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- [00:00]
Jill Schlesinger
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- [03:28]
Mike
I am doing well. Thank you so much for having me today. I really appreciate it.
- [03:32]
Jill Schlesinger
Sure. What's going on? How can we help you out?
- [03:34]
Mike
Well, kind of the biggest question I have. I purchased an annuity probably about two years back for 650,000 with an Income for Life rider on it at 1.1%. And I'm now thinking about taking the surrender charge and moving that money over into current investment that I have that's earning about 9% annualized per year. And I.
- [03:56]
Jill Schlesinger
Hold on a second. Hold on. You just heard. It's only two years ago. What's. Okay, so. So wait, let me do a few things, a few details about the contract, then I'm going to get back to you. Just so I have it. So you put 650 in. Was it a retirement? Were those dollars from a retirement plan or non retirement plan?
- [04:15]
Mike
Yes, from a retirement plan.
- [04:16]
Jill Schlesinger
Okay, so this came from a qualified plan. You had some money or an N. Ira. You said they put $650,000 into an income for Life Annuity. The surrender value for everyone listening. 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%. So what is the surrender value right now, Mike?
- [04:45]
Mike
It is 594,000.
- [04:48]
Jill Schlesinger
No, I mean, I'm sorry, the surrender fee, like when you get charged, that looks to me like you're at. I don't know what the value is of the annuity. I know that the surrender value, you'd have to take this $56,000 haircut. What's the declining percentage fee? Like, what would it be if we waited another year? Is it 7%? Is it 6% of the value? Do you know what it is?
- [05:08]
Mike
The current value of the contract right now? 636,000 because of the fees that they've taken out for the rider, but.
- [05:16]
Jill Schlesinger
Oh, I got it. Okay. That's exactly what I needed. Okay. Wow. You know, it's just a big, that's a big haircut to take, man.
- [05:27]
Mike
It is. And what I was thinking was, you know, I put that money into the 9% account. You know, I can make that up in about two to three quarters of interest. Right. And so I'm okay with that. I know it's a huge feed to swallow. I know your feelings on that. But right now, that annuity, it's a fixed index annuity and it hasn't made anything since inception. It did for a while and then it's flat. Right. It does pay out a guaranteed death benefit before, you know, I take any distributions of contract about the initial contract value of 650,000. So that's there. There's no principal. But I just feel like having the extra money coming in from the 9% investment would really help round my budget off our miscellaneous expenses. And then, you know, I have two HELOCs also that I really consider paying off. So I thought I'd be ahead on the interest that I'd saved from those two he locks. And you know.
- [06:25]
Jill Schlesinger
All right, I get you, I get you. Now you have some sort of, you're saying, 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. What is this, some sort of REIT or some dividend play? What is this?
- [06:47]
Mike
So it's investment through a local firm here in the Northwest, Pacific Northwest. And their strategy in this fund is they provide like first position homeowners and real estate builders in the western United States. The annualized return, it's a two year contract that you put your money into them and they, they annualize it at a 9% return on your money. And the fund has been in a inception since 2008 and they haven't had any negative returns. And I've been there for a little bit over a year and a half and so far, you know, it's been doing okay.
- [07:17]
Jill Schlesinger
All right, before we do that, now I'm going to go backwards. Okay, I got the annuity. And just how much money do you have in that private real estate fund? That is 943,000 943,000. And that is non retirement money or retirement money that's in there.
- [07:37]
Mike
Retirement money as well.
- [07:38]
Jill Schlesinger
Okay, so I got it now. How old are you, Mike? What's going on with you?
- [07:43]
Mike
I am 62 years old and my wife is 60. She'll be 61 in December.
- [07:48]
Jill Schlesinger
Do you guys work full time still?
- [07:50]
Mike
Yes. Yeah, I retired back in 2020, but went back to work. But right now I am currently grossing 90,000 a year and she grosses 100,000 a year.
- [07:58]
Jill Schlesinger
Are you still putting money into retirement accounts or not?
- [08:01]
Mike
No, not at this time.
- [08:03]
Jill Schlesinger
Okay, so you saved a slug of money, obviously. Right. You have this, the annuity with 650, this private investment firm fund of 940. What else do you guys have that's saved up?
- [08:15]
Mike
Vanguard Traditional Ira worth about 102,000. Just invested in ETFs and some stocks.
- [08:22]
Jill Schlesinger
Yep.
- [08:22]
Mike
And then a Vanguard High Yield Savings Account, that balance varies. It's currently at 32,000. And then we have a hundred thousand dollars invested in a startup. Between 50,000 in cash that we invested and 50,000 through a self directed Roth IRA. And I know we're not counting on this, but, you know, could be a.
- [08:43]
Jill Schlesinger
Fun thing you got. You would put it on your balance sheet, but you're not like, oh, it's going to kill it. You don't know. Right. But like, I get that you guys have kids that are grown or no kids. What's going on?
- [08:53]
Mike
Two kids. One is 26, teased, fully launched, married, the other is 21. And you know, she needs. She's trying to navigate her way through colleges, so we're helping with those expenses. But she also has some medical and mental health challenges that we're trying to help her with. So.
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Jill Schlesinger
Wow. I mean, you got a lot of money, obviously. So you just. So I understand this, you have a home that's worth how much?
- [09:21]
Mike
We just got the assessment that is about 941,000.
- [09:25]
Jill Schlesinger
What did you say? I'm sorry, I missed the last part.
- [09:27]
Mike
941,000.
- [09:29]
Jill Schlesinger
All right, let's say 950. And then you said you have, do you have a mortgage or just the HELOCs?
- [09:36]
Mike
Mortgage on that at 3.25%. And then there's a balance of 366,000 on that.
- [09:44]
Jill Schlesinger
Okay. And the, and the HELOCs, the home equity lines of credit or home equity loans that. How much is that total?
- [09:53]
Mike
136,000 total.
- [09:55]
Jill Schlesinger
136 total. Okay. Okay, so 350. The 136 is at higher interest rates, obviously. Right. And so now you have plenty of money. What are you, what's your burn rate? How much do you spend?
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Mike
Approximately? Right now it's 12,000amonth.
- [10:14]
Jill Schlesinger
Okay. Are either of you going to be entitled to Pensions?
- [10:18]
Mike
No.
- [10:19]
Jill Schlesinger
Okay. And all the numbers that you just gave us include your wife's stuff as well, right?
- [10:25]
Mike
Yes, yes.
- [10:26]
Jill Schlesinger
Okay. Okay. And the 12,000amonth, does that include the HELOCs or.
- [10:35]
Mike
It does, it does.
- [10:37]
Jill Schlesinger
So, I mean, you got everything fine for the next bunch of years, you've saved a bunch of money. You're going to have these, you know, you both have Social Security, which I imagine probably covers about half of what your need is. Then you've got all this other money. So, two questions. I'm not sure about the timing of surrendering the annuity. I would love to have somebody who is a impartial third party take a look at this contract because it may be worth your while. And again, because I don't know the nuance of the contract and everything else, 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. And I don't know, you really have to have somebody who is going to peel back the layers of this contract. The idea of taking all of the money if, even if, let's just pretend we decide, yeah, this thing stinks, get out. I would not put it in that retirement, that other retirement investment, Even though that 9% is tantalizing, that is way too concentrated in terms of the amount of money you have at one place. And I understand that the words you use are very important, like they've been in business for a long time, this is what they do, blah, blah, blah. However, I also am clear that any single investment can have a stumble. And I would feel much more comfortable if whatever came out of that annuity simply got put into a pool of, you know, exchange traded funds, whether you manage it or someone else manages it. But I don't think having a one and a half million dollars in one product, one trust, makes a lot of sense. You know, what can often happen in is when real estate markets turn or when bad things happen, you'll find that that 9% will go to 14%, but the value of your actual investment will drop dramatically. And so I would not want to put that risk out on the table. If it's doing well for you, fine, great, not a big deal. I would do two things. I would be seeking 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? And now, you know, you'll have $700,000 in that account. So that's where I would look to have the money land from the annuity. But again, I am nervous about having all those eggs in that one basket of that REIT or real estate investment that you have. I would like there to be some strategy that you put in place to pay down the home equity lines of credit. And maybe, maybe, just maybe, you know, you'll say, you know, instead of putting money into the startup or if you're getting, when you get distributions from this real estate investment, those distributions are taxable to you, Is that right or not?
- [13:51]
Mike
They are, yes. Yeah.
- [13:53]
Jill Schlesinger
Okay, so it comes out. So once you get that even though the funds were used, the source of the funds was retirement money that was pre tax, the distributions are absolutely taxable. So in that case, I might start to whittle down how much of those the home equity lines of credit costing you 8.24%. I'll tell you what, I'd pay those suckers down, I'd start to accelerate those. 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. Like just take a little extra money and pop it down. You'll get. This is not huge money compared to your total net worth. I think it's funny when you have a do it yourselfer. We're going to have a really wonderful financial planner from Southern California come on the program shortly and she wrote into me, she's like, you know, you got to tell people that, you know, people go get their, their financial plans, they don't execute them, they fail. But I'm not sure that's you. I think you're a real do it yourselfer. I think if somebody proves to you mathematically that it is worth it for you to wait a year on pulling the money out of the annuity, that I think you'll do it. And you know, if you don't do it then, you know, you just, you'll make your choices. I really do not think it makes sense to pile into the real estate fund. And I think it would be nice for you to actually have somebody sit down with you and lay out the. I think you understand that you're fine financially, but also lay out the strategy because you know you're going to have a lot of money that has to come out from these pre tax retirement accounts. So we're going to have to have a strategy to, for getting that money out. And that to me would Be probably for you, a fee only financial planner, which would be you would go to Napa, the National association of Personal Financial Advisors, N A P F a dot org and seek out somebody. And be very clear. Say, if you're talking to somebody, say, I do not want anybody to manage my money. I want to do this. I will pay you for a plan and an analysis of this annuity contract. And to do, give me a strategy of how to make sure I take money out of my retirement assets and don't get killed later for required minimum distributions. You're in a perfect time horizon to do this. You really are. And that would be my. That's my best guess as to how you guys can move ahead. Mike, does that make sense for you?
- [16:33]
Mike
It really does. Thanks. Yeah, I was concerned also about putting all my eggs in one basket, so to speak, but, you know, I was really, I guess, lured by the possible 9%.
- [16:43]
Jill Schlesinger
And what that is doing, you know, Mike, it's tantalizing. That's why, because it's like, oh, this is great, but we don't need, you know, not all of your money has to be earning 9%. You're fine. Let's, let's be smart, let's be diversified, and let's make sure that the way you get out of this annuity contract makes the best sense for you. Okay?
- [17:03]
Mike
Awesome. Gosh, thank you so much. I really appreciate running this fight and hearing your input.
- [17:07]
Jill Schlesinger
Boy, it's complicated. And gang, be careful about, you know, say, hey, this sounds great or this is a great product or this is that. Get another set of eyes on a situation. If someone is suggesting to you buying annuity, get in touch with us, let us know. We have no skin in the game. The only thing we want to do is help you understand what are the risks that you would be taking on by purchasing a particular product or putting money in a particular investment. And what are the ways that we can help you get where you want to go? That is the goal of the program. So if you're in a situation like that, get in touch with us. Go to jillonmoney.com, click the contact us button, write us a note, and of course, check the box. If you'd like to join us on the air live. Don't forget to sign up for the free weekly newsletter which comes out tomorrow, comes out Fridays. Definitely do that. And of course, course, subscribe to us here on the Odyssey app or wherever you find your favorite podcast and leave us a rating and review wherever you listen, only positive on that very thin skin. Try to do something nice for someone else today. Change your work, change your wealth, change your life. Thank you for listening and we'll talk to you tomorrow.
- [18:25]
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- [18:32]
Mike
It's.
- [18:33]
Jill Schlesinger
It's a lot.
- [18:33]
Shopify Representative
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- [19:31]
Jill Schlesinger
There's this little bit of wisdom people say all the time, you know, that you should live in the moment. Let me tell you something, there is nothing worse than being forced to live in the moment.
- [19:43]
Shopify Representative
The Moth Podcast features real people telling their stories live on stage to connect and learn from them. Follow and listen to the Moth on the free Odysee app or wherever you get your podcasts.