 00:15:36,710 Suze: if an annuity has a surrender charge. 210 00:15:37,590 --> 00:15:42,419 Suze: And a surrender charge means that you deposit, let's just 211 00:15:42,419 --> 00:15:45,809 Suze: say $10,000 into an annuity. 212 00:15:46,520 --> 00:15:51,650 Suze: And the annuity contract states that you have got to 213 00:15:51,650 --> 00:15:56,070 Suze: keep your money in there for at least 7 to 214 00:15:56,070 --> 00:15:57,739 Suze: 10 years. 215 00:15:58,489 --> 00:16:02,979 Suze: And if you take it out before that period of time, 216 00:16:03,549 --> 00:16:08,109 Suze: there will be what's called a surrender charge that you 217 00:16:08,109 --> 00:16:11,950 Suze: will have to pay, and the surrender charge can start 218 00:16:11,950 --> 00:16:13,719 Suze: at 10%. 219 00:16:14,489 --> 00:16:19,929 Suze: Going all the way down to 0% over those 7 220 00:16:19,929 --> 00:16:25,119 Suze: or 10 years. Now why is there a surrender charge? 221 00:16:25,650 --> 00:16:30,890 Suze: There is a surrender charge because that usually equates to 222 00:16:30,890 --> 00:16:33,169 Suze: the amount of commission. 223 00:16:33,989 --> 00:16:38,679 Suze: That the salesperson or the financial adviser was paid to 224 00:16:38,679 --> 00:16:43,739 Suze: sell you that annuity if you come out of that 225 00:16:43,739 --> 00:16:49,359 Suze: annuity before the company that issued the annuity can get 226 00:16:49,359 --> 00:16:53,119 Suze: back the commission they paid to the financial adviser by 227 00:16:53,119 --> 00:16:55,760 Suze: the fees that are within the annuity. 228 00:16:56,659 --> 00:17:00,580 Suze: They want to make sure that you are responsible for 229 00:17:00,580 --> 00:17:04,448 Suze: that deficit, so there are some annuities that let's say 230 00:17:04,449 --> 00:17:07,569 Suze: have a seven year surrender charge. 231 00:17:08,109 --> 00:17:12,448 Suze: And maybe if you come out before the surrender charge 232 00:17:12,448 --> 00:17:15,989 Suze: is up in those seven years, you could pay 7% 233 00:17:15,989 --> 00:17:18,369 Suze: of what you take out the first year, the second year, 234 00:17:18,448 --> 00:17:21,208 Suze: the 3rd year, and then maybe it starts to go 235 00:17:21,208 --> 00:17:26,168 Suze: down to 5%, 4%, 3%. So by the time the 236 00:17:26,167 --> 00:17:30,787 Suze: insurance company has gotten back all of their fees that 237 00:17:30,788 --> 00:17:34,438 Suze: they paid out to the financial adviser who got their 238 00:17:34,438 --> 00:17:36,249 Suze: commission up front, by the way. 239 00:17:37,050 --> 00:17:42,670 Suze: That's when the surrender fees or charges go away. If 240 00:17:42,670 --> 00:17:46,790 Suze: you have an annuity that there are no surrender charges 241 00:17:46,790 --> 00:17:50,829 Suze: for you to come out of, that's usually an annuity 242 00:17:51,060 --> 00:17:55,810 Suze: that didn't pay a commission for a salesperson to sell 243 00:17:55,810 --> 00:18:01,989 Suze: it to you or a financial advisor. So those are. 244 00:18:02,589 --> 00:18:09,419 Suze: The fees from the annuity. Also, the government comes in 245 00:18:09,420 --> 00:18:15,910 Suze: here where if you withdraw any money from your annuity, 246 00:18:16,900 --> 00:18:21,030 Suze: before the age of 59 and a half, 247 00:18:21,930 --> 00:18:29,329 Suze: they will charge you a 10% penalty fee. Exactly the 248 00:18:29,329 --> 00:18:33,329 Suze: way an IRA works or a retirement account. If you 249 00:18:33,329 --> 00:18:36,369 Suze: take money out of the retirement account before the age 250 00:18:36,369 --> 00:18:40,599 Suze: of 59 and a half, you pay unless it's a Roth, 251 00:18:40,890 --> 00:18:47,169 Suze: you pay a 10% tax penalty, right? The same is 252 00:18:47,170 --> 00:18:51,260 Suze: true with an annuity. Why is that true? 253 00:18:51,900 --> 00:18:56,660 Suze: It's because again an annuity is a contract with an 254 00:18:56,660 --> 00:18:57,709 Suze: insurance company. 255 00:18:58,510 --> 00:19:03,099 Suze: And because you are the annuitant, there is an annuitant, 256 00:19:03,140 --> 00:19:07,180 Suze: which means an insured person. That is how they get 257 00:19:07,180 --> 00:19:10,219 Suze: it to be tax deferred. 258 00:19:11,079 --> 00:19:15,540 Suze: You have two words that you have just learned. You've 259 00:19:15,540 --> 00:19:20,659 Suze: learned non-qualified annuity, which means you have funded it with 260 00:19:20,660 --> 00:19:23,010 Suze: money you have already paid taxes on. 261 00:19:24,079 --> 00:19:29,280 Suze: And now you have the next word which is tax deferred. 262 00:19:29,900 --> 00:19:36,729 Suze: And annuities, all annuities are tax deferred, meaning you do 263 00:19:36,729 --> 00:19:40,959 Suze: not pay taxes on it while the money is in there, 264 00:19:41,369 --> 00:19:45,209 Suze: but when you do go to take it out, you 265 00:19:45,209 --> 00:19:49,448 Suze: will pay ordinary income tax on any amount of money 266 00:19:49,449 --> 00:19:50,800 Suze: that you take out. 267 00:19:51,280 --> 00:19:55,286 Suze: And if you are under the age of 59 and 268 00:19:55,286 --> 00:20:00,188 Suze: a half, you will also pay a 10% tax penalty. 269 00:20:01,000 --> 00:20:02,400 Suze: Are we clear here? 270 00:20:03,239 --> 00:20:08,959 Suze: So there are penalties and surrender fees that are imposed 271 00:20:08,959 --> 00:20:15,949 Suze: upon most annuities by the insurance company itself as well 272 00:20:15,949 --> 00:20:17,839 Suze: as the government. 273 00:20:19,000 --> 00:20:22,359 Suze: That's important for you to understand. 274 00:20:23,989 --> 00:20:30,400 Suze: Next, in most annuities you buy a tax deferred annuity. 275 00:20:31,170 --> 00:20:33,939 Suze: And it goes up and up and up and up 276 00:20:33,939 --> 00:20:38,760 Suze: in value and you die and it goes to your 277 00:20:38,760 --> 00:20:44,599 Suze: beneficiaries they will have to pay ordinary income tax on 278 00:20:44,599 --> 00:20:46,030 Suze: any money. 279 00:20:46,819 --> 00:20:52,329 Suze: That they have inherited above what you originally put in. 280 00:20:52,739 --> 00:20:54,930 Suze: So right now what I'm doing is I'm giving you 281 00:20:54,930 --> 00:20:59,369 Suze: a general overview of annuities. 282 00:21:00,140 --> 00:21:05,290 Suze: And again this applies to all annuities except for income 283 00:21:05,290 --> 00:21:10,770 Suze: annuities normally also known as immediate income annuities where you 284 00:21:10,770 --> 00:21:13,729 Suze: have started income right away, but I'll get to that 285 00:21:13,729 --> 00:21:14,569 Suze: in a little bit. 286 00:21:15,489 --> 00:21:20,069 Suze: So when you go to withdraw money for yourself, you 287 00:21:20,069 --> 00:21:24,109 Suze: will pay ordinary income tax on any amount of money 288 00:21:24,109 --> 00:21:25,670 Suze: that you do withdraw. 289 00:21:26,930 --> 00:21:31,660 Suze: If you die and you leave your annuity to anybody 290 00:21:32,069 --> 00:21:35,780 Suze: when they withdraw the money, they will have to pay 291 00:21:35,780 --> 00:21:39,020 Suze: income tax, ordinary income tax on that money as well. 292 00:21:39,760 --> 00:21:44,319 Suze: So you put in $10,000 and over the years it 293 00:21:44,319 --> 00:21:47,520 Suze: has gone up and up and up, and now let's 294 00:21:47,520 --> 00:21:50,550 Suze: just say it's worth $50,000. 295 00:21:51,290 --> 00:21:54,430 Suze: And you die and you leave it to your beneficiaries, 296 00:21:54,650 --> 00:22:02,229 Suze: your beneficiaries will owe ordinary income tax on that $40,000. 297 00:22:02,839 --> 00:22:06,000 Suze: And the reason that they only owe income tax on 298 00:22:06,000 --> 00:22:11,760 Suze: that $40,000 is that that was your earnings on the 299 00:22:11,760 --> 00:22:19,280 Suze: original $10,000 that you already paid taxes on in this example. 300 00:22:20,719 --> 00:22:25,390 Suze: Those are things that you have to understand about annuities 301 00:22:25,390 --> 00:22:33,750 Suze: over all. OK, let's start with a single premium deferred annuity, 302 00:22:34,000 --> 00:22:36,239 Suze: one of my favorite that I really don't have a 303 00:22:36,239 --> 00:22:41,399 Suze: problem with, especially when interest rates are higher, and a 304 00:22:41,400 --> 00:22:47,599 Suze: single premium deferred annuity is exactly as its name says. 305 00:22:48,219 --> 00:22:53,829 Suze: In one single premium, one single amount of money. 306 00:22:54,640 --> 00:23:01,359 Suze: You put it in a single premium deferred annuity, and 307 00:23:01,359 --> 00:23:06,069 Suze: again there's the word deferred, which means they are deferring 308 00:23:06,560 --> 00:23:09,829 Suze: the income tax that you will owe on the growth 309 00:23:09,829 --> 00:23:12,439 Suze: of that money or the interest rate that money will 310 00:23:12,439 --> 00:23:15,629 Suze: earn until you take it out. 311 00:23:16,510 --> 00:23:21,780 Suze: Especially because this is a non-qualified annuity we're talking about 312 00:23:22,589 --> 00:23:26,750 Suze: again you fund it with money you have already paid 313 00:23:26,750 --> 00:23:29,510 Suze: taxes on in one lump sum. 314 00:23:30,229 --> 00:23:34,300 Suze: So you would put in $10,000 at one lump sum 315 00:23:34,300 --> 00:23:38,630 Suze: or $50,000 or $100,000 or whatever amount of money that 316 00:23:38,630 --> 00:23:39,869 Suze: you want to put in. 317 00:23:40,790 --> 00:23:46,390 Suze: Now normally when you buy a single premium deferred annuity. 318 00:23:47,109 --> 00:23:49,899 Suze: The insurance company will give you 319 00:23:50,660 --> 00:23:56,599 Suze: a specific interest rate for a specific period of time. 320 00:23:57,170 --> 00:24:01,599 Suze: It can be 1 year. It can be 2 years, 321 00:24:01,930 --> 00:24:06,329 Suze: 3 years, 4 years, or 5 years or more. 322 00:24:07,260 --> 00:24:11,660 Suze: What you want to be careful of, you do not 323 00:24:11,660 --> 00:24:16,859 Suze: want to buy a single premium deferred annuity that gives 324 00:24:16,859 --> 00:24:21,209 Suze: you just a high interest rate for the first year 325 00:24:21,459 --> 00:24:23,089 Suze: that's guaranteed to you. 326 00:24:23,800 --> 00:24:26,669 Suze: But it has a 5 or a 7 or a 327 00:24:26,670 --> 00:24:31,339 Suze: 10 year surrender period, and you do not know what 328 00:24:31,339 --> 00:24:33,829 Suze: is the interest rate that they are going to be 329 00:24:33,829 --> 00:24:38,229 Suze: giving you for all the years after the first year 330 00:24:38,229 --> 00:24:42,979 Suze: because remember you will have in most cases surrender charges 331 00:24:43,310 --> 00:24:47,150 Suze: for a number of years, so you will be stuck there. 332 00:24:48,010 --> 00:24:52,780 Suze: So if they happen to decide, let's entice everybody to 333 00:24:52,780 --> 00:24:57,979 Suze: put their money into this single premium deferred annuity. Let's 334 00:24:57,979 --> 00:25:01,139 Suze: just say interest rate for a one year certificate of 335 00:25:01,140 --> 00:25:03,959 Suze: deposit like the kind you can get at Alliant Credit Union, 336 00:25:04,020 --> 00:25:05,010 Suze: for instance. 337 00:25:05,890 --> 00:25:11,430 Suze: Those interest rates are 5% for one year. Why not 338 00:25:11,430 --> 00:25:12,060 Suze: offer 339 00:25:13,060 --> 00:25:20,900 Suze: 5.5% or 6% for one year entice people to purchase 340 00:25:20,900 --> 00:25:26,020 Suze: the single premium deferred annuity guaranteed for one year even 341 00:25:26,020 --> 00:25:31,609 Suze: though the surrender charges may apply for seven years, get 342 00:25:31,609 --> 00:25:33,420 Suze: them to put their money in. 343 00:25:33,839 --> 00:25:38,280 Suze: And then after the first year we will lower their 344 00:25:38,280 --> 00:25:42,790 Suze: interest rates from years 2 to whatever the surrender period 345 00:25:42,790 --> 00:25:45,829 Suze: is to make up for the fact that we paid 346 00:25:45,829 --> 00:25:50,430 Suze: them so much more the first year than the going 347 00:25:50,430 --> 00:25:54,909 Suze: interest rate. Did you hear what I just said to you? 348 00:25:55,109 --> 00:25:59,829 Suze: That is not what you want. If you buy a 349 00:25:59,829 --> 00:26:02,389 Suze: single premium deferred annuity. 350 00:26:03,130 --> 00:26:07,149 Suze: You want them to guarantee you the interest rate that 351 00:26:07,150 --> 00:26:11,180 Suze: you are going to be paid for the entire length 352 00:26:11,180 --> 00:26:13,458 Suze: of your surrender charge. 353 00:26:14,400 --> 00:26:19,680 Suze: So if you wanted to, you put $100,000 in to 354 00:26:19,680 --> 00:26:24,369 Suze: a single premium deferred annuity where they are guaranteeing you, 355 00:26:24,380 --> 00:26:28,780 Suze: let's just say 5% for all 5 years, and the 356 00:26:28,780 --> 00:26:33,540 Suze: surrender charge is up after 5 years. Sounds like a 357 00:26:33,540 --> 00:26:36,739 Suze: good deal. All right, and you go for it, and 358 00:26:36,739 --> 00:26:40,060 Suze: after 5 years you decide you don't want to do 359 00:26:40,060 --> 00:26:43,930 Suze: another annuity and you take out all of your money. 360 00:26:44,359 --> 00:26:46,790 Suze: If you are under the age of 59 and a half, 361 00:26:47,160 --> 00:26:50,839 Suze: you will pay a 10% penalty on the interest that 362 00:26:50,839 --> 00:26:55,060 Suze: you've earned, and you will pay ordinary income tax on 363 00:26:55,060 --> 00:27:00,119 Suze: the interest that you earned. $100,000 over five years will 364 00:27:00,119 --> 00:27:04,390 Suze: make you about $28,000 in interest. 365 00:27:05,040 --> 00:27:09,510 Suze: And if you're under 59 and a half when you withdraw, you will 366 00:27:09,510 --> 00:27:16,188 Suze: pay $2800 on a federal level, and there might be 367 00:27:16,189 --> 00:27:19,589 Suze: state charges as well, depending on the state that you 368 00:27:19,589 --> 00:27:23,479 Suze: live in, so you have to take that into consideration 369 00:27:24,030 --> 00:27:31,349 Suze: plus you will pay ordinary income taxes on the full $28,000. 370 00:27:32,550 --> 00:27:39,000 Suze: So single premium deferred annuities are usually far better for 371 00:27:39,000 --> 00:27:45,520 Suze: people who know they are going to turn 59 and a half or 372 00:27:45,520 --> 00:27:50,199 Suze: older in the year that the surrender charge is up. 373 00:27:51,229 --> 00:27:55,949 Suze: Or they're already older and they're looking at that as 374 00:27:55,949 --> 00:28:00,939 Suze: a replacement for, let's say a certificate of deposit, so 375 00:28:00,939 --> 00:28:05,670 Suze: a single premium deferred annuity, which was my favorite to 376 00:28:05,670 --> 00:28:10,890 Suze: put people into, will work very well for people who 377 00:28:10,890 --> 00:28:11,989 Suze: are older. 378 00:28:12,819 --> 00:28:17,020 Suze: They want a guaranteed interest rate for a specific period 379 00:28:17,020 --> 00:28:17,819 Suze: of time. 380 00:28:18,790 --> 00:28:21,939 Suze: They want to not have to pay taxes on that money, 381 00:28:22,229 --> 00:28:26,469 Suze: because maybe in those 5 years before it matures or 382 00:28:26,469 --> 00:28:28,979 Suze: whenever the surrender period it is. 383 00:28:30,229 --> 00:28:33,550 Suze: They want to not pay taxes because now maybe they're 384 00:28:33,550 --> 00:28:37,709 Suze: in a currently high tax bracket, and 5 years or 385 00:28:37,709 --> 00:28:40,949 Suze: 7 or 10 years from now, they'll be in a 386 00:28:40,949 --> 00:28:44,750 Suze: lower tax bracket by a lot, so they don't care 387 00:28:44,750 --> 00:28:46,300 Suze: and that's what they want to do. 388 00:28:47,079 --> 00:28:52,219 Suze: So single premium deferred annuities can take the place of 389 00:28:52,219 --> 00:28:56,219 Suze: a certificate of deposit or a treasury if you want 390 00:28:56,219 --> 00:28:56,819 Suze: it to. 391 00:28:57,719 --> 00:29:02,540 Suze: And that's essentially how they work. So for those of 392 00:29:02,540 --> 00:29:06,770 Suze: you who have put money into a single premium deferred annuity, 393 00:29:06,900 --> 00:29:09,790 Suze: you have locked in a good interest rate for the 394 00:29:09,790 --> 00:29:14,410 Suze: exact same amount of time as your surrender charge. You 395 00:29:14,410 --> 00:29:17,540 Suze: understand how they work in terms of the tax penalties 396 00:29:17,540 --> 00:29:21,829 Suze: from the government, the surrender charges from the insurance company. 397 00:29:22,400 --> 00:29:26,300 Suze: And by the way, normally you are allowed in many 398 00:29:26,300 --> 00:29:31,459 Suze: insurance companies to withdraw 10% a year without the surrender 399 00:29:31,459 --> 00:29:35,810 Suze: charge applying, but if you withdraw that 10% a year 400 00:29:36,339 --> 00:29:40,420 Suze: from the annuity and you are not 59 and a half, you will 401 00:29:40,420 --> 00:29:45,300 Suze: still have to pay a 10% penalty on that money 402 00:29:45,300 --> 00:29:46,380 Suze: just so you know. 403 00:29:47,199 --> 00:29:50,439 Suze: So as long as you understand that and you know 404 00:29:50,439 --> 00:29:53,199 Suze: the ins and outs of it and you know why 405 00:29:53,199 --> 00:29:56,829 Suze: you are doing it, I don't have a problem with that. 406 00:29:57,160 --> 00:30:00,469 Suze: I just want to remind all of you, however, 407 00:30:01,209 --> 00:30:06,880 Suze: unlike a bank that is insured with FDIC Insurance or 408 00:30:06,880 --> 00:30:12,930 Suze: a credit union that is insured by NCUA Insurance, annuity 409 00:30:12,930 --> 00:30:18,319 Suze: companies are not insured by FDIC or NCUA. 410 00:30:18,920 --> 00:30:24,640 Suze: Remember, each state has its own insurance guarantee association that 411 00:30:24,640 --> 00:30:28,680 Suze: will provide protection for you in the event that the 412 00:30:28,680 --> 00:30:31,400 Suze: insurance company becomes insolvent. 413 00:30:32,229 --> 00:30:35,239 Suze: So it is important that you understand that and it 414 00:30:35,239 --> 00:30:40,920 Suze: is important that you understand each state has its own 415 00:30:40,920 --> 00:30:47,319 Suze: level of insurance issued by the state guaranteed associations, but 416 00:30:47,319 --> 00:30:52,430 Suze: you are never ever to put more money in an 417 00:30:52,430 --> 00:30:56,040 Suze: insurance company contract like an annuity. 418 00:30:56,609 --> 00:31:02,209 Suze: That is more than what the state guarantee Association will 419 00:31:02,209 --> 00:31:03,670 Suze: insure you for. 420 00:31:04,390 --> 00:31:08,550 Suze: Right, just make sure that you understand that. So that's 421 00:31:08,550 --> 00:31:11,579 Suze: a single premium deferred annuity. 422 00:31:12,219 --> 00:31:16,150 Suze: The next type of annuity which I do not like 423 00:31:16,150 --> 00:31:18,459 Suze: is a variable annuity. 424 00:31:19,089 --> 00:31:25,790 Suze: And a variable annuity is equal to an insurance company 425 00:31:25,790 --> 00:31:31,599 Suze: issuing you a mutual fund that invests in different things 426 00:31:31,599 --> 00:31:34,400 Suze: you usually can choose which one of those funds you 427 00:31:34,400 --> 00:31:36,439 Suze: want to have your money invested in. 428 00:31:37,599 --> 00:31:42,680 Suze: But whatever you earn on it is tax deferred. 429 00:31:43,630 --> 00:31:48,560 Suze: And remember we're talking about non-qualified annuities right now where 430 00:31:48,560 --> 00:31:52,150 Suze: you are funding them with money that you have already 431 00:31:52,150 --> 00:31:53,910 Suze: paid income taxes on. 432 00:31:55,079 --> 00:31:58,719 Suze: So you have money that's just sitting there. It's not 433 00:31:58,719 --> 00:32:03,109 Suze: in a retirement account, and now you are thinking to yourself, 434 00:32:03,560 --> 00:32:05,920 Suze: I want to invest it and you go to see 435 00:32:05,920 --> 00:32:09,439 Suze: a financial advisor and maybe you're thinking you want to 436 00:32:09,439 --> 00:32:13,520 Suze: put it in different mutual funds or exchange traded funds 437 00:32:13,770 --> 00:32:16,319 Suze: and your financial advisor that you're seeing. 438 00:32:16,800 --> 00:32:21,229 Suze: Presents an opportunity and it sounds like this if you 439 00:32:21,229 --> 00:32:24,989 Suze: were to put your money into a variable annuity. 440 00:32:26,239 --> 00:32:29,439 Suze: Because again it's a contract with an insurance company. It's 441 00:32:29,439 --> 00:32:33,599 Suze: an annuity. You will be guaranteed that you will never 442 00:32:33,599 --> 00:32:38,630 Suze: get back less than what you originally put in number 1. 443 00:32:39,339 --> 00:32:43,069 Suze: Number 2, you can change funds any time you want 444 00:32:43,560 --> 00:32:46,920 Suze: within the variable annuity, and you will not have to 445 00:32:46,920 --> 00:32:48,589 Suze: pay income taxes on it. 446 00:32:49,449 --> 00:32:52,719 Suze: And that this is a way for you to invest 447 00:32:52,719 --> 00:32:57,989 Suze: in the stock market with absolutely no risk whatsoever. That 448 00:32:57,989 --> 00:33:03,040 Suze: is the sales pitch for most variable annuities. 449 00:33:04,020 --> 00:33:06,219 Suze: Are you kidding me? 450 00:33:07,199 --> 00:33:11,040 Suze: First of all, a variable annuity for them to be 451 00:33:11,040 --> 00:33:13,750 Suze: able to say you will never get back less than 452 00:33:13,750 --> 00:33:18,150 Suze: what you put in. That means that if you die, 453 00:33:18,319 --> 00:33:20,910 Suze: it's not like you can get it out at any time. 454 00:33:21,130 --> 00:33:22,890 Suze: Let's go back to our example. 455 00:33:23,589 --> 00:33:28,959 Suze: You put $100,000 in, for instance, the markets have plummeted. 456 00:33:29,010 --> 00:33:34,589 Suze: Your money is only worth $70,000. It's not like you 457 00:33:34,589 --> 00:33:38,780 Suze: can say to that annuity company, I want my money back, 458 00:33:39,189 --> 00:33:42,150 Suze: and they'll give you $100,000. No. 459 00:33:43,229 --> 00:33:47,890 Suze: That guarantee for you to get back the $100,000 in 460 00:33:47,890 --> 00:33:52,449 Suze: this case reads like this. You will get back on 461 00:33:52,449 --> 00:33:56,239 Suze: your death because you are the Inuitant or the insured. 462 00:33:56,849 --> 00:33:58,329 Suze: You will get back. 463 00:33:58,849 --> 00:34:03,839 Suze: The $100,000 that you put in or the value of 464 00:34:03,839 --> 00:34:07,079 Suze: that annuity if the annuity at that time is higher, 465 00:34:07,160 --> 00:34:11,080 Suze: so whichever one is higher, you will get back that 466 00:34:11,080 --> 00:34:15,198 Suze: amount of money, but you have to have died to 467 00:34:15,199 --> 00:34:15,959 Suze: do so. 468 00:34:16,449 --> 00:34:19,770 Suze: Number 1. Number 2, for them to be able to 469 00:34:19,770 --> 00:34:25,310 Suze: guarantee you that they charge you a mortality charge of 470 00:34:25,310 --> 00:34:32,089 Suze: about 1.3% a year of your money. So you are 471 00:34:32,090 --> 00:34:35,729 Suze: paying for that, everybody. That is not just something that 472 00:34:35,729 --> 00:34:40,810 Suze: a variable annuity gives you, but all right, let's just 473 00:34:40,810 --> 00:34:43,679 Suze: say you put in $100,000 years ago. 474 00:34:44,100 --> 00:34:51,850 Suze: And now it is worth $500,000 and you die and 475 00:34:51,850 --> 00:34:57,158 Suze: your beneficiaries get that $500,000 they are going to owe 476 00:34:57,159 --> 00:35:04,649 Suze: ordinary income tax on $400,000. Why $400,000 because you put 477 00:35:04,649 --> 00:35:07,889 Suze: in $100,000 of your own money that you already pay 478 00:35:07,889 --> 00:35:08,679 Suze: taxes on. 479 00:35:09,139 --> 00:35:13,760 Suze: They get back 500,000, so the difference between your original 480 00:35:13,760 --> 00:35:21,989 Suze: deposit and a non-qualified annuity and what they get is taxable. 481 00:35:22,580 --> 00:35:27,489 Suze: Understand that now why am I stressing that? Because if 482 00:35:27,489 --> 00:35:36,000 Suze: you put $100,000 directly into an index mutual fund or 483 00:35:36,000 --> 00:35:38,800 Suze: ETF at a brokerage firm. 484 00:35:39,110 --> 00:35:43,169 Suze: And you left it there for years. While that money 485 00:35:43,169 --> 00:35:46,729 Suze: is growing in most cases you do not pay a 486 00:35:46,729 --> 00:35:49,409 Suze: penny of income tax on it anyway. 487 00:35:50,320 --> 00:35:57,800 Suze: However, upon your death, if it grew to $500,000. 488 00:35:58,879 --> 00:36:02,870 Suze: Your beneficiaries wouldn't have to pay any. 489 00:36:03,600 --> 00:36:07,379 Suze: You better underline this in your notebook. They wouldn't have 490 00:36:07,379 --> 00:36:13,389 Suze: to pay any income tax on that whatsoever. Why? 491 00:36:14,189 --> 00:36:17,870 Suze: Because when they inherit it from you, they get a 492 00:36:17,870 --> 00:36:22,030 Suze: step up in cost basis. If it goes from 100,000 493 00:36:22,030 --> 00:36:28,780 Suze: to 500,000, they inherit it. Their cost basis now is 500,000. 494 00:36:29,070 --> 00:36:32,790 Suze: If they turn around and they sell it, absolutely no 495 00:36:32,790 --> 00:36:36,549 Suze: income tax at all if they sold it for 500,000. 496 00:36:36,669 --> 00:36:39,469 Suze: If they keep it, let's just say they do. 497 00:36:39,860 --> 00:36:44,000 Suze: And now it grows to 600,000 or 700,000, and they 498 00:36:44,000 --> 00:36:47,600 Suze: decide to sell it. Hey, if they kept it for 499 00:36:47,600 --> 00:36:50,479 Suze: at least a year, they'll pay capital gains tax on 500 00:36:50,479 --> 00:36:54,120 Suze: whatever increase above the 500,000. 501 00:36:55,080 --> 00:36:59,129 Suze: But let's talk about you. Forget about when you're dead. 502 00:36:59,500 --> 00:37:02,739 Suze: Let's talk about right now you are alive and you 503 00:37:02,739 --> 00:37:05,020 Suze: want to be able to use this money while you 504 00:37:05,020 --> 00:37:09,979 Suze: are alive. So you simply take $100,000 that you've already 505 00:37:09,979 --> 00:37:12,770 Suze: paid taxes on and you put it in a brokerage 506 00:37:12,770 --> 00:37:14,379 Suze: firm where you buy. 507 00:37:15,409 --> 00:37:20,810 Suze: An index fund or ETF, OK, just that simple like 508 00:37:20,810 --> 00:37:23,729 Suze: the Vanguard Total Stock Market index fund or ETF that 509 00:37:23,729 --> 00:37:26,520 Suze: I've been talking about now for all 3 or 4 510 00:37:26,520 --> 00:37:32,100 Suze: years on this podcast, and you put in $100,000 and 511 00:37:32,100 --> 00:37:35,409 Suze: now years later it's worth $500,000. 512 00:37:36,290 --> 00:37:40,280 Suze: Any money that you take out that's been in there 513 00:37:40,280 --> 00:37:44,270 Suze: for over one year, you are only going to pay 514 00:37:44,840 --> 00:37:50,669 Suze: capital gains tax on that money. That is a big difference, everybody, 515 00:37:50,889 --> 00:37:54,360 Suze: than paying ordinary income tax on the money that you 516 00:37:54,360 --> 00:37:59,070 Suze: withdraw from a variable annuity. Oh, and what else? There 517 00:37:59,070 --> 00:38:00,949 Suze: is no surrender charge. 518 00:38:01,409 --> 00:38:05,719 Suze: There is no 10% federal tax penalty if you take 519 00:38:05,719 --> 00:38:09,739 Suze: money out before you are 59 and a half years of age. 520 00:38:10,830 --> 00:38:16,149 Suze: There is no mortality charge of 1.3% like there is 521 00:38:16,149 --> 00:38:21,750 Suze: in a variable annuity. In fact, there are many index 522 00:38:21,750 --> 00:38:27,080 Suze: funds that don't charge any fees to buy or expenses 523 00:38:27,080 --> 00:38:32,589 Suze: anything in them whatsoever. So more of your money goes 524 00:38:32,590 --> 00:38:37,530 Suze: to work for you. This sales pitch and I underline 525 00:38:37,530 --> 00:38:38,739 Suze: sales pitch... 526 00:38:39,379 --> 00:38:43,729 Suze: of a variable annuity allowing you to invest and be 527 00:38:43,729 --> 00:38:47,580 Suze: guaranteed that you will get all of your money back 528 00:38:47,889 --> 00:38:49,479 Suze: number one costs you. 529 00:38:50,260 --> 00:38:52,739 Suze: If you leave your money in there for a long 530 00:38:52,739 --> 00:38:55,729 Suze: period of time, chances are your money would have come 531 00:38:55,729 --> 00:38:58,610 Suze: back anyway and had grown to be far more. 532 00:38:59,510 --> 00:39:03,138 Suze: And you would just be better off buying a mutual 533 00:39:03,139 --> 00:39:07,449 Suze: fund or exchange traded fund outside of a variable annuity. 534 00:39:07,620 --> 00:39:13,540 Suze: And remember, variable annuities also come with what surrender charges 535 00:39:13,540 --> 00:39:17,629 Suze: in most cases, and if you take money out before 536 00:39:17,629 --> 00:39:23,530 Suze: the age of 59 and a half, the 10% penalty by the government 537 00:39:23,969 --> 00:39:28,209 Suze: and in all circumstances, whatever money you take out. 538 00:39:28,590 --> 00:39:35,050 Suze: Or your beneficiaries take out will be taxed as ordinary income. 539 00:39:35,989 --> 00:39:40,580 Suze: Indexed annuities. They are a type of annuity that is 540 00:39:40,580 --> 00:39:44,479 Suze: linked to a market index such as the Standard and 541 00:39:44,479 --> 00:39:49,419 Suze: Poor's 500 index. So they offer you the potential to 542 00:39:49,419 --> 00:39:55,139 Suze: get higher returns than fixed annuities, for instance, providing some 543 00:39:55,139 --> 00:40:01,219 Suze: protection against market risk. Why is that? Because they usually 544 00:40:01,219 --> 00:40:03,620 Suze: will guarantee you a minimum. 545 00:40:04,530 --> 00:40:07,939 Suze: Return that you will get a year on your money. 546 00:40:08,610 --> 00:40:11,779 Suze: But for that minimum guaranteed return. 547 00:40:12,540 --> 00:40:16,020 Suze: If your annuity is indexed, let's say, to the Standard 548 00:40:16,020 --> 00:40:21,810 Suze: and Poor's 500. If the Standard and Poor's 500 index skyrockets, 549 00:40:22,300 --> 00:40:25,659 Suze: and it goes up, let's just say 10%. 550 00:40:26,500 --> 00:40:30,659 Suze: The most you may make on that annuity would be 551 00:40:30,659 --> 00:40:39,408 Suze: maybe you know 9%, so usually they only give you 70, 80%, 90% 552 00:40:39,409 --> 00:40:43,889 Suze: of what the index does, but for you giving up 553 00:40:43,889 --> 00:40:49,159 Suze: some return on the index, they usually guarantee you a 554 00:40:49,159 --> 00:40:52,899 Suze: minimum return on your money. 555 00:40:54,350 --> 00:40:58,149 Suze: Many people like indexed annuities. All right, you can do 556 00:40:58,149 --> 00:41:02,549 Suze: that if you want. They have less risk than a 557 00:41:02,550 --> 00:41:07,209 Suze: variable annuity, truthfully, but what people don't like about them 558 00:41:07,209 --> 00:41:13,149 Suze: usually is they can be very complicated to understand. But hey, 559 00:41:13,199 --> 00:41:16,870 Suze: if that's something that you want to do, you absolutely 560 00:41:16,870 --> 00:41:23,139 Suze: can do that. Next, most non-qualified annuities also can come 561 00:41:23,139 --> 00:41:24,110 Suze: in the form. 562 00:41:24,739 --> 00:41:30,129 Suze: Of income annuities, usually immediate income annuities, where you take 563 00:41:30,129 --> 00:41:34,199 Suze: a lump sum of money, the insurance company invests it 564 00:41:34,199 --> 00:41:39,500 Suze: for you, and they guarantee you a monthly income for 565 00:41:39,500 --> 00:41:42,968 Suze: either the rest of your life or a period certain, 566 00:41:43,139 --> 00:41:46,050 Suze: so they will certainly pay you for, let's just say 567 00:41:46,050 --> 00:41:47,500 Suze: 10 years. 568 00:41:48,649 --> 00:41:52,810 Suze: Which means that if you buy an immediate annuity and 569 00:41:52,810 --> 00:41:56,560 Suze: you die in the next year after you bought it, 570 00:41:56,889 --> 00:42:01,199 Suze: they will pay your beneficiaries for let's say 10 years, 571 00:42:01,489 --> 00:42:07,080 Suze: but after that it stops. If you live past 10 years, 572 00:42:07,290 --> 00:42:10,009 Suze: they'll continue to pay you for as long as you 573 00:42:10,010 --> 00:42:11,199 Suze: are alive. 574 00:42:11,489 --> 00:42:15,479 Suze: I talk about these in some detail in the ultimate 575 00:42:15,479 --> 00:42:19,250 Suze: retirement guide for 50+ because for those of you who 576 00:42:19,250 --> 00:42:24,360 Suze: just simply want a guaranteed income for the rest of 577 00:42:24,360 --> 00:42:27,689 Suze: your life because you don't have it anywhere else and 578 00:42:27,689 --> 00:42:30,800 Suze: you want to know that I do not have a 579 00:42:30,800 --> 00:42:35,399 Suze: problem with you doing that right now. Just look at 580 00:42:35,399 --> 00:42:37,429 Suze: the ins and outs of them. 581 00:42:38,159 --> 00:42:43,419 Suze: So now let's go to qualified annuities, which means you 582 00:42:43,419 --> 00:42:48,138 Suze: are funding them within normally a retirement account with money 583 00:42:48,139 --> 00:42:50,500 Suze: that you have never paid taxes on. 584 00:42:51,590 --> 00:42:57,459 Suze: A retirement account is the type of account where everything 585 00:42:57,459 --> 00:43:00,299 Suze: in there is tax deferred. 586 00:43:01,199 --> 00:43:04,939 Suze: So what sense does it make, for instance, for you 587 00:43:04,939 --> 00:43:09,060 Suze: to put money in a tax deferred account like a 588 00:43:09,060 --> 00:43:16,020 Suze: retirement account and purchase a variable annuity, for instance, that 589 00:43:16,020 --> 00:43:18,299 Suze: is also tax deferred. 590 00:43:19,219 --> 00:43:22,620 Suze: What sense does it make for you to put a 591 00:43:22,620 --> 00:43:28,580 Suze: tax deferred investment in a tax deferred account? It makes 592 00:43:28,580 --> 00:43:32,569 Suze: absolutely no sense whatsoever. 593 00:43:33,600 --> 00:43:37,739 Suze: If you want to put a fixed annuity within a 594 00:43:37,739 --> 00:43:43,009 Suze: retirement account again, if it's guaranteeing you a really high 595 00:43:43,010 --> 00:43:46,169 Suze: interest rate for the exact time that it's in there 596 00:43:46,169 --> 00:43:48,889 Suze: and you know you're not going to be taking money out, 597 00:43:49,139 --> 00:43:50,699 Suze: I don't have a problem with that. 598 00:43:51,629 --> 00:43:55,820 Suze: But a variable annuity where they are in essence again 599 00:43:55,820 --> 00:43:58,779 Suze: putting your money into what mutual funds. 600 00:43:59,530 --> 00:44:04,159 Suze: And you are paying mortality charges and so forth and 601 00:44:04,159 --> 00:44:09,279 Suze: possible surrender fees and things like that that makes absolutely 602 00:44:09,280 --> 00:44:12,679 Suze: no sense if you are in a retirement account. 603 00:44:13,290 --> 00:44:17,569 Suze: Why not just buy mutual funds, exchange traded funds, not 604 00:44:17,570 --> 00:44:19,889 Suze: have any limits as to when you can take money out, 605 00:44:19,989 --> 00:44:23,770 Suze: when you can't take it out. So variable annuities within 606 00:44:23,770 --> 00:44:29,889 Suze: a retirement account is absolutely in my opinion, just stupid, everybody. 607 00:44:30,520 --> 00:44:37,479 Suze: Tax sheltered annuities TSAs are usually qualified annuities where if 608 00:44:37,479 --> 00:44:41,189 Suze: you are a teacher or something like that where you work, 609 00:44:41,520 --> 00:44:43,760 Suze: that's where they put your money. 610 00:44:44,120 --> 00:44:47,779 Suze: If that's the only retirement choice you have again, I 611 00:44:47,780 --> 00:44:51,860 Suze: don't have a problem with that. If, however, you have 612 00:44:51,860 --> 00:44:56,010 Suze: other choices at your place where you work, such as 613 00:44:56,010 --> 00:45:00,219 Suze: a Roth retirement account or whatever, I think there might 614 00:45:00,219 --> 00:45:03,820 Suze: be better ways for you to invest your money. But 615 00:45:03,820 --> 00:45:07,100 Suze: if all you have offered to you is a tax 616 00:45:07,100 --> 00:45:11,899 Suze: sheltered annuity, I don't have a problem with that. 617 00:45:12,719 --> 00:45:17,770 Suze: So that is my summation on annuities. Now I know 618 00:45:17,770 --> 00:45:20,969 Suze: I went a little long here, but I think it 619 00:45:20,969 --> 00:45:25,100 Suze: was worth it. So just in summary, truthfully. 620 00:45:25,770 --> 00:45:30,120 Suze: I don't hate all annuities. Don't think that you have 621 00:45:30,120 --> 00:45:34,000 Suze: made a mistake, especially if you're doing a single premium 622 00:45:34,000 --> 00:45:37,399 Suze: deferred annuity, and you can get a really high interest 623 00:45:37,399 --> 00:45:42,000 Suze: rate now guaranteed for the entire time that your surrender 624 00:45:42,000 --> 00:45:47,520 Suze: charge is in place. Make sure you know the insurance 625 00:45:47,520 --> 00:45:52,750 Suze: limits at your state of how much you can put in. 626 00:45:53,439 --> 00:45:54,879 Suze: Other than that, 627 00:45:55,419 --> 00:45:59,359 Suze: I think this should have given you a good education 628 00:45:59,969 --> 00:46:03,479 Suze: on how annuities work. 629 00:46:10,020 --> 00:46:14,659 Suze: Well, did that help you? I hope so. The main 630 00:46:14,659 --> 00:46:18,229 Suze: thing I want you to take away from today is this. 631 00:46:18,860 --> 00:46:24,939 Suze: There's no such thing as Suze hates everything. Suze loves everything. 632 00:46:26,209 --> 00:46:31,850 Suze: Personal finance is personal to every single person, so don't 633 00:46:31,850 --> 00:46:35,280 Suze: try to take somebody else's advice and make it be 634 00:46:35,290 --> 00:46:39,290 Suze: beneficial for you. Take the time possibly to write into 635 00:46:39,290 --> 00:46:45,250 Suze: the Ask Suze SUZE podcast at gmail.com. Ask your question there, 636 00:46:45,330 --> 00:46:47,649 Suze: and if KT chooses it, we'll answer it on the 637 00:46:47,649 --> 00:46:52,610 Suze: podcast and you just never know. Also, start watching my 638 00:46:52,610 --> 00:46:53,770 Suze: YouTube channel. 639 00:46:54,530 --> 00:46:57,840 Suze: You know, my official one. I think you'll enjoy it. 640 00:46:58,050 --> 00:47:01,610 Suze: So just stay in tune with the Women and Money 641 00:47:01,610 --> 00:47:06,239 Suze: podcast and really hopefully you will listen every single week. 642 00:47:06,290 --> 00:47:09,879 Suze: Now before I sign off today. 643 00:47:10,729 --> 00:47:16,459 Suze: May 25th is a really, really important day in my life, 644 00:47:16,729 --> 00:47:19,649 Suze: and let me tell you why. I don't know whether 645 00:47:19,649 --> 00:47:22,169 Suze: it was 20 years ago or more than that or 646 00:47:22,169 --> 00:47:25,209 Suze: just around there, but a woman by the name of 647 00:47:25,209 --> 00:47:30,319 Suze: Carla Fried entered my life. She had written a letter 648 00:47:30,649 --> 00:47:34,010 Suze: saying she would like to write with me, and KT, 649 00:47:34,129 --> 00:47:38,009 Suze: in her wisdom, read the letter. We were in San 650 00:47:38,010 --> 00:47:40,360 Suze: Francisco and invited Carla over. 651 00:47:41,060 --> 00:47:45,439 Suze: And again, to KT's wisdom, she was hired to be 652 00:47:45,439 --> 00:47:50,399 Suze: my co-writer on everything that I was doing, articles for Oprah, 653 00:47:50,479 --> 00:47:54,090 Suze: articles for Costco, books, everything. 654 00:47:54,790 --> 00:47:58,270 Suze: And to this day she is still my co-writer. 655 00:47:59,060 --> 00:48:04,649 Suze: And without her, honest to God, I don't know if 656 00:48:04,649 --> 00:48:07,610 Suze: we would have been as prolific as we've been written 657 00:48:07,610 --> 00:48:11,359 Suze: as many number one New York Times bestsellers as we have, 658 00:48:11,729 --> 00:48:15,129 Suze: and I refuse to stand here and take credit for 659 00:48:15,129 --> 00:48:18,968 Suze: absolutely everything that we have ever published when the truth 660 00:48:18,969 --> 00:48:22,560 Suze: of the matter is she has been with me word 661 00:48:22,560 --> 00:48:25,888 Suze: by word and sometimes knows my words so much that 662 00:48:25,889 --> 00:48:28,679 Suze: she can just write them without me being there. 663 00:48:29,540 --> 00:48:34,250 Suze: So Carla, I wish you a very, very happy birthday. 664 00:48:34,459 --> 00:48:39,610 Suze: I have no way to express my gratitude towards you 665 00:48:39,979 --> 00:48:44,260 Suze: for your integrity and always being there for me, and 666 00:48:44,260 --> 00:48:46,060 Suze: today I know is your birthday. 667 00:48:46,800 --> 00:48:51,810 Suze: But today you and every day are truly my gift. 668 00:48:52,060 --> 00:48:56,139 Suze: All right, everybody, until Thursday when Miss Travis joins us 669 00:48:56,139 --> 00:48:59,780 Suze: again for an Ask KT and Suze anything, there's only 670 00:48:59,780 --> 00:49:02,060 Suze: one thing that I want you to remember. 671 00:49:02,709 --> 00:49:08,620 Suze: And it's this people first, then money, then things. Happy 672 00:49:08,620 --> 00:49:10,549 Suze: Memorial Day. Bye bye now.