Suze: May 25, 2025. Welcome everybody to the Women and Money
Suze: podcast as well as everybody smart enough to listen. Suze
Suze: O here. So are you having a good weekend?
Suze: You have tomorrow off. Many of you are celebrating, but
Suze: it always kind of gets to me. I have to
Suze: say this, everybody, especially on this one holiday, Memorial Day.
Suze: Do we really, really remember this sacrifice that the men
Suze: and the women of the armed forces were literally many
Suze: of them have given up their lives for our freedom.
Suze: And I look at the veterans, and one of the
Suze: things that I love doing is I love going to
Suze: the cemeteries where many of them are buried and all
Suze: the flags that you see put up today and you're
Suze: really reminded,
Suze: that that flag is blowing in that breeze and representing freedom,
Suze: but then it's on their grave.
Suze: So I really, really hope that on this day where
Suze: we are honoring them we are honoring their legacy that
Suze: it really reminds us that freedom isn't free it's earned
Suze: through the bravery, commitment, and selfishness of others if you
Suze: think about it as well as ourselves.
Suze: So I have a favor to ask all of you.
Suze: I want you all to get out your little Suze
Suze: notebooks again, hopefully they're not that little right now.
Suze: And in honor of today,
Suze: I want us to take 3 meaningful steps this holiday.
Suze: Besides just gaining weight and eating and doing this and celebrating.
Suze: I want this holiday to be meaningful for you this
Suze: weekend to fortify your steps towards financial freedom really, number one,
Suze: I want to reflect on your why.
Suze: Write that down.
Suze: I want you to reflect on your why.
Suze: To do so, I want you to write down the
Suze: personal freedoms that you value most.
Suze: Whether it's providing for your children.
Suze: Maybe it's supporting a cause.
Suze: Or sometimes for me it's simply sleeping soundly at night,
Suze: especially for KT.
Suze: I want you to write them down.
Suze: And then I want you to answer the question why.
Suze: Why do these freedoms give you the fuel that you
Suze: need to stay committed to them? Why? What does it
Suze: give you?
Suze: Then number 2.
Suze: I want you to take just one action.
Suze: That empowers you.
Suze: Pick one concise action or task. Perhaps it's automating a
Suze: monthly contribution to your retirement account or reviewing your beneficiary
Suze: designations or setting up that health insurance checkup or doing
Suze: the must-have documents. I want you to commit to the day,
Suze: to do it.
Suze: As a tribute to those who gave us the chance
Suze: to secure our futures, they gave up their lives for
Suze: us to be secure and have a future.
Suze: So I want you to take one action, commit to
Suze: when that action is going to be completed.
Suze: And I want you to take it.
Suze: And that is a way that we can honor those
Suze: who lost their lives.
Suze: And then last but not least, so these are very
Suze: simple things, and you may say, Oh, Suze, really? Yeah, really, everybody.
Suze: We need to stop and take time and evaluate why
Suze: we do things. What do we do? How do we
Suze: honor those.
Suze: Especially those who remained and lost those that they loved.
Suze: Cause that's part of true freedom.
Suze: So last but not least, #3.
Suze: I want you to honor
Suze: this time right now through generosity.
Suze: Because if you think about it, everybody, Memorial Day is
Suze: a time to give back.
Suze: So maybe you want to consider donating to a veterans organization.
Suze: Or volunteering your time to help others with things that
Suze: they may need, but every act of generosity echoes the
Suze: spirit of service, which is really what we're commemorating tomorrow,
Suze: is it not?
Suze: We are honoring the spirit of service.
Suze: So that's what I want you to do today.
Suze: Tomorrow
Suze: I want you to honor who you are, what you want,
Suze: and those that gave up their lives for your freedom.
Suze: Now let's go to Suze School.
Suze: All right, I get it, everybody, so I make this
Suze: simple little mention.
Suze: About how for 40 years now I've been contributing money
Suze: every single month to an annuity at American Express, and
Suze: now it's worth almost $1 million. OK.
Suze: And from that you take away, does Suze like annuities?
Suze: I thought Suze hated annuities. I thought this. I thought that.
Suze: Now I want you to listen to me.
Suze: Today would I be putting that money in that annuity
Suze: every single month, month in and month out if I
Suze: hadn't started it that many years ago? No, I would not.
Suze: And the only reason that I'm continuing it is because
Suze: it's got a guaranteed minimum interest rate of 5%, and
Suze: I could take it out any time I want. So
Suze: why not just do it and it's just part of
Suze: a discipline of savings. But would I be starting that
Suze: today and doing it, I would not.
Suze: So you need to understand what annuities I like, what
Suze: annuities I don't like.
Suze: And every single one of you is different in a
Suze: different situation. So sometimes I might say I don't like
Suze: this annuity, but guess what, for you it's the perfect thing.
Suze: So you all have got to stop generalizing on Suze
Suze: just hates annuities. Yeah, you can generalize on I hate
Suze: variable annuities because I don't understand them at all, and
Suze: to me, in most cases they make absolutely no sense.
Suze: But there are annuities that do make sense for you
Suze: in individual situations. One thing I can say to you
Suze: is it never ever makes sense to have an annuity,
Suze: especially a variable annuity, within a retirement account. Now, years
Suze: ago when Pacific Gas and Electric, and as you know,
Suze: I did the retirement planning for them, they were having
Suze: early retirement.
Suze: There was an annuity by Lincoln Benefit Life that I
Suze: put all of these people's money in within their retirement
Suze: account because they were under the age of 55 and
Suze: we needed to do something called separate and equal periodic
Suze: payments which allowed them to take money out of this
Suze: account without the 10% penalty.
Suze: However, Lincoln Benefit Life also gave us the guarantee of
Suze: an incredible interest rate at the time, and if there
Suze: were any mistakes or any single person got a 10%
Suze: charge by the government, they would cover it. But that's
Suze: the only time I would have done that. There are
Suze: exceptions to every rule.
Suze: Shake that dust out of your heads and just be
Suze: open and smart enough to know when does something apply
Suze: and when does it not. So I was going to
Suze: sit down today and give you a Suze School on
Suze: annuities until I realized I've already done that.
Suze: The 458th podcast of the Women and Money podcast on
Suze: April 9, 2023.
Suze: I gave you an extraordinary Suze school, so we are
Suze: going to cut that in, the parts I want you
Suze: to know into this podcast. Now I'm also just going
Suze: to say, hey, if you want even more information on
Suze: why I hate variable annuities so much, then the 576th podcast...
Suze: Which was on May 26, 2024. You can go to
Suze: that one and listen to that and mark these two
Suze: podcasts down so when you get confused you can just
Suze: go back and listen to it and listen to it again.
Suze: So are you ready now?
Suze: Here we go on your master class again on understanding annuities.
Suze: All of you need to understand that I do not
Suze: hate all annuities.
Suze: Can you write that down in your little Suze notebook?
Suze: Suze Orman does not hate all annuities. In fact, there
Suze: was a time
Suze: in the United States for years actually that I was
Suze: the number one adviser and salesperson, so to speak.
Suze: In getting people to buy single premium deferred annuities, I
Suze: was putting my clients to the tune of about $20
Suze: million a year.
Suze: Obviously with a lot of people into annuities, so there
Suze: are some annuities at specific times in the economy that
Suze: I absolutely love.
Suze: And then there are some annuities that I absolutely do
Suze: not love, so you need to get that straight.
Suze: There are different varieties of annuities. There are single premium
Suze: deferred annuities which I tend to absolutely love in many circumstances.
Suze: There are variable annuities which I tend to not love
Suze: in most circumstances. There are indexed annuities which I can
Suze: be hot and cold on. I think there are better
Suze: ways to invest your money.
Suze: There are income annuities which if you are looking for
Suze: guaranteed income specifically while interest rates are high right now
Suze: and I talk about this in the Ultimate Retirement Guide
Suze: for 50+, I do not have a problem with them.
Suze: And then there are tax sheltered annuities which are annuities
Suze: that many people, especially teachers, that's where their retirement accounts
Suze: tend to go. I don't really have a problem with
Suze: those either.
Suze: So we will be breaking down now every single one
Suze: of those annuities and how they differ and the pros
Suze: and cons of each one. Let's first start with what
Suze: is an annuity.
Suze: And an annuity is a contract with an insurance company.
Suze: Where you are usually the insured known as the annuitant,
Suze: you also usually are the owner.
Suze: And the beneficiary is whoever you want the annuity to
Suze: go to upon your death.
Suze: Because it is a contract with an insurance company that
Suze: has an insured again known as an annuitant.
Suze: The interest or the growth that your money earns is
Suze: tax deferred, which means you do not pay taxes on
Suze: it until you withdraw it. And when they are purchased
Suze: outside of a retirement account, they are known as non-qualified annuities.
Suze: Write it down.
Suze: If you purchase an annuity within a retirement account, it's
Suze: known as a qualified annuity.
Suze: Especially if the retirement account is a traditional retirement account,
Suze: meaning it's a non-Roth retirement account or a pre-taxed retirement account,
Suze: so a qualified annuity is you have never paid taxes
Suze: on the money that is in that annuity.
Suze: A non-qualified annuity is an annuity that you have funded
Suze: with money that you have already paid taxes on. Let's
Suze: talk about non-qualified annuities that are outside of retirement accounts.
Suze: All non-qualified annuities usually have the exact same laws governing them.
Suze: And the laws are not only by the United States government,
Suze: but they're also by the insurance company itself.
Suze: Now whether you know it or not, most annuities pay
Suze: a very hefty commission to the financial adviser who is
Suze: selling you that annuity. There are many annuities that are
Suze: issued possibly by Vanguard or other companies that do not
Suze: have commissions on it.
Suze: But most do. How would you know
Suze: if an annuity has a surrender charge.
Suze: And a surrender charge means that you deposit, let's just
Suze: say $10,000 into an annuity.
Suze: And the annuity contract states that you have got to
Suze: keep your money in there for at least 7 to
Suze: 10 years.
Suze: And if you take it out before that period of time,
Suze: there will be what's called a surrender charge that you
Suze: will have to pay, and the surrender charge can start
Suze: at 10%.
Suze: Going all the way down to 0% over those 7
Suze: or 10 years. Now why is there a surrender charge?
Suze: There is a surrender charge because that usually equates to
Suze: the amount of commission.
Suze: That the salesperson or the financial adviser was paid to
Suze: sell you that annuity if you come out of that
Suze: annuity before the company that issued the annuity can get
Suze: back the commission they paid to the financial adviser by
Suze: the fees that are within the annuity.
Suze: They want to make sure that you are responsible for
Suze: that deficit, so there are some annuities that let's say
Suze: have a seven year surrender charge.
Suze: And maybe if you come out before the surrender charge
Suze: is up in those seven years, you could pay 7%
Suze: of what you take out the first year, the second year,
Suze: the 3rd year, and then maybe it starts to go
Suze: down to 5%, 4%, 3%. So by the time the
Suze: insurance company has gotten back all of their fees that
Suze: they paid out to the financial adviser who got their
Suze: commission up front, by the way.
Suze: That's when the surrender fees or charges go away. If
Suze: you have an annuity that there are no surrender charges
Suze: for you to come out of, that's usually an annuity
Suze: that didn't pay a commission for a salesperson to sell
Suze: it to you or a financial advisor. So those are.
Suze: The fees from the annuity. Also, the government comes in
Suze: here where if you withdraw any money from your annuity,
Suze: before the age of 59 and a half,
Suze: they will charge you a 10% penalty fee. Exactly the
Suze: way an IRA works or a retirement account. If you
Suze: take money out of the retirement account before the age
Suze: of 59 and a half, you pay unless it's a Roth,
Suze: you pay a 10% tax penalty, right? The same is
Suze: true with an annuity. Why is that true?
Suze: It's because again an annuity is a contract with an
Suze: insurance company.
Suze: And because you are the annuitant, there is an annuitant,
Suze: which means an insured person. That is how they get
Suze: it to be tax deferred.
Suze: You have two words that you have just learned. You've
Suze: learned non-qualified annuity, which means you have funded it with
Suze: money you have already paid taxes on.
Suze: And now you have the next word which is tax deferred.
Suze: And annuities, all annuities are tax deferred, meaning you do
Suze: not pay taxes on it while the money is in there,
Suze: but when you do go to take it out, you
Suze: will pay ordinary income tax on any amount of money
Suze: that you take out.
Suze: And if you are under the age of 59 and
Suze: a half, you will also pay a 10% tax penalty.
Suze: Are we clear here?
Suze: So there are penalties and surrender fees that are imposed
Suze: upon most annuities by the insurance company itself as well
Suze: as the government.
Suze: That's important for you to understand.
Suze: Next, in most annuities you buy a tax deferred annuity.
Suze: And it goes up and up and up and up
Suze: in value and you die and it goes to your
Suze: beneficiaries they will have to pay ordinary income tax on
Suze: any money.
Suze: That they have inherited above what you originally put in.
Suze: So right now what I'm doing is I'm giving you
Suze: a general overview of annuities.
Suze: And again this applies to all annuities except for income
Suze: annuities normally also known as immediate income annuities where you
Suze: have started income right away, but I'll get to that
Suze: in a little bit.
Suze: So when you go to withdraw money for yourself, you
Suze: will pay ordinary income tax on any amount of money
Suze: that you do withdraw.
Suze: If you die and you leave your annuity to anybody
Suze: when they withdraw the money, they will have to pay
Suze: income tax, ordinary income tax on that money as well.
Suze: So you put in $10,000 and over the years it
Suze: has gone up and up and up, and now let's
Suze: just say it's worth $50,000.
Suze: And you die and you leave it to your beneficiaries,
Suze: your beneficiaries will owe ordinary income tax on that $40,000.
Suze: And the reason that they only owe income tax on
Suze: that $40,000 is that that was your earnings on the
Suze: original $10,000 that you already paid taxes on in this example.
Suze: Those are things that you have to understand about annuities
Suze: over all. OK, let's start with a single premium deferred annuity,
Suze: one of my favorite that I really don't have a
Suze: problem with, especially when interest rates are higher, and a
Suze: single premium deferred annuity is exactly as its name says.
Suze: In one single premium, one single amount of money.
Suze: You put it in a single premium deferred annuity, and
Suze: again there's the word deferred, which means they are deferring
Suze: the income tax that you will owe on the growth
Suze: of that money or the interest rate that money will
Suze: earn until you take it out.
Suze: Especially because this is a non-qualified annuity we're talking about
Suze: again you fund it with money you have already paid
Suze: taxes on in one lump sum.
Suze: So you would put in $10,000 at one lump sum
Suze: or $50,000 or $100,000 or whatever amount of money that
Suze: you want to put in.
Suze: Now normally when you buy a single premium deferred annuity.
Suze: The insurance company will give you
Suze: a specific interest rate for a specific period of time.
Suze: It can be 1 year. It can be 2 years,
Suze: 3 years, 4 years, or 5 years or more.
Suze: What you want to be careful of, you do not
Suze: want to buy a single premium deferred annuity that gives
Suze: you just a high interest rate for the first year
Suze: that's guaranteed to you.
Suze: But it has a 5 or a 7 or a
Suze: 10 year surrender period, and you do not know what
Suze: is the interest rate that they are going to be
Suze: giving you for all the years after the first year
Suze: because remember you will have in most cases surrender charges
Suze: for a number of years, so you will be stuck there.
Suze: So if they happen to decide, let's entice everybody to
Suze: put their money into this single premium deferred annuity. Let's
Suze: just say interest rate for a one year certificate of
Suze: deposit like the kind you can get at Alliant Credit Union,
Suze: for instance.
Suze: Those interest rates are 5% for one year. Why not
Suze: offer
Suze: 5.5% or 6% for one year entice people to purchase
Suze: the single premium deferred annuity guaranteed for one year even
Suze: though the surrender charges may apply for seven years, get
Suze: them to put their money in.
Suze: And then after the first year we will lower their
Suze: interest rates from years 2 to whatever the surrender period
Suze: is to make up for the fact that we paid
Suze: them so much more the first year than the going
Suze: interest rate. Did you hear what I just said to you?
Suze: That is not what you want. If you buy a
Suze: single premium deferred annuity.
Suze: You want them to guarantee you the interest rate that
Suze: you are going to be paid for the entire length
Suze: of your surrender charge.
Suze: So if you wanted to, you put $100,000 in to
Suze: a single premium deferred annuity where they are guaranteeing you,
Suze: let's just say 5% for all 5 years, and the
Suze: surrender charge is up after 5 years. Sounds like a
Suze: good deal. All right, and you go for it, and
Suze: after 5 years you decide you don't want to do
Suze: another annuity and you take out all of your money.
Suze: If you are under the age of 59 and a half,
Suze: you will pay a 10% penalty on the interest that
Suze: you've earned, and you will pay ordinary income tax on
Suze: the interest that you earned. $100,000 over five years will
Suze: make you about $28,000 in interest.
Suze: And if you're under 59 and a half when you withdraw, you will
Suze: pay $2800 on a federal level, and there might be
Suze: state charges as well, depending on the state that you
Suze: live in, so you have to take that into consideration
Suze: plus you will pay ordinary income taxes on the full $28,000.
Suze: So single premium deferred annuities are usually far better for
Suze: people who know they are going to turn 59 and a half or
Suze: older in the year that the surrender charge is up.
Suze: Or they're already older and they're looking at that as
Suze: a replacement for, let's say a certificate of deposit, so
Suze: a single premium deferred annuity, which was my favorite to
Suze: put people into, will work very well for people who
Suze: are older.
Suze: They want a guaranteed interest rate for a specific period
Suze: of time.
Suze: They want to not have to pay taxes on that money,
Suze: because maybe in those 5 years before it matures or
Suze: whenever the surrender period it is.
Suze: They want to not pay taxes because now maybe they're
Suze: in a currently high tax bracket, and 5 years or
Suze: 7 or 10 years from now, they'll be in a
Suze: lower tax bracket by a lot, so they don't care
Suze: and that's what they want to do.
Suze: So single premium deferred annuities can take the place of
Suze: a certificate of deposit or a treasury if you want
Suze: it to.
Suze: And that's essentially how they work. So for those of
Suze: you who have put money into a single premium deferred annuity,
Suze: you have locked in a good interest rate for the
Suze: exact same amount of time as your surrender charge. You
Suze: understand how they work in terms of the tax penalties
Suze: from the government, the surrender charges from the insurance company.
Suze: And by the way, normally you are allowed in many
Suze: insurance companies to withdraw 10% a year without the surrender
Suze: charge applying, but if you withdraw that 10% a year
Suze: from the annuity and you are not 59 and a half, you will
Suze: still have to pay a 10% penalty on that money
Suze: just so you know.
Suze: So as long as you understand that and you know
Suze: the ins and outs of it and you know why
Suze: you are doing it, I don't have a problem with that.
Suze: I just want to remind all of you, however,
Suze: unlike a bank that is insured with FDIC Insurance or
Suze: a credit union that is insured by NCUA Insurance, annuity
Suze: companies are not insured by FDIC or NCUA.
Suze: Remember, each state has its own insurance guarantee association that
Suze: will provide protection for you in the event that the
Suze: insurance company becomes insolvent.
Suze: So it is important that you understand that and it
Suze: is important that you understand each state has its own
Suze: level of insurance issued by the state guaranteed associations, but
Suze: you are never ever to put more money in an
Suze: insurance company contract like an annuity.
Suze: That is more than what the state guarantee Association will
Suze: insure you for.
Suze: Right, just make sure that you understand that. So that's
Suze: a single premium deferred annuity.
Suze: The next type of annuity which I do not like
Suze: is a variable annuity.
Suze: And a variable annuity is equal to an insurance company
Suze: issuing you a mutual fund that invests in different things
Suze: you usually can choose which one of those funds you
Suze: want to have your money invested in.
Suze: But whatever you earn on it is tax deferred.
Suze: And remember we're talking about non-qualified annuities right now where
Suze: you are funding them with money that you have already
Suze: paid income taxes on.
Suze: So you have money that's just sitting there. It's not
Suze: in a retirement account, and now you are thinking to yourself,
Suze: I want to invest it and you go to see
Suze: a financial advisor and maybe you're thinking you want to
Suze: put it in different mutual funds or exchange traded funds
Suze: and your financial advisor that you're seeing.
Suze: Presents an opportunity and it sounds like this if you
Suze: were to put your money into a variable annuity.
Suze: Because again it's a contract with an insurance company. It's
Suze: an annuity. You will be guaranteed that you will never
Suze: get back less than what you originally put in number 1.
Suze: Number 2, you can change funds any time you want
Suze: within the variable annuity, and you will not have to
Suze: pay income taxes on it.
Suze: And that this is a way for you to invest
Suze: in the stock market with absolutely no risk whatsoever. That
Suze: is the sales pitch for most variable annuities.
Suze: Are you kidding me?
Suze: First of all, a variable annuity for them to be
Suze: able to say you will never get back less than
Suze: what you put in. That means that if you die,
Suze: it's not like you can get it out at any time.
Suze: Let's go back to our example.
Suze: You put $100,000 in, for instance, the markets have plummeted.
Suze: Your money is only worth $70,000. It's not like you
Suze: can say to that annuity company, I want my money back,
Suze: and they'll give you $100,000. No.
Suze: That guarantee for you to get back the $100,000 in
Suze: this case reads like this. You will get back on
Suze: your death because you are the Inuitant or the insured.
Suze: You will get back.
Suze: The $100,000 that you put in or the value of
Suze: that annuity if the annuity at that time is higher,
Suze: so whichever one is higher, you will get back that
Suze: amount of money, but you have to have died to
Suze: do so.
Suze: Number 1. Number 2, for them to be able to
Suze: guarantee you that they charge you a mortality charge of
Suze: about 1.3% a year of your money. So you are
Suze: paying for that, everybody. That is not just something that
Suze: a variable annuity gives you, but all right, let's just
Suze: say you put in $100,000 years ago.
Suze: And now it is worth $500,000 and you die and
Suze: your beneficiaries get that $500,000 they are going to owe
Suze: ordinary income tax on $400,000. Why $400,000 because you put
Suze: in $100,000 of your own money that you already pay
Suze: taxes on.
Suze: They get back 500,000, so the difference between your original
Suze: deposit and a non-qualified annuity and what they get is taxable.
Suze: Understand that now why am I stressing that? Because if
Suze: you put $100,000 directly into an index mutual fund or
Suze: ETF at a brokerage firm.
Suze: And you left it there for years. While that money
Suze: is growing in most cases you do not pay a
Suze: penny of income tax on it anyway.
Suze: However, upon your death, if it grew to $500,000.
Suze: Your beneficiaries wouldn't have to pay any.
Suze: You better underline this in your notebook. They wouldn't have
Suze: to pay any income tax on that whatsoever. Why?
Suze: Because when they inherit it from you, they get a
Suze: step up in cost basis. If it goes from 100,000
Suze: to 500,000, they inherit it. Their cost basis now is 500,000.
Suze: If they turn around and they sell it, absolutely no
Suze: income tax at all if they sold it for 500,000.
Suze: If they keep it, let's just say they do.
Suze: And now it grows to 600,000 or 700,000, and they
Suze: decide to sell it. Hey, if they kept it for
Suze: at least a year, they'll pay capital gains tax on
Suze: whatever increase above the 500,000.
Suze: But let's talk about you. Forget about when you're dead.
Suze: Let's talk about right now you are alive and you
Suze: want to be able to use this money while you
Suze: are alive. So you simply take $100,000 that you've already
Suze: paid taxes on and you put it in a brokerage
Suze: firm where you buy.
Suze: An index fund or ETF, OK, just that simple like
Suze: the Vanguard Total Stock Market index fund or ETF that
Suze: I've been talking about now for all 3 or 4
Suze: years on this podcast, and you put in $100,000 and
Suze: now years later it's worth $500,000.
Suze: Any money that you take out that's been in there
Suze: for over one year, you are only going to pay
Suze: capital gains tax on that money. That is a big difference, everybody,
Suze: than paying ordinary income tax on the money that you
Suze: withdraw from a variable annuity. Oh, and what else? There
Suze: is no surrender charge.
Suze: There is no 10% federal tax penalty if you take
Suze: money out before you are 59 and a half years of age.
Suze: There is no mortality charge of 1.3% like there is
Suze: in a variable annuity. In fact, there are many index
Suze: funds that don't charge any fees to buy or expenses
Suze: anything in them whatsoever. So more of your money goes
Suze: to work for you. This sales pitch and I underline
Suze: sales pitch...
Suze: of a variable annuity allowing you to invest and be
Suze: guaranteed that you will get all of your money back
Suze: number one costs you.
Suze: If you leave your money in there for a long
Suze: period of time, chances are your money would have come
Suze: back anyway and had grown to be far more.
Suze: And you would just be better off buying a mutual
Suze: fund or exchange traded fund outside of a variable annuity.
Suze: And remember, variable annuities also come with what surrender charges
Suze: in most cases, and if you take money out before
Suze: the age of 59 and a half, the 10% penalty by the government
Suze: and in all circumstances, whatever money you take out.
Suze: Or your beneficiaries take out will be taxed as ordinary income.
Suze: Indexed annuities. They are a type of annuity that is
Suze: linked to a market index such as the Standard and
Suze: Poor's 500 index. So they offer you the potential to
Suze: get higher returns than fixed annuities, for instance, providing some
Suze: protection against market risk. Why is that? Because they usually
Suze: will guarantee you a minimum.
Suze: Return that you will get a year on your money.
Suze: But for that minimum guaranteed return.
Suze: If your annuity is indexed, let's say, to the Standard
Suze: and Poor's 500. If the Standard and Poor's 500 index skyrockets,
Suze: and it goes up, let's just say 10%.
Suze: The most you may make on that annuity would be
Suze: maybe you know 9%, so usually they only give you 70, 80%, 90%
Suze: of what the index does, but for you giving up
Suze: some return on the index, they usually guarantee you a
Suze: minimum return on your money.
Suze: Many people like indexed annuities. All right, you can do
Suze: that if you want. They have less risk than a
Suze: variable annuity, truthfully, but what people don't like about them
Suze: usually is they can be very complicated to understand. But hey,
Suze: if that's something that you want to do, you absolutely
Suze: can do that. Next, most non-qualified annuities also can come
Suze: in the form.
Suze: Of income annuities, usually immediate income annuities, where you take
Suze: a lump sum of money, the insurance company invests it
Suze: for you, and they guarantee you a monthly income for
Suze: either the rest of your life or a period certain,
Suze: so they will certainly pay you for, let's just say
Suze: 10 years.
Suze: Which means that if you buy an immediate annuity and
Suze: you die in the next year after you bought it,
Suze: they will pay your beneficiaries for let's say 10 years,
Suze: but after that it stops. If you live past 10 years,
Suze: they'll continue to pay you for as long as you
Suze: are alive.
Suze: I talk about these in some detail in the ultimate
Suze: retirement guide for 50+ because for those of you who
Suze: just simply want a guaranteed income for the rest of
Suze: your life because you don't have it anywhere else and
Suze: you want to know that I do not have a
Suze: problem with you doing that right now. Just look at
Suze: the ins and outs of them.
Suze: So now let's go to qualified annuities, which means you
Suze: are funding them within normally a retirement account with money
Suze: that you have never paid taxes on.
Suze: A retirement account is the type of account where everything
Suze: in there is tax deferred.
Suze: So what sense does it make, for instance, for you
Suze: to put money in a tax deferred account like a
Suze: retirement account and purchase a variable annuity, for instance, that
Suze: is also tax deferred.
Suze: What sense does it make for you to put a
Suze: tax deferred investment in a tax deferred account? It makes
Suze: absolutely no sense whatsoever.
Suze: If you want to put a fixed annuity within a
Suze: retirement account again, if it's guaranteeing you a really high
Suze: interest rate for the exact time that it's in there
Suze: and you know you're not going to be taking money out,
Suze: I don't have a problem with that.
Suze: But a variable annuity where they are in essence again
Suze: putting your money into what mutual funds.
Suze: And you are paying mortality charges and so forth and
Suze: possible surrender fees and things like that that makes absolutely
Suze: no sense if you are in a retirement account.
Suze: Why not just buy mutual funds, exchange traded funds, not
Suze: have any limits as to when you can take money out,
Suze: when you can't take it out. So variable annuities within
Suze: a retirement account is absolutely in my opinion, just stupid, everybody.
Suze: Tax sheltered annuities TSAs are usually qualified annuities where if
Suze: you are a teacher or something like that where you work,
Suze: that's where they put your money.
Suze: If that's the only retirement choice you have again, I
Suze: don't have a problem with that. If, however, you have
Suze: other choices at your place where you work, such as
Suze: a Roth retirement account or whatever, I think there might
Suze: be better ways for you to invest your money. But
Suze: if all you have offered to you is a tax
Suze: sheltered annuity, I don't have a problem with that.
Suze: So that is my summation on annuities. Now I know
Suze: I went a little long here, but I think it
Suze: was worth it. So just in summary, truthfully.
Suze: I don't hate all annuities. Don't think that you have
Suze: made a mistake, especially if you're doing a single premium
Suze: deferred annuity, and you can get a really high interest
Suze: rate now guaranteed for the entire time that your surrender
Suze: charge is in place. Make sure you know the insurance
Suze: limits at your state of how much you can put in.
Suze: Other than that,
Suze: I think this should have given you a good education
Suze: on how annuities work.
Suze: Well, did that help you? I hope so. The main
Suze: thing I want you to take away from today is this.
Suze: There's no such thing as Suze hates everything. Suze loves everything.
Suze: Personal finance is personal to every single person, so don't
Suze: try to take somebody else's advice and make it be
Suze: beneficial for you. Take the time possibly to write into
Suze: the Ask Suze SUZE podcast at gmail.com. Ask your question there,
Suze: and if KT chooses it, we'll answer it on the
Suze: podcast and you just never know. Also, start watching my
Suze: YouTube channel.
Suze: You know, my official one. I think you'll enjoy it.
Suze: So just stay in tune with the Women and Money
Suze: podcast and really hopefully you will listen every single week.
Suze: Now before I sign off today.
Suze: May 25th is a really, really important day in my life,
Suze: and let me tell you why. I don't know whether
Suze: it was 20 years ago or more than that or
Suze: just around there, but a woman by the name of
Suze: Carla Fried entered my life. She had written a letter
Suze: saying she would like to write with me, and KT,
Suze: in her wisdom, read the letter. We were in San
Suze: Francisco and invited Carla over.
Suze: And again, to KT's wisdom, she was hired to be
Suze: my co-writer on everything that I was doing, articles for Oprah,
Suze: articles for Costco, books, everything.
Suze: And to this day she is still my co-writer.
Suze: And without her, honest to God, I don't know if
Suze: we would have been as prolific as we've been written
Suze: as many number one New York Times bestsellers as we have,
Suze: and I refuse to stand here and take credit for
Suze: absolutely everything that we have ever published when the truth
Suze: of the matter is she has been with me word
Suze: by word and sometimes knows my words so much that
Suze: she can just write them without me being there.
Suze: So Carla, I wish you a very, very happy birthday.
Suze: I have no way to express my gratitude towards you
Suze: for your integrity and always being there for me, and
Suze: today I know is your birthday.
Suze: But today you and every day are truly my gift.
Suze: All right, everybody, until Thursday when Miss Travis joins us
Suze: again for an Ask KT and Suze anything, there's only
Suze: one thing that I want you to remember.
Suze: And it's this people first, then money, then things. Happy
Suze: Memorial Day. Bye bye now.