Podcast Summary: Annuity Decision Headache

Podcast Information:

• Title: Jill on Money with Jill Schlesinger
• Host/Author: Audacy
• Description: Host Jill Schlesinger, CFP®, tackles sometimes uncomfortable and even controversial money and investing issues, without the financial jargon, to get to the heart of what’s important for anyone to know. Jill takes listener phone calls and interviews informative and entertaining guests each week to uncover surprising insights and provide actionable information so you can make the most of your money.
• Episode: Annuity Decision Headache
• Release Date: August 14, 2025

Introduction

In the episode titled "Annuity Decision Headache," host Jill Schlesinger delves into the complex decision-making process surrounding annuities. The episode centers around a listener’s real-life scenario, providing listeners with practical insights and actionable advice on managing retirement investments and navigating financial products.

Listener Call: Mike's Annuity Dilemma

Guest Introduction: At [03:28], Mike from Washington State calls in seeking advice on his annuity decision. He shares his financial background and the predicament he's facing with his current investment choices.

Mike's Financial Situation

• Annuity Details:

  • Amount: $650,000
  • Type: Income for Life Rider at 1.1%
  • Surrender Value: Initially mentioned as $594,000, later clarified to $636,000 after rider fees ([04:45]).
  • Duration: Purchased two years ago.

• Alternative Investment:

  • Amount Available: $943,000 in a private real estate fund.
  • Current Yield: Approximately 9% annualized return.
  • Investment Firm: Local firm in the Pacific Northwest, utilizing first-position homeowners and real estate builders in the western United States.
  • Track Record: Since 2008, with no negative returns over the past one and a half years.

• Additional Assets:

  • Vanguard Traditional IRA: $102,000 invested in ETFs and stocks.
  • Vanguard High Yield Savings Account: $32,000.
  • Startup Investment: $100,000 ($50,000 in cash and $50,000 through a self-directed Roth IRA).

• Debt:

  • Mortgage: $366,000 at 3.25%.
  • HELOCs: $136,000 at higher interest rates (8.24%).

• Income:

  • Mike: $90,000/year (currently working, previously retired in 2020).
  • Wife: $100,000/year.

• Expenses: Approximately $12,000/month, including HELOC payments and support for their 21-year-old daughter with medical and mental health challenges.

Key Concerns:

• Considering surrendering the annuity to invest in the 9% yielding fund.
• Balancing high-interest debts (HELOCs) with investment returns.
• Ensuring long-term financial stability amidst concentrated investment risks.

Discussion of Annuity vs. Current Investments

Jill's Initial Response: At [04:16], Jill seeks to clarify the surrender value and details of the annuity contract, emphasizing the importance of understanding fees associated with early withdrawal:

“When you buy a lot of these big insurance products, there is a fee to get out. It's usually a sliding scale where if you blow out of the contract in the first year, they'll charge you 9%. 8, 7, 6, 5%.”

Mike's Clarifications: Mike explains that the annuity is a fixed index annuity with no principal protection beyond a guaranteed death benefit, and it hasn't yielded returns since its inception.

Jill's Analysis: At [05:26], Jill highlights the significant loss Mike would incur by surrendering the annuity:

“It's just a big, that's a big haircut to take, man.”

She questions the guarantee of the 9% return Mike mentions, probing the nature of the investment:

“[...] you keep mentioning 9%, which is obviously a very high interest rate. That is seems you're saying it's guaranteed, but it's not guaranteed.”

Risk Assessment: Jill warns against the concentration risk associated with Mike's proposed investment:

“That is way too concentrated in terms of the amount of money you have at one place.”

She underscores the potential volatility and lack of diversification in the real estate-focused fund Mike is considering.

Jill's Advice

Diversification and Risk Management: Jill advises Mike to avoid placing a substantial portion of his retirement assets into a single high-yield investment. She recommends diversifying his portfolio to mitigate risk:

“I really do believe it might be worth your while to, you know, even if you waited one more year might be a better idea.”

Consulting a Financial Planner: Emphasizing the need for professional guidance, Jill suggests seeking a fee-only financial planner to dissect the annuity contract and develop a strategic plan:

“I would like there to be some strategy that you put in place to pay down the home equity lines of credit.”

Tax Implications: Jill points out the tax consequences of taking distributions from the annuity:

“And also, you know, if you look at your, let's just say you get to the end of the year and you have, you know, your, you know, you have a little extra money popping around in the high yield savings or something also do it there.”

Actionable Steps:

1. Assessment of Surrender Fees: Understand the full implications of exiting the annuity early.
2. Diversify Investments: Move funds into a more diversified pool, such as ETFs, to spread risk.
3. Debt Reduction: Prioritize paying down high-interest HELOCs to improve financial stability.
4. Professional Consultation: Engage a fee-only financial planner to create a tailored financial strategy.

Mike's Response: Mike acknowledges his concerns about concentration risk and expresses appreciation for the guidance:

“It really does. Thanks. Yeah, I was concerned also about putting all my eggs in one basket, so to speak [...]”

Conclusion

In "Annuity Decision Headache," Jill Schlesinger effectively navigates Mike through a complex financial scenario involving annuities, high-yield investments, and debt management. The episode underscores the importance of diversification, understanding contractual obligations, and seeking professional financial advice to make informed decisions.

Key Takeaways:

• Understand Fees: Always be aware of surrender charges and fees associated with financial products.
• Diversify Investments: Avoid concentrating retirement assets in a single investment vehicle to mitigate risk.
• Seek Professional Advice: Consult with a fee-only financial planner to develop a comprehensive and personalized financial strategy.
• Manage Debt: Prioritize paying down high-interest debts to improve overall financial health.

Jill wraps up the episode by encouraging listeners to reach out with their financial questions and to utilize available resources for better financial decision-making.

Notable Quotes:

• Jill Schlesinger [04:45]: “When you buy a lot of these big insurance products, there is a fee to get out. It's usually a sliding scale where if you blow out of the contract in the first year, they'll charge you 9%. 8, 7, 6, 5%.”
• Jill Schlesinger [05:26]: “It's just a big, that's a big haircut to take, man.”
• Jill Schlesinger [07:16]: “You know, I would seek the advice of someone who can peel apart that annuity and then make a decision that when you do this, does it just get added to that $102,000 retirement account?”
• Jill Schlesinger [16:32]: “What you need is diversification, and let's make sure that the way you get out of this annuity contract makes the best sense for you.”

For more insights and personalized financial advice, visit Jillonmoney.com and explore their resources or connect directly through their contact form.