Rocky Markets, Time for an Annuity?

Summary

Podcast Summary: "Rocky Markets, Time for an Annuity?"

Episode Details:

• Title: Rocky Markets, Time for an Annuity?
• Host: Jill Schlesinger, CFP®
• Release Date: May 6, 2025
• Platform: Audacy

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Introduction

In the May 6, 2025 episode of "Jill on Money with Jill Schlesinger", host Jill Schlesinger delves into the complexities of navigating financial decisions during volatile market conditions. Titled "Rocky Markets, Time for an Annuity?", the episode addresses whether annuities are a prudent choice for investors seeking stability amidst market turbulence. Jill, alongside her co-host Mark Schlesinger, explores listener questions, provides expert insights, and discusses actionable strategies to optimize financial well-being in uncertain times.

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Main Discussion: Annuities in Unstable Markets

Jill opens the episode by highlighting the current economic climate characterized by unpredictable markets. She poses the central question: Is it prudent to consider annuities as a financial safety net during such times?

Mark responds by emphasizing the essential role annuities can play in a diversified portfolio. "Annuities can offer a guaranteed income stream, which is particularly valuable when market returns are erratic," he explains (10:19).

The discussion pivots to the types of annuities available, such as fixed and immediate annuities. Mark warns against over-committing funds into annuities, stating, "A million dollars is too much; it's a significant bet on a financial product that, if not carefully chosen, can lead to substantial losses" (12:09).

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Listener Emails and Q&A

1. Retirement Readiness: Rich's Inquiry

Rich writes in with substantial retirement savings and seeks assurance on whether he and his wife have enough to retire comfortably. With $645,000 in a 401(k), $735,000 in CDs, and additional savings, coupled with pensions and Social Security benefits, Rich is poised for retirement.

Mark analyzes Rich's situation, noting, "With approximately $9,930 a month in pensions and Social Security, you're in pretty darn good shape," yet he underscores the importance of understanding the specifics of pension adjustments and the overall financial landscape (04:40).

2. Emergency Funds vs. Debt Repayment: Robert's Question

Robert challenges the conventional wisdom of prioritizing emergency funds over debt repayment. He suggests that if credit lines are available, paying down debt might take precedence.

Jill counters, "In an emergency, if you need cash, you need cash without relying on credit cards," advocating for maintaining an emergency reserve fund over depending on credit lines (06:39).

3. Social Security Strategies: John's Complex Situation

John, a new listener, presents a multifaceted retirement scenario involving multiple retirement accounts, impending home purchases, and strategic Social Security claiming.

Mark provides a nuanced strategy, advising John to delay claiming Social Security until age 70 to maximize benefits and suggests spreading withdrawals from traditional assets to mitigate tax impacts and manage required minimum distributions (10:05).

Jill and Mark further discuss the implications of immediate vs. deferred Social Security benefits, emphasizing the importance of personalized financial planning to align with individual goals and circumstances (11:04).

4. Annuity Considerations: Jerry's Contemplation

Jerry considers purchasing a fixed annuity with a substantial portion of his 401(k) to secure a lifetime income stream, juxtaposed against his current savings and Social Security benefits.

Mark advises caution, recommending a second opinion from a fee-only financial planner before committing to large annuity purchases. He expresses concerns about locking too much into annuities without thorough understanding, stating, "An annuity can be a really, really expensive bet if you lose that money in the future" (12:09).

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Expert Insights and Strategic Recommendations

Throughout the episode, Jill and Mark underscore the importance of personalized financial strategies, especially in volatile markets. Key takeaways include:

• Diversification: Balancing traditional investments with guaranteed income products like annuities to cushion against market downturns.

• Tax Efficiency: Strategizing withdrawals from various accounts to optimize tax liabilities and benefit from credits, such as those from the Affordable Care Act.

• Longevity Planning: Delaying Social Security benefits to maximize lifetime payouts and considering spousal benefits to enhance household income stability.

• Professional Guidance: Consulting with fee-only financial planners to navigate complex decisions and avoid costly missteps, particularly when considering products like annuities.

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Conclusions and Takeaways

In a market marked by uncertainty, Jill Schlesinger and Mark Schlesinger advocate for a balanced and informed approach to financial planning. While annuities can provide valuable income guarantees, they are not a one-size-fits-all solution and require careful consideration of one's financial landscape and long-term goals. The episode reinforces the necessity of proactive, personalized financial strategies and the benefits of seeking professional advice to navigate the intricate pathways of retirement and investment planning.

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Notable Quotes

• Mark Schlesinger (10:19): "Annuities can offer a guaranteed income stream, which is particularly valuable when market returns are erratic."

• Mark Schlesinger (12:09): "A million dollars is too much; it's a significant bet on a financial product that, if not carefully chosen, can lead to substantial losses."

• Jill Schlesinger (06:39): "In an emergency, if you need cash, you need cash without relying on credit cards."

• Mark Schlesinger (11:04): "You have to get the money out of this account anyway. Reducing future minimum required distributions is crucial."

• Jill Schlesinger (02:18): "The show is about you, about what you want to do, and our job is to figure out different paths to get you where you want to go."

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Final Thoughts

This episode of "Jill on Money" provides listeners with valuable insights into managing finances during unstable market conditions. By addressing real-life scenarios and offering expert advice, Jill and Mark empower their audience to make informed decisions that align with their unique financial objectives.

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For more personalized advice and to join future discussions, visit jillonmoney.com and engage with the "Jill on Money" community.

Transcript

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[Mark Schlesinger]

Welcome to the Jill on Money Show. It's Tuesday, May 6th and we are here trying to help you make more considered financial decisions. And so much of what Mark and I do relies on you guys making.

[Jill Schlesinger]

Sure that you get in touch with.

[Mark Schlesinger]

Us because otherwise we're just blabbing. I mean, we like to blab. Don't get me wrong, I've gotten Mark even used to blabbing. But the show is about you, about what you want to do and our job as certified financial planners and just basically the kind of people who are really nosy is to get to know who you are, what you'd like to do and and figure out different paths to get you where you want to go. It doesn't have to just be one. It can be lots of different ways to get there. So if you've got a question, go to jillonmoney.com, click the contact Us button. And if you want to join us on the air, just check the box.

[Jill Schlesinger]

Mark.

[Mark Schlesinger]

We'll do everything else while you're on the website. Don't forget, you can sign up for the free weekly newsletter, comes out every single Friday.

[Jill Schlesinger]

Mark does a great job with that.

[Mark Schlesinger]

And you can also subscribe to our sister broadcast called Money Watch, which drops on Saturdays and Sundays.

[Jill Schlesinger]

And, and Money Watch is a little.

[Mark Schlesinger]

Bit more of the boot camp for your financial life, maybe going over some of the basics, but also answering questions from people who may be just starting out, getting back up on their feet or mid career, whatever it is. But you know, the folks who have $10 million and they're wondering whether they can retire or not, don't come onto MoneyWatch. You can listen, but don't come on. Okay, right now, let's do some emails. Here we go. The first email is from Rich, who writes, we have $645,000 in a 401k, 735,000 DOL. Thousand dollars in CDs, a savings account of $185,000. We have no debt. I will receive a pension of $2,286 a month and Social Security of $3,200. My wife will get a $1,200 pension and $1,600 in Social Security. Our yearly expenses are around $65,000. Do we have enough to retire? I wonder how old this guy is, Rich.

[Rich]

Yeah, that's what I was wondering. It's like if they're retired now and collecting all this money and Social Security. Yeah. Then they have enough.

[Jill Schlesinger]

Right.

[Mark Schlesinger]

But if, if I think that perhaps you're not yet retired, I don't know your ages, so I wish you would.

[Jill Schlesinger]

Follow up with us.

[Mark Schlesinger]

I think you're close. Are the two pension checks, that's one question. Are the two pension checks subject to a cost of living adjustment? Because if they're not, then that would make a big difference in my analysis. Right? Because if you have, let's just call it about $4,500 a month in pensions, but that is staying still as opposed to the Social Security, which is, you know, the, the money that will be subject to a cost of living adjustment. You know, that would change the calculus a little bit, but it seems like you're in pretty darn good shape. Because, you know, let's say you have about 9,9300 bucks a month coming in. That would net you your $65,000. But I really want to know more, a little bit more about you. I think the answer is yes. How about that? So let's go to an email from Robert. Hi, Jill. I watch CBS this Morning every day and I see you on the show. Why do you money management folks always stress so hard to have an emergency fund? Yeah, it's great if you don't have a credit card or credit cards to use in emergency. However, if you have debt, it's really best to pay down debt rather than save. So long as you have credit lines to fall back on in a pinch. Well, Robert, so long as is quite the qualifier. So, yeah, sure, but I don't like to rely on credit lines. You know, I have no idea whether or not people have the ability to grab that. But what I do know is in an emergency, if you need cash, you need cash and you don't want to go draw down on credit cards. And I think we learned this in the pandemic. So if you want to pay off your debt, that's great. I never say ignore your debt. I say do both. If you want to know what's your real safety net, it is not running up a credit line or a credit card. It is an emergency reserve fund. This is a very long question from John. So settle in, gang. Hi, Jill and Mark. I found your podcast within the last month. How is it just a month?

[Jill Schlesinger]

Oh, my God.

[Mark Schlesinger]

All right. Anyway, he says, I love it.

[Jill Schlesinger]

I've been listening to the new pods.

[Mark Schlesinger]

Every day and catching up on older episodes. My wife and I live in Atlanta. I am 63 and she is 61. I retired at the end of last year and she stopped working outside of the home many years ago after our second child was born.

[Jill Schlesinger]

Has not had W2 income since.

[Mark Schlesinger]

Kids are now 31 and 26. They're both launched. They're doing well. This is already why I love John.

[Jill Schlesinger]

We hope to travel a lot during.

[Mark Schlesinger]

The next seven to 10 years and we also have a goal to sell our current home and buy a new home, probably in one of the Carolinas where the traffic is lighter and the pace of life a little slower. We're thinking that we'll move in the next 18 to 24 months. We are budgeting to spend 250 to $300,000 above the amount we net from the sale of our current home. In other words, not a downsize and upsize. Okay. I do not plan to pull much additional money from our investments this year. I sold some taxable investments with small gains earlier in the year to live on. And I'm trying to keep my income low this year to get the most out of the refundable tax credit for the health insurance we bought through the ACA exchange. All right, well, I mean, by the way, that refundable credit is pretty good. Nice. It's a very juicy credit for 26 and 27 though. Does it make more sense to pull funds for living expenses from the pre tax accounts to save on taxes later, even if it means paying more taxes and somewhat higher insurance premiums in the next two years? Also, does it make more sense to pull the funds needed for the home purchase from the taxable brokerage accounts, pre tax accounts or a combination? So John is going to wait to claim Social Security until his age 70? My question in this area has to do with my wife's benefit. Since her benefit is less than half of mine, I assume she will ultimately be receiving the spousal benefit based on my earnings record. Can she draw benefits based on her own record prior to when I begin receiving benefits at age 70? So let's just remind us here, gang. There's a two year age difference between the two of them. So that's what I just want you to know. So John goes on to write, I'm unclear how this works. I do know that her ultimate spousal benefit will be reduced if she starts taking Social Security next year when she turns 62. But maybe she can draw for a year on her own record when she turns 67 without reducing the spousal benefit. Thanks for your help. Here's the information you need. Okay, he's got a traditional 401. That's $2 million. There's a traditional IRA, 223,000. Two traditional IRAs. So hers is 223,000, his is 181,000. So let's just call it traditional assets. $2.5 million, Roth assets, a little more than 900,000. Then we've got brokerage accounts with no, let's call it about a million bucks. Okay, so that's all taxable cash, 235,000 I bonds at Treasurydirect, 22,500 total assets, blah, blah, blah. Okay, so let's do this easily. So Mark, first question, wife's benefit she should claim at her full retirement age, then switch to his benefit when he turns 70. Yes.

[Rich]

I'm going to get clarification from our friend Heather because Her spousal benefit on his record maxes out when he's 67, not when he's 70. He can wait till he's 70, but she's only going to get half of what his benefit would have been when he was 67.

[Mark Schlesinger]

Next, let's talk a little bit about the shenanigans around the idea of getting your Affordable Care act money. Okay, so we don't have that many years, right? As you noted, it's two years. Right. Because you're 63, she has four more years before you get Medicare. So I am inclined. Because you have $2.5 million that haven't been taxed yet, I'm inclined to get that money out and start using that money. Do you, Mark, think that it is preferable for them to use that retirement money that hasn't been taxed yet? Get it taxed, get it out. Obviously reduce their future minimum required distributions, but, like, they're gonna have to pay a little bit more for the Affordable Care Act. What do you think?

[Rich]

Yeah, I mean, that is the ticking time bomb in this scenario.

[Mark Schlesinger]

I mean, because I even think you should probably make sure that you have. That you're going to use for the home purchase. You know, I know we've got some time, but, you know, I think you should be starting to dribble the money out from these traditional assets between now and age 70. That's, to me, the ticket here. And you've got the time to do it. So I know you like your benefit of getting the tax credit, but I don't know, that ticking time bomb is a little bit more worrisome to me because at age 75, that two and a half million dollars, if it's just left, could really start to push out.

[Jill Schlesinger]

A ton of money.

[Mark Schlesinger]

You know, we're talking about, you know, 10 years from now or 12 years from now, that could turn into real money. And so if you think about it this way, you say, oh, you know, if I had, I don't know, let's see, 2.5 million over 10 years. What do you figure that grows to, Mark? Reasonably not in a high risk profile portfolio. Four and a half?

[Rich]

Yeah, about four and a half.

[Mark Schlesinger]

So if you look at that, that means that minimum required distributions alone would be $180,000. That's a lot of money. I really think that those are the accounts you should concentrate on. You know, if you don't want to take. If you're looking at your brackets and you want to do bracketology for taxes, sure, you could do that. But I wouldn't get too cute. That's the issue that I think is you're facing. That's the one that I think is important. All right. Jerry writes that he has $1.7 million in a 401k. He's married. My wife is collecting Social Security. We have a paid off house. No bills. Well, I mean, obviously bills. Anyway, he's looking to retire at 59 and a half. And he says, I'm thinking about an annuity with a million dollars and then wait until I'm 65 to have yearly payout for life of 100 grand a year, give or take. Then I would turn my Social Security on. At 62, we have $200,000 in savings. I estimate to have $10,000 a month with the annuity and with the two Social Security checks. Question what to do with the $700,000 that would be left in the 401? Should I leave it there or move it? What do you think of an annuity? It's a fixed annuity with a wellbeing payment. I can't decide. There's so many annuities to choose from. The two I'm looking at are what family members have used. I'm on the fence with annuities, but after the gyrations of the stock market this year, that 10 grand a month is looking better and better. What are your thoughts? I get this, guys. I understand that annuities can be really helpful. One thing that I have been considering is maybe it would be better for you and in a situation like this if we could do an immediate annuity. Right? An immediate annuity, meaning you put a certain amount of money into that annuity and you do push out the money every month. One nice thing about that is that, you know, you have to get the money out of this account anyway. The answer to the question of what else you should do. The one thing I'm a little bit worried about is how much do you spend? Because getting $10,000 a month is not. It's. You say here it says that at 65, he would have a yearly payout for life of $100,000 a year. I am unclear whether that is a guarantee or a hope. And what I mean by that is I have to look at the contract. So here's what I think. Anyone who's considering an annuity, who's being sold an annuity as an idea should have a second opinion by a financial planner who is a fee only planner. You should pay a fee to have somebody look at that and determine if that's the best idea for you because without doing so, I think it is important that you guys know that that can be a really, really expensive bet to put out on the table. And I would much prefer you having a clear understanding that that's the right thing for you. I think a million's too much, by the way. I really do if you lose that money in the future. So it makes me a little bit nervous. So that's the story, gang. All right. Annuity questions, investment questions, anxiety questions. Any questions that have to do with your money and your life. Give us a Holler. Go to jillonmoney.com Click the contact Us button. Write us that note if you want to join us live, which is so much more fun, let's be honest. It is, right, Mark? Isn't it more fun? We get to ask all the follow up questions, the nosy questions, the questions after we get off the air where we really get to like mess around and find out what's really, really going on. You know, we don't put everything out there. We protect you. Give us a holler. Go to jill on money.com click the contact Us button. Check that box. Mark will do everything else. Don't forget that you on that website can do so many things. You can check out our blog, our resources, the free weekly newsletter, and you can subscribe to Jill on Money Live. That's where you have access to quarterly live webinars, bonus audio and video content, the entire back catalog, all for 45 bucks for the next 12 months. So check it out.

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