Any Reason Not to Buy the Annuity?

Summary

Podcast Title: Jill on Money with Jill Schlesinger
Episode: Any Reason Not to Buy the Annuity?
Release Date: July 16, 2025
Host: Jill Schlesinger, CFP®
Source: Audacy

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Introduction

In the episode titled "Any Reason Not to Buy the Annuity?", Jill Schlesinger delves into the complexities of annuities, addressing common misconceptions and providing actionable advice for listeners considering this financial product. Through a detailed conversation with Eric from Washington State, Jill examines the pros and cons of annuities within the broader context of retirement planning.

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Guest Introduction: Eric's Financial Landscape

[02:25]
Jill Schlesinger: "Welcome to the Jill on Money show... Let's talk to Eric, who joins us from the state of Washington."

Eric: "Hi. I'm doing good. Thank you for sharing your expertise with me."

Eric, a 65-year-old retiree from Washington State, presents his financial scenario to discuss the viability of purchasing an annuity using his pre-tax deferred compensation funds. He has a lump sum of $590,000 available and is weighing the options between managing this sum independently or securing a steady income through an annuity.

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Understanding Annuities: Pros and Cons

[02:55]
Jill Schlesinger: "The reason why people are skeptical about annuities, including me, is usually they're very expensive. There are fees that are embedded in them... the money you put into that annuity, you lose access to it in the same way as if it were in say a brokerage account."

Jill outlines the general skepticism surrounding annuities, primarily due to high fees and reduced liquidity. She explains that while annuities can provide a guaranteed income stream, they often come at the cost of higher fees and limited access to the invested capital.

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Evaluating Eric's Financial Situation

[04:04] - [07:29]

Details of Eric’s Financial Portfolio:

• Age & Marital Status: 65, married to a 61.5-year-old spouse.
• Current Income Streams:
  • Defined Contribution Account: $2,200/month.
  • Defined Benefit Annuity: $2,500/month starting this month.
• Assets:
  • Lump Sum: $590,000.
  • Homes: Primary residence worth $400,000 (paid off) and a recreational property worth $200,000 (also paid off).
  • Retirement Accounts: Roth IRAs totaling $160,000, HSA funds amounting to $85,000, and a traditional IRA from his wife’s former employer with $400,000.
• Dependents: Four sons, three financially independent and one returning home, along with a 91-year-old mother.

Discussion Highlights:

• Jill: "What other assets have you guys squirreled away?... So that's vacation property."
• Eric: Details various assets, indicating a robust financial standing.
• Jill: "You've been very good savers. Very good savers."

Jill assesses Eric's comprehensive financial portfolio, noting his substantial savings, paid-off properties, and multiple income streams. This places Eric in a strong position to make informed decisions regarding his retirement funds.

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Analyzing the Annuity Offer

[09:24] - [15:19]

Annuity Details Discussed:

• Amount: $590,000.
• Type: Offered through the State of Washington (public sector annuity).
• Features:
  • Cost of Living Adjustments (COLA): Based on the Consumer Price Index (CPI) for Seattle.
  • Beneficiary Provision: If Eric dies before three years, the remaining funds go to his wife.
  • Tax Treatment: Pre-tax funds, meaning taxes are deferred until funds are withdrawn.
  • Payment Structure: Lifetime income of approximately $3,400/month with COLA.
  • No Partial Annuity Option: It's a lifetime annuity; partial annuitization isn't available.

Key Points from Jill:

• Tax Implications: "None of the 590,000 has been taxed yet... start paying tax on it so that you don't have one of those ticking time bombs that has to start coming out at age 75."
• Security and Simplicity: "If you feel like, almost like constitutionally this makes you feel secure, then I think there's no problem doing it."
• Estate Planning: Emphasizes the importance of having estate documents in place, especially with dependents who may require support.

Notable Quotes:

• Jill Schlesinger [12:30]: "So straight life. What's the dollar amount that it looks like when you... it'd be 3,400 per month for life with a COLA."
• Jill Schlesinger [14:20]: "Make sure you've got the estate documents done... think about those issues."

Jill provides a thorough analysis of the annuity offer, highlighting its benefits in providing a stable, inflation-adjusted income stream while also addressing potential concerns related to liquidity and estate planning.

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Jill's Guidance and Conclusion

[15:00] - [16:56]

Jill’s Final Thoughts:

• No Bad Decisions: "There is no bad decision you're going to make. Literally no bad decision that you can make."
• Customization and Flexibility: Suggests partial annuitization if Eric desires more liquidity.
• Comprehensive Planning: Encourages considering all assets and future needs, including dependents and estate planning.
• Encouragement to Seek Advice: "If you've been pitched an annuity and you want to get an opinion, don't do it. But come to us first."

Eric's Response:

• Feeling Reassured: "That's good to hear. Thank you. I appreciate that."
• Decision: "Going the annuity route... I don't have to worry about RMDs down the road."

Jill concludes that, given Eric's strong financial position, purchasing the annuity is a sound decision. It simplifies his retirement planning by providing guaranteed income, eliminating concerns about Required Minimum Distributions (RMDs), and reducing the need to actively manage investment accounts.

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Key Takeaways & Insights

1. Annuities as Income Solutions:
   Annuities can offer a reliable, inflation-adjusted income stream, which is particularly beneficial for retirees seeking financial stability without the need to manage investments actively.

2. Cost and Fees Consideration:
   Traditional annuities may come with high fees and reduced liquidity. It's crucial to evaluate the expense ratios and understand the long-term implications on your wealth.

3. Tax Implications:
   Utilizing pre-tax funds for annuitization can help manage future tax liabilities, preventing large, mandatory withdrawals at an older age.

4. Estate Planning:
   Ensuring that beneficiaries are well-considered and estate documents are in place is essential, especially when products like annuities are involved.

5. No One-Size-Fits-All:
   While Jill emphasizes that there's no bad decision in Eric's situation, it's important to tailor financial decisions to individual circumstances, considering all assets, dependents, and long-term goals.

6. Professional Consultation Advised:
   Before committing to complex financial products like annuities, seeking advice from financial experts can provide clarity and ensure decisions align with personal financial strategies.

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Conclusion

In this episode, Jill Schlesinger effectively demystifies annuities by dissecting their benefits and potential drawbacks through a real-life example. Eric's case illustrates how a well-rounded financial portfolio can integrate annuities to secure a comfortable and worry-free retirement. Jill's balanced approach offers listeners valuable insights into making informed decisions about annuitization within their own financial planning.

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Notable Quotes with Timestamps:

• Jill Schlesinger [02:55]: "The idea of putting money into a contract with someone who takes on the risk of then spitting out the money down the line and creating an income stream, it's a good idea."
• Jill Schlesinger [12:58]: "If you put 590, you... it'd be 3,400 per month for life with a COLA."
• Jill Schlesinger [15:00]: "There is no bad decision you're going to make. Literally no bad decision that you can make."

Transcript

[Jill Schlesinger]

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[Kristen Bell]

Hi, I'm Kristen Bell and if you know my husband Dax, then you also know he loves shopping for a car. Selling a car, not so much.

[Eric]

We're really doing this, huh?

[Kristen Bell]

Thankfully, Carvana makes it easy. Answer a few questions, put in your van or license and done. We sold ours in minutes this morning and they'll come pick it up and pay us this afternoon.

[Eric]

Bye bye Truckee.

[Kristen Bell]

Of course, we kept the favorite.

[Jill Schlesinger]

Hello other Truckee.

[Kristen Bell]

Sell your car with Carvana today. Terms and conditions apply.

[Jill Schlesinger]

Welcome to the Jill on Money show. It's Wednesday, July 16, and we are here answering your financial questions. We are doing so with a little bit of a sense of humor, a lot of analysis, kind of an unbiased approach to whatever's going on in your life. No matter what it is. Anything that remotely touches a dollar or we want to help you out. There's no reason to carry whatever burden you're carrying about your money. And believe me, we all have money issues, whatever that is, we would like to help you. You don't have to do this alone. That is why this show exists. So if you've got something going on, just go to jillonmoney.com, click the contact us button, it's in the upper right hand corner. And write us a note. That's the email we receive. If you'd like to join us on the air live, check the box. Mark will do everything else. While you're on the website, you will see that we've got all sorts of content that lives there. We have another podcast, it's called Money Watch that drops on Saturdays and Sundays. We've got a blog, we have a radio show. There are videos of my most recent appearances on cbs. There are resources, there's a free weekly newsletter all there on the website. So why don't you just bookmark it? You can always come back to it later. Okay. Right now let's talk to Eric, who joins us from the state of Washington. Hi, Eric, how are you?

[Eric]

Hi. I'm doing good. Thank you for sharing your expertise with me.

[Jill Schlesinger]

Oh boy, what a nice way to do an intro for me. I appreciate that. What can we do for you?

[Eric]

Well, I think it's a fairly straightforward question. I have opportunity to buy an annuity, a one time opportunity using pre tax deferred compensation funds. And it seems like I just don't see any downsides to it. I don't know why everybody wouldn't do it, but now I'm wondering. Well, must be I'm missing something or I'm not seeing something.

[Jill Schlesinger]

Well, I just want to say the reason why people are skeptical about annuities, including me, is usually they're very expensive. There are fees that are embedded in them. And so it doesn't mean that you should never do it. It's just that kind of the old school life insurance annuity product has been very good for the insurance company, less good for the customer. So that's why you may have heard that they're, you know, sort of the negative aspects of an annuity. But the idea of putting money into a contract with someone who takes on the risk of then spitting out the money down the line and creating an income stream, it's a good idea. It's just the cost is really the, usually the mitigating factor that as well as that you can lose access to your money. So the money you pop into that annuity, you lose that lump sum that goes in or not lose it, but you, you don't have access to it in the same way as if, if it were in say a brokerage account. So that may be kind of the, the, let's say that's that the subtext of what you may have heard. So, but tell us about this particular annuity and what has happened. And first of all, tell us how old you are, Eric.

[Eric]

I am 65. And this annuity, it's offered through the state of Washington, so it's not, not being privately offered. So I'm thinking it should be a good rate to state employees. I don't know if. Do you want to know the annuity factor or.

[Jill Schlesinger]

Sure. Well, first of all, so you're 65. Are you single or married?

[Eric]

Married.

[Jill Schlesinger]

And how old is your spouse?

[Eric]

She is 61 and a half.

[Jill Schlesinger]

Okay, and are you already retired or is this part of your retirement plan?

[Eric]

Well, I actually, I quit work five years ago, so this is. Yeah, but, but I couldn't claim retirement until I hit 65, which just happened last month.

[Jill Schlesinger]

Okay, got it. So now at 65, this triggers all the questions, right, because now you have access to the pension, right?

[Eric]

Correct.

[Jill Schlesinger]

Okay, so now how much money is in the account?

[Eric]

$590,000.

[Jill Schlesinger]

Wow. Okay. Good job. And that's the lump sum. So the question is, when you have the option at age 65 of retirement is the question. You can either have $590,000 in cash that you can roll over and manage yourself, or take that 590, buy an annuity and create some income. Is that what the two choices are?

[Eric]

Correct. Yeah.

[Jill Schlesinger]

Got it. Okay. Do you have to do the whole 590 or can you do a partial?

[Eric]

It's totally flexible. I could do a partial. I could. I could do all of it. I could do none of it.

[Jill Schlesinger]

Okay.

[Eric]

I can keep it invested with them, which. Which does have fairly low fees as well. So.

[Jill Schlesinger]

Okay. What other assets have you guys squirreled away? Because if the 590 were the only money you had, we'd make maybe one set of choices, but if you've got other assets, then maybe we'll do something else. So what else have you guys done in terms of saving for retirement?

[Eric]

Well, I've got a current annuity of about $2,200 from a defined contribution account.

[Jill Schlesinger]

Okay, so that's already been annuitized. That's the income you're getting, correct?

[Eric]

Correct. I've been getting it the last five years, yeah.

[Jill Schlesinger]

Okay. Income from annuity. What else?

[Eric]

My defined benefit annuity, which will start up this month, is going to be around 2,500 in cash. We have about 460,000.

[Jill Schlesinger]

Wow. Great. Okay. Keep going.

[Eric]

Our home's probably worth about 400,000. It's paid for. We have some recreational property up north, and that's about 200,000 on that.

[Jill Schlesinger]

Also paid for.

[Eric]

Correct.

[Jill Schlesinger]

So that's second home. Vacation property.

[Eric]

Vacation property, yep.

[Jill Schlesinger]

Okay. And you're staying with. And you're keeping both of these properties, right?

[Eric]

Correct.

[Jill Schlesinger]

Okay, got it. Keep going.

[Eric]

In Roth IRAs, we have about 160,000.

[Jill Schlesinger]

Okay.

[Eric]

About 85,000 in HSA funds. And my wife has, in her former employer's 401K. We got that in a traditional IRA at Vanguard. 400,000 on that.

[Jill Schlesinger]

Wow.

[Eric]

And then her current Roth 401K. And that's at about. We just started that like this just this year. It's like. It's going to be like, third the max, which is 34. 750 this year for her.

[Jill Schlesinger]

Okay.

[Eric]

Yeah.

[Jill Schlesinger]

That's a lot. Do you guys have some grown kids or anyone else you have to take care of? Anything? Parents that are still alive?

[Eric]

Yeah, we have. My. My mom's still alive, and she's doing fine. But we do have four boys, three Are out and. And doing really well. We. We do still have one at home here, so we're not sure what. How we're gonna deal with him yet. So he came back. Actually.

[Jill Schlesinger]

He's a boomerang kid.

[Eric]

Correct.

[Jill Schlesinger]

Yeah, I gotcha. Okay. But the other three are on their own doing. Okay.

[Eric]

Exactly.

[Jill Schlesinger]

And your mom is how old?

[Eric]

She's 91.

[Jill Schlesinger]

Wow. And she lives on her own?

[Eric]

Yep.

[Jill Schlesinger]

Holy smokes. Does she drive? Tell me the truth.

[Eric]

Yeah, she does.

[Jill Schlesinger]

Dude. My 85 year old mother drives. I panic every time I think I hear her in the car. I do. I really need to. I don't know. She's been at. My mom has been a bad driver for 60 years, so.

[Eric]

Well, it's recent reduced her radius driving to just the little town that she lives in, but not. Not the. Not getting out on the highway anymore.

[Jill Schlesinger]

Gosh. Okay, so you have income right now. Your wife is still working, right?

[Eric]

Correct. And she'll probably be working for another three and a half years till she gets to hit 65.

[Jill Schlesinger]

And how old? I'm sorry? How much does she earn?

[Eric]

About $90,000 a year.

[Jill Schlesinger]

So you have her $90,000 less. Whatever she's putting away, of course. Then you have the $2,200 a month, plus the $2,500 a month from the defined benefit, right?

[Eric]

Correct.

[Jill Schlesinger]

Okay. How much money do you think you need for expenses? Just, you know, rough.

[Eric]

Well, I think maybe $5,000 to $8,000 a month.

[Jill Schlesinger]

That's a big. That's a little bit of a big area here. Let's say. Let's look at eight just for the. Okay. All right. So what's your game plan for Social Security?

[Eric]

I'm hoping we can Both wait till 70 and maximize that.

[Jill Schlesinger]

What would that be?

[Eric]

For me it'd be 4,000. And then for my wife would be 2,500.

[Jill Schlesinger]

Okay. Essentially, just so we like big picture. The life of Eric and his wife is amazing because right now you have $4,700. Starting next month, $4,700 a month in income. You will eventually have another 6,500 in Social Security. I know it's all taxable. That'll cover all of your needs. So we really only have like five, six, seven years where we. Or maybe just five years. Really, because your wife's still working where you'd have to fill in a little bit of the gap. There is no bad decision you're going to make. I just want to be clear about that. Literally no bad decision that you can make. You could tell me that like I buy, I'm buying the annuity or I'm not buying the annuity. Everything here is incredible because you've been very good savers. Very good savers. Okay, now let's talk about this annuity deal that you are looking at. What would it be? You take the 590 of the 590, some or some portion of it, you could convert it. So what's the, the, what are the basics of this annuity?

[Eric]

The basics are if I take it's got, it includes cost of living increases based on the consumer price index over in Seattle. If I die before, like the, like say we put in the full 590.

[Jill Schlesinger]

Yep.

[Eric]

And after three years and it's paid out a portion of that, whatever's left over if I die prematurely would go to my wife.

[Jill Schlesinger]

Now, this annuity, none of the 590,000 has been taxed yet, right?

[Eric]

Correct. No, it's all pre tax.

[Jill Schlesinger]

So it's pre tax. It's interesting to me because you've got a. So you have almost. Even though you know you have a ton of money that you've saved. We know that this 590, plus your wife's rollover from her old employer, the 400,000 that, you know, we have a million dollars that hasn't been taxed. And one of the things that might be intriguing from my perspective is to take some of this money, this 590 and turn it into an annuity because it is offered through estate, because it probably has a pretty good expense ratio and use that to get this money out of the account and start paying tax on it so that you don't have one of those ticking time bombs that has to start coming out at age 75. So on this 590, if we were, if we, if you were to choose to annuita to buy the annuity, what would it look like? Can you do it? Like, can you do like a 10 year annuity where all the money comes out over a period of a certain period, would that be available to you?

[Eric]

No, it's just, it would be for as long as I live.

[Jill Schlesinger]

But if you were to. What happens If I put 590 in and you die the next day?

[Eric]

Then my wife would get 590.

[Jill Schlesinger]

Okay, so as long as she's 100% beneficiary. Right. It doesn't go some annuities and you put the money in, you lose it. So. Okay, so that's the benefit of this.

[Eric]

I see.

[Jill Schlesinger]

Yeah, absolutely. So straight life. What's the dollar amount that it looks like when you. If you were to. Do you have that model, do they give you a number?

[Eric]

Yeah, based on the. On the factor, based on my age and all.

[Jill Schlesinger]

Yeah.

[Eric]

So the. That fact, for the full 590, it'd be 3400.

[Jill Schlesinger]

Say 3400 per month for life with a cola. And then you have nothing to really worry about. The money's coming out. I guess that maybe, just maybe I might not. I don't know. I still like having the ability. Like, if I were to take part of this, and let's say I did partial, I'm just going to pretend. And again, no bad decisions here. I think that if I took part of it, and the only difference I would see is that you would now have a. An IRA rollover. Your wife would have an IRA rollover that, you know, if the money accumulated too quickly, you could always do a qualified charitable distribution. That's the only thing you lose access to if it's annuitized. You know, if you don't have. If all that money is put into the annuity. But if you feel like, almost like constitutionally this makes you feel secure, then I think there's no problem doing it. Everybody listening. This is just one of those examples where, you know, we don't have to worry about liquidity. They've saved a bunch of money, right? There's 400 grand in cash. There's another 400 grand in the traditional IRA. There's other stuff. The houses are paid for all those things. But, you know, many people don't have that ability. Additionally, we know that we gotta get this money out. So an annuity is one way to do it. And it's kind of a simple, easy way to get that money out. And if you also feel like, you know, you want to actually have access to a little bit more of the money to have more flexibility, then maybe don't do the whole thing. But that's the only downside I see. I don't think that there's anything worrisome here. I think this is a really good situation. And I guess the only other thing is, you know, buckle everything else up. Make sure you've got the. The estate documents done. Especially if you've got one son who is maybe not as adept at managing money. Maybe think about, well, what would I want to do if, God forbid, we both drop dead together with this one who is not quite launched? What would we do? Would the other boys be the ones take care of it? Just think about those issues. But otherwise, I think you're in great shape. I don't think you can make a bad choice here. I really don't.

[Eric]

That's good to hear. Thank you. I appreciate that.

[Jill Schlesinger]

You feel good?

[Eric]

Yeah, I do. I think. Well, for me going the annuity route, then I don't have to worry about RMDs down the road, and then I don't have to worry about having this investment account. I've got to manage and keep an.

[Jill Schlesinger]

Eye on the market. Yes, easy peasy. You got it. So, okay, I'm all in. Eric in Washington state. Go enjoy yourself and good luck. And good luck managing the mother who drives and the son who's returned home. So thank you so much for joining us. Hey, if you are like Eric and you know, you've heard us talk about annuities and you've got a question, it may not even be as good a deal as Eric has, but there are annuities out there now, really, this is a new thing that are lower cost. There are plenty of ways that these can work and they can be a relief for many. So if that's you and you've been pitched an annuity and you want to get an opinion, don't do it. But come to us first, you know, and we can look at what has been presented to you. Because I'll tell you one thing, I mean, outside of, say, a municipality like the state or a city, these are products that are very confusing. They are usually sold, not bought. So no one wakes up in the morning saying, gosh, I wish I could buy an annuity. You see something, someone has come to you. Let us know how we can help you out. Just go to jillonmoney.com, click the contact us button, write us a note. And if you want to join us live, check the box. Mark will do everything else. You can subscribe to us on the Odyssey app or wherever you find your favorite podcasts. Please leave us a rating and review wherever you listen. And of course, do something nice for someone else today. Change your work, change your wealth, change your life. Thank you for listening. We'll talk to you tomorrow.

[Kristen Bell]

Starting your own business can be intimidating. Suddenly you're wearing all the hats. Designer, marketer, customer support, shipping expert. It's a lot. That's where Shopify comes in. Shopify is the global commerce platform powering millions of businesses around the world and 10% of all e commerce in the US Shopify has your back. With hundreds of ready to use templates, you can launch a beautiful professional online store that looks and feels like you need content. Shopify's AI tools can help you write product descriptions, headlines, even enhance your product photos. Want to grow your reach easily? Create email and social media campaigns to meet your audience wherever they're scrolling and with Shopify's world class support, you'll have expert help for everything. Turn your big business idea into With Shopify on your side, Sign up for your $1 per month trial and start selling today at shopify.com Odyssey podcast go to shopify.com Odyssey podcast shopify shopify.com Odysseypodcast I'm Kristen Press.

[Jill Schlesinger]

And I'm Tobin Heath.

[Kristen Bell]

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