Is the Annuity Too Good to Be True?

Summary

Podcast Summary: "Is the Annuity Too Good to Be True?" – Jill on Money with Jill Schlesinger Release Date: June 27, 2025

In this enlightening episode of "Jill on Money with Jill Schlesinger," host Jill Schlesinger delves into the intricate world of annuities, exploring whether these financial products are genuinely beneficial or merely too good to be true. The episode features a compelling listener call from Steve and Lisa, a retired couple contemplating the advisability of incorporating an annuity into their retirement strategy. Here's a detailed breakdown of the episode's key discussions, insights, and conclusions.

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1. Introduction to the Episode

The episode kicks off with Jill Schlesinger and her co-host Mark Talercio setting the stage for a deep dive into annuities. They emphasize the importance of making informed financial decisions and invite listeners to engage via their website, jillonmoney.com, encouraging questions and participation in live discussions.

2. Listener Call: Evaluating the Annuity Proposition

a. Presenting Steve and Lisa's Financial Scenario [05:02 - 11:00]

Steve, 58, and Lisa, 55, are a retired couple who have diligently saved for their retirement. Steve has been retired for five years, while Lisa continues to work, earning approximately $120,000 annually. Their investments are diversified across multiple brokerages, totaling over $4.5 million, which includes IRAs, 401(k)s, company stock, and substantial holdings in E*TRADE.

Key Financials:

• Fidelity: $920,000 in IRA rollover, $10,000 in HSA
• 401(k): $400,000 in Lisa’s account
• E*TRADE: $1.7 million
• Real Estate: Primary residence valued at ~$750,000 with a $240,000 mortgage at 3.5% interest

Steve and Lisa project needing $100,000 to $120,000 annually over the next seven years to cover expenses, including mortgage payments and a long-term care policy.

b. Financial Planner’s Recommendation: Introducing Annuities [11:00 - 14:15]

Steve explains that their financial planner suggested opening an annuity to create a secure income stream, especially since Steve plans to begin Social Security at age 72. The planner proposed two additions:

1. Athene Ascent Income Rider (FIA): Funded by rolling over part of Steve's IRA, this would start providing $23,000 annually after five years.
2. Legacy Income Trust: Intended to offer additional tax relief and benefits.

Steve and Lisa are uncertain about the advisability of these products, prompting them to seek advice on the show.

3. In-Depth Discussion: Are Annuities Necessary? [14:15 - 20:42]

a. Host’s Analysis of the Annuity Proposal [14:15 - 17:49]

Mark Talercio scrutinizes the necessity of the proposed annuities given Steve and Lisa's robust financial portfolio. He argues that with over $4.5 million in assets, creating a stream of income can be efficiently managed without the need for annuities. Mark emphasizes the following points:

• Flexibility and Control: Managing withdrawals from existing investments allows for greater control over income streams.
• Tax Efficiency: Strategically withdrawing funds can keep them within lower tax brackets, avoiding the hefty taxes that can come with annuities.
• Cost Considerations: Annuities often come with fees that can erode returns, especially if the financial situation does not necessitate the security they provide.

Notable Quote:

Mark Talercio [16:45]: "If somebody says, we want to create a stream of income, so create a stream of income. You're a financial planner. You know how to do that."

b. Alternative Strategies Proposed [17:49 - 20:42]

Mark suggests alternative strategies that align better with Steve and Lisa’s financial standing:

• Systematic Withdrawals: Implementing a structured withdrawal plan from their diversified investments to generate the required income.
• Bond Ladders and Index Funds: Utilizing bond ladders or index funds to manage risk while ensuring a steady income stream.
• Minimizing Annuity Reliance: Given their substantial assets, reliance on annuities may be unnecessary, and simpler investment vehicles could suffice.

He reassures Steve and Lisa that annuities are not inherently bad but may not be the right fit for their specific situation. Mark offers to connect them with another financial advisor who can provide a second opinion without pushing annuity products.

Notable Quote:

Mark Talercio [19:02]: "You didn't make a mistake. Everything's fine. I'm so glad you called us because I really do think that this is a lot of people say to me, well, this is a CFP. It's automatic. It's not automatic."

4. Conclusion and Takeaways [20:42 - 22:29]

Mark concludes the discussion by emphasizing the importance of personalized financial planning. He advises listeners to critically evaluate financial products like annuities and consider whether they align with their unique financial situations and goals. The episode underscores that while annuities can be valuable for some, they are not a one-size-fits-all solution and should be approached with careful consideration.

Key Takeaways:

• Assess Personal Financial Needs: Before committing to products like annuities, thoroughly evaluate your financial status and future needs.
• Seek Multiple Opinions: Consulting with different financial advisors can provide diverse perspectives and prevent potential biases.
• Understand Product Mechanics: Gain a clear understanding of how financial products work, including fees, tax implications, and long-term benefits.

Notable Quote:

Mark Talercio [20:41]: "So before you buy any annuity products, please get in touch with us. Let's hear what's going on."

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Final Thoughts

This episode of "Jill on Money" serves as a crucial reminder that financial decisions, especially those involving complex products like annuities, should be made with a clear understanding of their necessity and impact on one’s overall financial health. Jill Schlesinger and Mark Talercio provide valuable insights, advocating for personalized financial strategies over generic solutions, ensuring listeners are well-equipped to make informed decisions about their money.

For more personalized advice or to engage with future episodes, visit jillonmoney.com.

Transcript

[Jill Schlesinger]

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[Mark Talercio]

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[Jill Schlesinger]

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[Mark Talercio]

Welcome to the Jill on Money Show. It's Friday, June 27th, but let me pause for a second. It is not Friday, June 27th for us. Recording it is Monday. And it is Monday, the beginning of a heat wave and Mark and I are already cranky. It's really been a day. And so for everyone who is suffering under the heat, please don't stay outside too long. Please keep your pets inside. Don't be a hero and turn up that ac. You don't have to go crazy, but you know, be smart and be careful, okay? That's my general interest, kind of. Hey, here's your warning.

[Theo]

Can somebody in New York City go get Theo for me today? Picking up from school.

[Mark Talercio]

Is anybody on the Lower east side who can go get Theo, just let us know. You know, message Mark. Anyway, this is the program that takes the mystery out of your financial life. And we do that by encouraging you to go to our website, jillonmoney.com when you're there you'll see in the upper right hand corner there is a contact us button. And when you actually click that button, a form will pop up. And that form is really the email that we receive. So complete the form, give us a lot of detail if you do not want to come on the program. And if you'd like to join us, just check the box, Mark. We'll do everything else. Also on the website you will see a little streaming thing that goes across the top. It says, donate to Jill's cycle for the cause. Donate. Okay, so this is this crazy 275 mile, three day event that I do to raise money for HIV and AIDS. It's the Boston to New York ride. And so I am very grateful for those folks who are already been. They've been great, Mark. They already started donating. And FYI, when you donate, even if you don't, I am seeking some feedback in terms of I need music. Okay, so I got a couple that were great. Rich wrote somebody Told Me by the Killers. So that was good. I didn't have that on my list. And then I got another one, Mark, that was from Sarah who said new.

[Jill Schlesinger]

Radicals, you get what you give, which is great.

[Mark Talercio]

And a few other people gave me some really good stuff, even if you don't give. But if you give, give like $5, who cares? Because I do absolutely love the idea of having a lot of small donors because I had a couple biggies come in. So just give me like five, ten bucks and send a song in and I'll add it to my training playlist. It's so great and I appreciate it in advance. Okay, done with my groveling to all of you. This program is about you and we are going to a couple from the Pacific Northwest. It's Steve and Lisa. Hello, the two of you. How are you? Do you have a song that I should work out to? Let's start with that.

[Steve]

That would be in Steve's court.

[Mark Talercio]

Steve hit me. You can do rock and roll, you can do disco, you can do like whatever it is. The only thing I don't love. To be honest with you, gang, I'm not like into like the long hair metal bands. I don't know. Doesn't do it for me.

[Lisa]

Well, you know, I was going to say rock and roll by Led Zeppelin, but that might not be.

[Mark Talercio]

No, I mean Led Zeppelin is something different. That's not a metal band. Okay, I could do that.

[Lisa]

That'd be my choice.

[Mark Talercio]

Okay, great. Thank you. All right, we're done. Oh, wait, no, no. You have A question. How can we help you out?

[Steve]

So, first, we are longtime listeners, love listening to you both, and we recently found a CPA to start working with our cfp.

[Mark Talercio]

Sorry.

[Steve]

And one of the. One of the things that she proposed after doing her initial analysis was opening up an annuity. And I instantly on the call with this wonderful person said, we can't do that. We listened to Jill on money, and.

[Mark Talercio]

She said that crackpot.

[Steve]

She just said, well, would you at least just hear us out?

[Mark Talercio]

Okay, yeah, sure. We'll hear anyone out.

[Steve]

Yeah. So I'm like, okay, I've got an open mind. And we listened. And then it was kind of like, wow, I guess I don't understand the downside of this. And so that you have some of the background.

[Mark Talercio]

Yeah, let's do that first.

[Steve]

Yeah. So Steve is 58, retired. Has been for five years. I'm 55.

[Mark Talercio]

Okay.

[Steve]

Still working. However, I'm thinking about hanging up. Hanging it up the end of 26 so that we, you know, can enjoy retirement time.

[Mark Talercio]

Sure. Can I just interject one quick question, Steve? Did you.

[Jill Schlesinger]

You retired five years ago.

[Mark Talercio]

Did you have a big pension? Is that why you were able to retire?

[Lisa]

No, I just. I've been a pretty good saver all my life. Our assets were to the point where I just felt it was safe to stop working.

[Jill Schlesinger]

What the hell have you been doing.

[Mark Talercio]

For five years while your wife is toiling away? You. You. I'm already jealous and angry that on behalf of your wife for this.

[Steve]

I keep him busy.

[Mark Talercio]

Okay, good.

[Lisa]

Sometimes I wonder what I've been doing the last five years. But, you know, we have some property, and so I keep pretty busy just maintaining that probably.

[Mark Talercio]

Okay. All right, so let's hear about this. So, Lisa, you're still working. How much do you earn?

[Steve]

About 120.

[Mark Talercio]

Do you guys have kids?

[Steve]

We've got two kids. Fully launched? Yes.

[Mark Talercio]

That's nice. How'd you do it? Come on, what's the secret?

[Steve]

Lord? I don't know.

[Mark Talercio]

Good luck.

[Steve]

Well, they just knew that, you know, we paid for college.

[Mark Talercio]

Yeah.

[Steve]

And at the end of that, they were on their own.

[Mark Talercio]

Okay.

[Lisa]

We told them when they went to college, they had to study something that was going to get them a job when they were done.

[Mark Talercio]

Oh, that. I just want to. Steve, did you say you were 58 or 68? A 5 or a 6?

[Lisa]

6.

[Mark Talercio]

6. Okay, that makes more sense than me coming down hard on you. 58. Geez. That Jill. Okay, so you guys have saved a bunch of money. Tell us a little bit about what you've saved.

[Lisa]

We've got it in about three different brokerages.

[Mark Talercio]

Okay, hit me with those.

[Lisa]

Okay, so with Fidelity in my name, there's about 920,000 in an IRA rollover and another 10,000 in HSA. So Lisa has about 400k in a 401k employer. And then another 110 in a. Just individual equities.

[Mark Talercio]

In equities. Okay, got it.

[Lisa]

And then another hundred thousand that's in her company stock.

[Mark Talercio]

Steve, is that 100,000 in company stock? All vested? Yes. Okay, got it. Keep going.

[Lisa]

And $10,000 in cash.

[Mark Talercio]

That's all for the investment stuff?

[Lisa]

Well, we've got a Schwab account. It has 925,000 total.

[Mark Talercio]

That's kind of nice.

[Lisa]

185 or so of that is in money market fund. And then in E trade, we've got 1.7 million.

[Mark Talercio]

What? Come on.

[Lisa]

317,000 is in a traditional IRA. We've got about 282 in a money market fund. I've got money that's left over from an employer of about 180 in RSUs.

[Jill Schlesinger]

Did you hear Mark giggling?

[Mark Talercio]

Did you hear that? Just like a big picture. So just so I understand in the fidelity, you have $920,000 in your rollover. And I'm just going to go, like, kind of quick. I'm skipping over the hsa. I assume you're going to spend that eventually. Lisa's got the 400 in her current 401k, then another 110 grand in equities, 100 grand in company stock, a little cash. You got 925 grand in Schwab, some cash in there, like 125. Then you got this $1.7 million in E trade. Right, Right. That's a ton of money. Okay, so is that it for the big bad accounts?

[Lisa]

We've got a small, I think like 25,000 in Edward Jones that was gifted to us a few years ago. That's pretty much it.

[Mark Talercio]

Okay. Your house, how much is it worth?

[Lisa]

Probably 750,000.

[Mark Talercio]

Does it have a mortgage? I bet not.

[Lisa]

Yeah, we owe about $240,000.

[Mark Talercio]

Oh, okay. What's the interest rate?

[Steve]

Three and a half.

[Mark Talercio]

Perfect. Okay. Any other real estate?

[Lisa]

No.

[Steve]

No.

[Mark Talercio]

Okay. So how much do you think you need to live on?

[Steve]

We're factoring about 100 to 120 for, you know, in seven years. We've got some bigger annual expenses for the next seven years. You know, the house payment for seven years, that'll be done. And then we have a long term Care policy that's asset based. And so we've got seven more years of paying on that, which I know you're probably cringing on.

[Mark Talercio]

No, I'm not. I'm not. You got plenty of money. I'm not worried about you guys. I'm not cringing at any.

[Theo]

It doesn't even include, you know, Social Security.

[Mark Talercio]

No. So, Mark, because Lisa said she likes your voice too, I'll let you jump in. Any problems here for Steve and Lisa, I mean. No, they.

[Theo]

I stopped counting after a little while, so I'm probably a little short, but they're, they're at four and a half million for sure.

[Mark Talercio]

Yeah.

[Theo]

And that generates already what they need. And like I said, that doesn't even factor in Social Security, so.

[Mark Talercio]

So like we know that the basis here, Steve, is like your thesis is five years ago you said, I, I'm a good saver. All my life I had. You're right. You've been amazing and you guys spend money, but you don't spend a ton of money. Right. And so you've got plenty of dough. Now, if we were to look at this situation with the annuity, what's the thesis that the financial planner is proposing?

[Steve]

So because Steve is not going to be taking Social Security until age 72 years from now.

[Mark Talercio]

Right.

[Steve]

And if I stop working at the end of 26, we're going to have a. And obviously I won't be eligible for Social Security.

[Mark Talercio]

Right.

[Steve]

Or anything like that.

[Mark Talercio]

Yep.

[Steve]

The planner was trying to come up with a secure income stream for us and propose and kind of hit some tax strategies.

[Mark Talercio]

Yeah.

[Steve]

She proposed two different additions to our portfolio. This Athene Ascent Income rider, the fia, which we would kick in in like year five is when we would start receiving the payments on that. And that would provide, you know, $23,000 a year in that stream. And that money would. Or that product would be funded by a rollover from one of Steve's IRAs.

[Mark Talercio]

So. Funded with pre tax money so that you get the money out and you start paying tax on it. Yes, got it.

[Steve]

And then that I think would also allow or count towards the required minimum.

[Mark Talercio]

Minimum distribution.

[Steve]

Sure hits that bucket as well. She also recommended we do open a legacy income trust.

[Mark Talercio]

Okay.

[Steve]

To also kind of provide some tax relief and benefit there.

[Mark Talercio]

Okay. I don't want to slam this person. Okay. I'm not going to do that because I'm sure this is a nice person. Did, did, did she do a actual financial plan for you?

[Steve]

Yes.

[Mark Talercio]

Did you pay for that yet or not?

[Steve]

Yes.

[Mark Talercio]

How Much did you pay for it, Just out of curiosity?

[Steve]

Like, 4,000.

[Mark Talercio]

Okay. That might be just what it was worth, you know, to, like, do a plan that's not a bad price for the. Because it's basically like, it's 4. You know, it's 1% of your assets, which is fine. I don't think you need an annuity. I don't even think you need two annuities. But I definitely don't think you need one annuity. And here's why you don't need. Like, if somebody says, we want to create a stream of income, so create a stream of income. You're a financial planner. And instead of using an insurance product, which you can say to her, like, hey, you know what? This has been so interesting. We know that we're ready, we're good, but you know what? We don't want to do an annuity product. And we already have money that's available to us. All you need to do is manage the money so that we get the money every year that we need. So for the next two years, right before Steve collects Social Security, why can't you just take out the money you need? You know, I don't know. You probably should start taking money out anyway. Just because you're in a high tax. You're in a lower tax bracket, you know, he doesn't have that much money. And you have that big tax bomb that is ticking because you've got nine. You got. You got almost $2 million that hasn't been taxed right in terms of traditional assets. So why not start taking the money out from those assets? This is not complicated either. Like, people are like, oh, we want to have a consistent stream of income. Okay, then create a stream of income. You're a financial planner. You know how to do that. You can have a CD that matures every year. That's my stream of income. And you could fund it every year. You could have laddered Treasuries or corporate bonds. And you can create the money that is necessary from that account that I need every year, I need to take out, let's say about 150 grand, like, once you stop working. Okay, Lisa, like, once you're done, you just start taking some money out. Maybe you start taking some money out now and just start taking out enough money to keep you in the 22% tax bracket so that you say, okay, well, you know What? I'm making 120. Is that what you said? Yeah, right. You make 120. Okay, I make 120. Let's take another 50 grand. Let's take out of Steve's retirement account. Let's take 50 grand extra a year. Let's start paying the tax on that while we're still in Washington state. Thank you very much. Let's take that money out and not pay and pay the 22% that's due. Let's do that for a couple of years, and let's keep doing that every single year. And we'll reduce it a little bit, maybe for the Social to account for Social Security, and we start taking money out of Steve's account as we need it, and that's it. And what I would ask this person, I would ask her is we are uncomfortable with insurance products. And you know what? Can't we do this with index funds? What are all our alternatives? We know that insurance products cost money. We also understand that what you're trying to do is minimize risk. But can't we just minimize risk by creating some bond ladders and calling it a day? You guys don't have the pressure of investing, taking on tons of risk because you've done such a good job of accumulating the assets. So that's what I want to ask you. Do you think that's what I would ask her rather? Do you? Does she think that she could do this with index funds? And if not, maybe you say, thank you so much, it's been great, and we can move on.

[Steve]

And what about the legacy income?

[Mark Talercio]

No. Why? What is this for? No, we do not need this. You have so much money. You don't. You know, we're solving for a problem that does not exist for you guys, okay? It just. It doesn't. You don't need that. So again, you have this big pile of money. That money, you can convert it into a stream of income. There's no doubt about this. People, everyone listening. It's not that I hate annuities. Annuities solve a problem problem often, which is people don't like inconsistencies in their returns. And yet to be an investor means to actually assume some risk. And you guys are not sounding to me like people who are uncomfortable with risk. This is how I listen between the lines. When people say to me, like, how do you do a financial plan in, you know, 15 minutes? It's because I'm hearing who you are. Okay? What I would say is this. I understand that this is a solution to many people's problems. I just don't think this is you. I don't think it's you guys that have this problem. So if you don't mind, I would like to offer you the assistance of somebody who could help you out. How about that?

[Lisa]

That sounds great.

[Mark Talercio]

And that'll be somebody I know who will not use an annuity. I can promise you that.

[Steve]

Okay.

[Mark Talercio]

You didn't make a mistake. Everything's fine. I'm so glad you called us because I really do think that this is, you know, a lot of people say to me, well, this is, you know, cfp. It's automatic. It's not automatic. Some of these people really believe in the annuity process. They leave. They're not. I mean, listen, it would be horrendous if it was a real insurance salesperson, because what they would say is they'd be like, oh, we got an annuity and we now have actually putting a million dollars in there. They're not saying that. She's not saying that. She's saying this can build your stream of income. It's with, you know, something like a half a million of your total assets of four and a half million. So it's not terrible, but I don't know if it's necessary. And so I think we're going to give you some names. Okay.

[Steve]

Okay.

[Mark Talercio]

Take a deep breath. It's okay. You didn't do anything wrong.

[Steve]

Yeah, I just. I really thought that this was the. The one annuity that wasn't evil.

[Mark Talercio]

It may not be. It may not be evil. I just don't think you need anything like this. I don't know, you got so much money. It's not evil. And annuities are not evil in there, you know, and they're like, I talk to folks at Fidelity. Some of the Fidelity advisors use annuities, but they're no fee annuities or they're low fe annuities. I just don't know. If you need this, why pay anything like, I don't know, may not make sense. Maybe someone else. Maybe I'm going to be wrong. Okay. Honest to God, maybe I'm going to send you to somebody and they're going to say, actually, Jill's wrong on this. This is the one annuity. I just need another set of eyes on this. Somebody who's really familiar with these products. But let's get. Let's get a second opinion. How about that?

[Lisa]

Thanks, Joe.

[Mark Talercio]

All right. Thank you so much. And hey, gang, before you buy any annuity products, please get in touch with us. Let's hear what's going on. They are not all inherently bad or evil. Some of the people who sell them may be, but the products themselves are not all terrible. So go to our website jillonmoney.com, click the contact us button and write us a note. If you want to join us live, check the box. So good. When we have a couple, it's fantastic. You can subscribe to us on the Odyssey app or wherever you find your favorite podcasts. It's Friday, so we're going to do some business. Our music is composed by Joel Good. Mark Talercio is our executive producer, king of all things web, and we are distributed by the fine folks at Odyssey. Please lift somebody up. Change your work, change your wealth, change your life. Thank you for listening and we'll talk to you on Monday.

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