Suze School: Fortifying Your Financial Freedom and (Again) Understanding Annuities

Summary

Podcast Summary: Suze Orman's Women & Money (And Everyone Smart Enough To Listen) Episode: Suze School: Fortifying Your Financial Freedom and (Again) Understanding Annuities
Release Date: May 25, 2025

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Introduction

In this episode of Women & Money, Suze Orman and her co-host, Suzio, delve into the importance of financial security and provide an in-depth exploration of annuities. Balancing personal reflections on Memorial Day with practical financial advice, the episode offers listeners actionable steps towards achieving financial freedom and a comprehensive understanding of various annuity products.

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Section 1: Memorial Day Reflections and Financial Freedom Steps

Honoring Sacrifices and Building Financial Security

The episode opens with Suzio reflecting on Memorial Day, emphasizing the significance of honoring the sacrifices of military personnel. She shares a heartfelt tribute to veterans, highlighting the true cost of freedom and inspiring listeners to take meaningful steps towards financial security.

Three Steps Towards Financial Freedom

Suzio introduces three actionable steps for listeners to fortify their financial freedom:

1. Reflect on Your "Why"
   [02:54]
   Suzio encourages listeners to write down the personal freedoms they value most, whether it's providing for children, supporting a cause, or achieving peace of mind. She prompts them to delve deeper by answering, "Why do these freedoms give you the fuel to stay committed?"

2. Take Empowering Action
   [03:53]
   Listeners are urged to commit to a single, concise financial action. Examples include automating retirement contributions, reviewing beneficiary designations, or setting up essential legal documents. This step serves as a tribute to those who sacrificed for their freedom.

3. Honor Through Generosity
   [05:01]
   Suzio emphasizes the importance of giving back during Memorial Day. Whether through donations to veterans' organizations or volunteering, acts of generosity resonate with the spirit of service being commemorated.

Notable Quotes:

• "Freedom isn't free. It's earned through the bravery, commitment, and selflessness of others." — Suzio [01:09]
• "People first, then money, then things." — Suzio [49:26]

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Section 2: Suze School on Annuities

Understanding Annuities: Types, Benefits, and Drawbacks

Suze Orman leads an extensive discussion on annuities, their types, and her perspectives on their suitability for different financial situations. She clarifies misconceptions and provides a nuanced view of how annuities can fit into one's financial strategy.

1. What is an Annuity?

An annuity is a contract with an insurance company where the investor (annuitant) receives tax-deferred growth on their investment. Annuities can be qualified (held within retirement accounts) or non-qualified (held outside retirement accounts).

• Qualified Annuities: Funded with pre-tax dollars within retirement accounts.
• Non-Qualified Annuities: Funded with post-tax dollars outside retirement accounts.

2. Types of Annuities and Suze's Perspectives

a. Single Premium Deferred Annuities

• Description: A lump-sum investment that grows tax-deferred over a specified period.
• Pros: Guaranteed minimum interest rates, suitable for those planning to reach age 59½ during the surrender period.
• Cons: Potential surrender charges if funds are withdrawn early.
• Suze's Take: "Single premium deferred annuities are usually far better for people who know they are going to turn 59 and a half or older in the year that the surrender charge is up." [27:00]

b. Variable Annuities

• Description: Investments tied to mutual funds, offering potential for higher returns but with more risk.
• Pros: Tax-deferred growth, flexibility in fund selection.
• Cons: High fees, surrender charges, mortality and expense fees, taxable earnings upon withdrawal.
• Suze's Take: "Variable annuities also come with surrender charges, and if you take money out before the age of 59 and a half, the 10% penalty by the government." [38:33]

c. Indexed Annuities

• Description: Linked to market indexes like the S&P 500, offering a balance between fixed and variable returns.
• Pros: Potential for higher returns than fixed annuities, some protection against market downturns.
• Cons: Complex terms, capped returns, can be difficult to understand.
• Suze's Take: "Many people like indexed annuities. You can do that if you want. They have less risk than a variable annuity." [41:26]

d. Income Annuities (Immediate Annuities)

• Description: Provide guaranteed monthly income for life or a set period, starting immediately after purchase.
• Pros: Reliable income stream, suitable for retirement.
• Cons: Inflexible, potentially lower total returns, no access to principal.
• Suze's Take: "I do not have a problem with you doing that right now. Just look at the ins and outs of them." [42:43]

e. Qualified vs. Non-Qualified Annuities

• Qualified: Held within retirement accounts, offering tax-deferred growth.
• Non-Qualified: Held outside retirement accounts, also offering tax-deferred growth but with different tax implications upon withdrawal.
• Suze's Take on Qualified Annuities: "Variable annuities within a retirement account is absolutely, in my opinion, just stupid." [44:53]

3. Key Considerations with Annuities

• Surrender Charges: Fees for early withdrawal, typically decreasing over the surrender period.
• Tax Implications: Ordinary income tax on withdrawals, 10% penalties if under age 59½.
• Insurance Company Stability: Annuities are not FDIC insured; state guarantee associations provide limited protection.
• Investment Alternatives: Suze advocates for investing in mutual funds or ETFs outside of annuities for greater flexibility and tax advantages.

Notable Quotes:

• "Don’t generalize on Suze just hates annuities. You can generalize on I hate variable annuities because I don't understand them at all." — Suzio [07:59]
• "The spirit of service, which is really what we're commemorating tomorrow, is what I want you to do today." — Suzio [05:59]
• "Most annuities pay a very hefty commission to the financial advisor who is selling you that annuity." — Suzio [15:36]
• "People first, then money, then things." — Suzio [49:26]
• "Personal finance is personal to every single person." — Suzio [46:54]

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Conclusion: Tailoring Financial Strategies to Individual Needs

Suze Orman and Suzio emphasize that financial decisions, especially regarding products like annuities, should be personalized. While annuities can offer benefits in specific circumstances, they may not be suitable for everyone. Listeners are encouraged to thoroughly understand the terms, fees, and implications of annuities and consider alternative investment options that align better with their financial goals and circumstances.

Final Takeaway: “There’s no such thing as Suze hates everything. Personal finance is personal to every single person. So don’t try to take somebody else’s advice and make it be beneficial for you.” — Suzio [46:45]

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Additional Resources

• Women & Money App: Access past episodes, ask Suze questions, and engage with the community.
• YouTube Channel: Watch official content for more insights and tips.
• Ask Susie: Submit personal finance questions via email for potential discussion on future episodes.

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Note: This summary is for informational purposes only and does not constitute financial advice. Consult with a financial advisor for personalized guidance.

Transcript

[Suze Orman]

Hi, everybody.

[Suzio]

Suzio here.

[Unknown]

Now, what is the goal of money?

The goal of money is for you to be secure. And there is no better way for you to be secure than having an emergency savings account.

It is essential for your financial foundation.

[Suze Orman]

So all of you should be participating.

[Unknown]

In the Ultimate Opportunity savings account at Alliant Credit Union. Go to myalliant.com to find out more.

[Suzio]

And be secure.

[Unknown]

We are strong we are wise we will not apologize we are here we will thrive together we will rise we're the little bit of faith and everything it takes we are strong we are wise together.

[Suzio]

May 25, 2025 welcome, everybody, to the Women in Money podcast as well as everybody smart enough to listen.

[Suze Orman]

Susie O.

[Suzio]

Here. So are you having a good weekend? You have tomorrow off. Many of you are celebrating, but it always kind of gets to me. I have to say this, everybody, especially on this one holiday, Memorial Day, do we really, really remember the sacrifice that the men and the women of the Armed forces, where literally many of them have given up their lives for our freedom? And I look at the veterans and one of the things that I love doing is I love going to the cemeteries where many of them are buried and all the flags that you see put up and you're really reminded that that flag is blowing in that breeze and representing freedom, but then it's on their grave. So I really, really hope that on this day where we are honoring them, we are honoring their legacy, that it really reminds us that freedom isn't free. It's earned through the bravery, commitment, and selfishness of others, if you think about.

[Suze Orman]

It, as well as ourselves.

[Suzio]

So I have a favor to ask all of you. I want you all to get out your little Suzy notebooks again. Hopefully they're not that little right now. And in honor of today, I want us to take three meaningful steps this holiday. Besides just gaining weight and eating and.

[Unknown]

Doing this and celebrating.

[Suzio]

I want this holiday to be meaningful for you this weekend to fortify your steps towards financial freedom. Really, number one, I want to reflect on your why.

[Unknown]

Write that down.

[Suzio]

I want you to reflect on your why. To do so, I want you to write down the personal freedoms that you value most, whether it's providing for your children, maybe it's supporting a cause, or sometimes for me, it's simply sleeping soundly at night, especially for kt, I want you to write them down. And then I want you to answer the question, why? Why do these freedoms give you the fuel that you need to stay committed to them?

[Unknown]

Why?

[Suzio]

What does it give you Then, number two, I want you to take just one action that empowers you. Pick one concise action or task. Perhaps it's automating a monthly contribution to your retirement account, or reviewing your beneficiary designations, or setting up that health insurance checkup, or doing the must have documents. I want you to commit to the day to do it as a tribute to those who gave us the chance.

[Suze Orman]

To secure our futures. They gave up their lives for us.

[Suzio]

To be secure and have a future. So I want you to take one action, commit to when that action is going to be completed, and I want you to take it. And that is a way that we can honor those who lost their lives.

[Unknown]

And then, last but not least.

[Suzio]

So these are very simple things.

[Unknown]

And you may say, oh, Susie, really?

[Suzio]

Yeah, really. Everybody, we need to stop and take time and evaluate why we do things. What do we do? How do we honor those, especially those who remained and lost those that they loved? Because that's part of true freedom. So last but not least, number three, I want you to honor this time right now through generosity. Because if you think about it, everybody, Memorial Day is a time to give back.

[Unknown]

So maybe you want to consider donating.

[Suzio]

To a veterans organization or volunteering your time to help others with things that they may need. But every act of generosity echoes the.

[Suze Orman]

Spirit of service, which is really what.

[Suzio]

We'Re commemorating tomorrow, is it not? We are honoring the spirit of service. So that's what I want you to do today. Tomorrow, I want you to honor who you are, what you want, and those that gave up their lives for your freedom. Now, let's go to Susie School. All right, I get it, everybody. So I make this simple little mention about how for 40 years now, I've been contributing money every single month to an annuity at American Express, and now it's worth almost $1 million. Okay, and from that, you take away.

[Unknown]

Does Susie like annuities?

[Suzio]

I thought Susie hated annuities.

[Suze Orman]

I thought this. I thought that.

[Suzio]

Now, I want you to listen to me. Today, would I be putting that money in that annuity every single month, month in and month out, if I hadn't started it that many years ago? No, I would not. And the only reason that I'm continuing it is because it's got a guaranteed minimum interest rate of 5%, and I could take it out anytime I want. So why not just do it? And it's just part of a discipline of savings, but would I be starting that today and doing it? I would not. So you need to understand what Annuities I like, what annuities I don't like. And every single one of you is different in a different situation. So sometimes I might say I don't like this annuity, but can guess what, for you, it's the perfect thing.

[Suze Orman]

So you all have got to stop.

[Suzio]

Generalizing on Susie just hates annuities. Yeah, you can generalize on I hate variable annuities because I don't understand them at all. And to me, in most cases, they make absolutely no sense. But there are annuities that do make sense for you in individual situations. One thing I can say to you is it never, ever makes sense to have an annuity, especially a variable annuity, within a retirement account. Now, years ago, when Pacific Gas and Electric and as you know, I did the retirement planning for them, they were having early retirement. There was an annuity by Lincoln Benefit.

[Suze Orman]

Life that I put all of these.

[Suzio]

People'S money in within their retirement account because they were under the age of 55 and we needed to do something called separate and equal periodic payments, which allowed them to take money out of this account without the 10% penalty. However, Lincoln Benefit Life also gave us the guarantee of an incredible interest rate at the time. And if there were any mistakes where any single person got a 10% charge by the government, they would cover it. But that's the only time I would have done that. There are exceptions to every rule.

[Suze Orman]

Shake that dust out of your heads.

[Suzio]

And just be open and smart enough to know what, when does something apply and when does it not? So I was going to sit down today and give you a Susie School on annuities until I realized I've already done that. The 458th podcast of the Women in Money podcast on April 9, 2023, I gave you an extraordinary Susie School. So we are going to cut that in the parts I want you to know into this podcast. Now, I'm also just going to say, hey, if you want even more information on why I hate variable annuities so much, then the 576th podcast, which was on May 26, 2024, you can go to that one and listen to that and mark these two podcasts down so when you get confused, you can just go back and listen to it and listen to it again. So are you ready now? Here we go on your masterclass again on understanding annuities.

[Unknown]

All of you need to understand that I do not hate all annuities. Can you write that down in your little Suzy notebook? Susie Orman does not hate all annuities in Fact, there was a time in the United States, for years actually, that I was the number one advisor and salesperson, so to speak, in getting people to buy single premium deferred annuities.

I was putting my clients to the.

Tune of about 20 million a year, obviously with a lot of people into annuities.

So there are some annuities at specific.

Times in the economy that I absolutely love. And then there are some annuities that I absolutely do not love. So you need to get that straight.

[Suze Orman]

There are different varieties of annuities.

[Unknown]

There are single premium deferred annuities, which I tend to absolutely love in many circumstances. There are variable annuities, which I tend to not love in most circumstances. There are indexed annuities, which I can be hot and cold on. I think there are better ways to invest your money. There are income annuities, which, if you are looking for guaranteed income, specifically, while.

Interest rates are high right now, and.

I talk about this in the ultimate retirement guide for 50 plus, I do.

Not have a problem with them. And then there are tax sheltered annuities, which are annuities that many people, especially.

Teachers, that's where their retirement accounts tend to go. I don't really have a problem with those either. So we will be breaking down now every single one of those annuities and how they differ and the pros and.

Cons of each one.

Let's first start with what is an annuity. An annuity is a contract with an insurance company where you are usually the insured, known as the annuitant. You also usually are the owner and the beneficiary is whoever you want the annuity to go to upon your death because it is a contract with an insurance company that has it insured. Again, known as an annuitant. The interest or the growth that your money earns is tax deferred, which means you do not pay taxes on it until you withdraw it. And when they are purchased outside of a retirement account, they are known as non qualified annuities. Write it down. If you purchase an annuity within a retirement account, it's known as a qualified annuity, especially if the retirement account is a traditional retirement account, meaning it's a non roth retirement account or a pre taxed retirement account. So a qualified annuity is you have.

Never paid taxes on the money that.

Is in that annuity. A non qualified annuity is an annuity that you have funded with money that you have already paid taxes on. Let's talk about non qualified annuities that are outside of retirement accounts. All non qualified annuities usually have the exact same laws governing them. And the laws are not only by the United States government, but they're also by the insurance company itself.

Now, whether you know it or not.

Most annuities pay a very hefty commission.

To the financial advisor who is selling you that annuity. There are many annuities that are issued.

Possibly by Vanguard or other companies that do not have commissions on it, but most do. How would you know if an annuity has a surrender charge? And a surrender charge means that you deposit, let's just say, $10,000 into an annuity. And the annuity contract states that you have got to keep your money in there for at least seven to 10 years. And if you take it out before that period of time, there will be what's called a surrender charge that you.

[Suze Orman]

Will have to pay.

[Unknown]

And the surrender charge can start at.

10%, going all the way down to 0% over those seven or 10 years.

Now why is there a surrender charge?

There is a surrender charge because that usually equates to the amount of commission.

That the salesperson or the financial advisor.

[Suze Orman]

Was paid to sell you that annuity.

[Unknown]

If you come out of that annuity.

Before the company that issued the annuity can get back the commission they paid to the financial advisor by the fees that are within the annuity, they want to make sure that you are responsible for that deficit.

So there are some annuities that, let's.

Say, have a seven year surrender charge. And maybe if you come out before.

The surrender charge is up in those seven years, you could pay 7% of.

[Suze Orman]

What you take out the first year.

[Unknown]

The second year, the third year, and.

Then maybe it starts to go down to 5%, 4%, 3%. So by the time the insurance company.

[Suze Orman]

Has gotten back all of their fees.

[Unknown]

That they paid out to the financial advisor who got their commission up front, by the way, that's when the surrender.

[Suze Orman]

Fees or charges go away.

[Unknown]

If you have an annuity that there.

Are no surrender charges for you to.

Come out of, that's usually an annuity that didn't pay a commission for a salesperson to sell it to you or a financial advisor. So those are the fees from the annuity. Also, the government comes in here where if you withdraw any money from your annuity before the age of 59 and.

[Suze Orman]

A half, they will charge you and.

[Unknown]

A 10% penalty fee, exactly the way an IRA works.

Or a retirement account. If you take money out of the.

Retirement account before the age of 59 and a half, you pay, unless it's a Roth, you pay a 10% tax penalty, right? The same is true with an annuity.

[Suze Orman]

Why is that true?

[Unknown]

It's because, again, an annuity is a contract with an insurance company. And because you are the annuitant, there.

Is an annuitant, which means an insured person.

[Suze Orman]

That is how they get it to be tax deferred.

[Unknown]

You have two words that you have just learned. You've learned non qualified annuity, which means you have funded it with money you have already paid taxes on. And now you have the next word, which is tax deferred and annuities. All annuities are tax deferred, meaning you do not pay taxes on it while the money is in there.

But when you do go to take.

It out, you will pay ordinary income tax on any amount of money that you take out. And if you are under the age of 59 and a half, you will also pay a 10% tax penalty.

[Suze Orman]

Are we clear here?

[Unknown]

So there are penalties and surrender fees that are imposed upon most annuities by the insurance company itself as well as the government. That's important for you to understand. Next, in most annuities, you buy a tax deferred annuity and it goes up and up and up and up in value and you die and it goes to your beneficiaries. They will have to pay ordinary income tax on any money that they have inherited above what you originally put in.

So right now what I'm doing is.

I'm giving you a general overview of annuities. And again, this applies to all annuities except for income annuities, normally also known as immediate income annuities, where you have.

Started income right away.

But I'll get to that in a little bit.

So when you go to withdraw money.

For yourself, you will pay ordinary income tax on any amount of money that you do withdraw. If you die and you leave your annuity to anybody, when they withdraw the money, they will have to pay income tax, ordinary income tax on that money as well. So you put in $10,000 and over the years it has gone up and up and up. And now let's just say it's worth $50,000 and you die and you leave.

[Suze Orman]

It to your beneficiaries.

[Unknown]

Your beneficiaries will owe ordinary income tax on that $40,000. And the reason that they only owe income tax on that $40,000 is that that was your earnings on the original $10,000 that you already paid taxes on in this example.

Those are things that you have to.

Understand about annuities over all. Okay, let's start with a single premium deferred annuity.

One of my favorite that I really.

Don'T have a problem with, especially when.

Interest rates are higher.

And a single premium deferred annuity is exactly as its name says. In one single premium, one single amount of money, you put it in to a single premium deferred annuity. And again, there's the word deferred, which means they are deferring the income tax that you will owe on the growth of that money or the interest rate that money will earn until you take it out.

Especially because this is a non qualified.

Annuity we're talking about. Again, you fund it with money you have already paid taxes on in one lump sum. So you would put in $10,000 at.

One lump sum or $50,000 or $100,000 or whatever amount of money that you.

Want to put in.

Now normally when you buy a single.

Premium deferred annuity, the insurance company will give you a specific interest rate for a specific period of time. It can be one year, it can.

[Suze Orman]

Be two years, three years, four years.

[Unknown]

Or five years or more. What you want to be careful of, you do not want to buy a single premium deferred annuity that gives you.

[Suze Orman]

Just a high interest rate for the.

[Unknown]

First year that's guaranteed to you.

[Suze Orman]

But it has a five or a.

[Unknown]

Seven or a ten year surrender period.

And you do not know what is.

The interest rate that they are going.

To be giving you for all the.

[Suze Orman]

Years after the first year.

[Unknown]

Because remember, you will have in most cases surrender charges for a number of years.

[Suze Orman]

So you will be stuck there.

[Unknown]

So if they happen to decide, let's entice everybody to put their money into.

This single premium deferred annuity. Let's just say interest rate for a.

One year certificate of deposit, like the kind you can get at Alliant Credit Union. For instance, those interest rates are 5% for one year. Why not offer 5.5% or 6% for one year. Entice people to purchase the single premium deferred annuity guaranteed for one year, even though the surrender charges may apply for seven years.

Get them to put their money in.

And then after the first year we will lower their interest rates from years two to whatever the surrender period is to make up for the fact that we paid them so much more the first year than the going interest rate.

[Suze Orman]

Did you hear what I just said to you?

[Unknown]

That is not what you want.

If you buy a single premium deferred.

Annuity, you want them to guarantee you.

The interest rate that you are going.

To be paid for the entire length.

Of your surrender charge.

So if you wanted to, you put $100,000 in to a single premium deferred annuity where they are guaranteeing you, let's.

Just say 5% for all five years.

And the surrender charge is up after five years.

Sounds like a good deal, all right. And you go for it. And after five years, you decide you.

Don'T want to do another annuity and you take out all of your money.

If you are under the age of.

59 and a half, you will pay a 10% penalty on the interest that you've earned, and you will pay ordinary income tax on the interest that you earned. $100,000 over five years will make you about $28,000 in interest. And if you're under 59 and a half when you withdraw it, you will pay $2,800 on a federal level.

And there might be state charges as.

Well, depending on the state that you live in.

So you have to take that into consideration. Plus you will pay ordinary income taxes.

On the full $28,000. So single premium deferred annuities are usually far better for people who know they are going to turn 59 and a half or older in the year that the surrender charge is up, or they're already older and they're looking at that as a replacement for, let's say, a certificate of deposit. So a single premium deferred annuity, which was my favorite to put people into.

[Suze Orman]

Will work very well for people who are older.

[Unknown]

They want a guaranteed interest rate for a specific period of time. They want to not have to pay taxes on that money because maybe in those five years before it matures or whenever the surrender period is, they want to not pay taxes because now maybe they're in a currently high tax bracket, and five years or seven or ten years from now, they'll be in a.

[Suze Orman]

Lower tax bracket by a lot. So, so they don't care.

[Unknown]

And that's what they want to do. So single premium deferred annuities can take.

[Suze Orman]

The place of a certificate of deposit.

[Unknown]

Or a Treasury if you want it to. And that's essentially how they work.

So for those of you who have.

Put money into a single premium deferred annuity, you have locked in a good interest rate for the exact same amount of time as your surrender charge.

You understand how they work in terms of the tax penalties from the government, the surrender charges from the insurance company.

And by the way, normally you are allowed in many insurance companies to withdraw.

10% a year without the surrender charge applying. But if you withdraw that 10% a.

Year from the annuity and you are not 59 and a half, you will still have to pay a 10% penalty on that money.

Just so you know.

So as long as you understand that.

And you know the ins and outs.

Of it and you know why you are doing it, I don't have a problem with that. I just want to remind all of you, however, unlike a bank that is insured with FDIC insurance or a credit union that is insured by ncua, insurance annuity companies are not insured by FDIC or ncua.

Remember, each state has its own insurance.

Guarantee association that will provide protection for.

You in the event that the insurance company becomes insolvent.

So it is important that you understand that. And it is important that you understand each state has its own level of.

Insurance issued by the state guaranteed associations.

But you are never ever to put more money in an insurance company contract like an annuity that is more than what the state guarantee association will insure you for. All right, just make sure that you understand that.

So that's a single premium deferred annuity.

The next type of annuity, which I do not like, is a variable annuity. And a variable annuity is equal to an insurance company issuing you a mutual fund that invests in different things.

You usually can choose which one of.

Those funds you want to have your money invested in, but whatever you earn on it is tax deferred. And remember, we're talking about non qualified.

Annuities right now, where you are funding.

Them with money that you have already paid income taxes on. So you have money that's just sitting there, it's not in a retirement account.

And now you are thinking to yourself.

I want to invest it.

And you go to see a financial.

Advisor and maybe you're thinking you want to put it in different mutual funds.

Or exchange traded funds.

And your financial advisor that you're seeing presents an opportunity.

And it sounds like this. If you were to put your money.

Into a variable annuity, because again, it's a contract with an insurance company, it's an annuity, you will be guaranteed that you will never get back less than what you originally put in, number one. Number two, you can change funds anytime you want within the variable annuity and you will not have to pay income taxes on it. And that this is a way for.

You to invest in the stock market.

With absolutely no risk whatsoever. That is the sales pitch for most Variable annuities, Are you kidding me?

First of all, a variable annuity, for them to be able to say you will never get back less than what.

You put in, that means that if you die, it's not like you can get it out at any time. Let's go back to our example. You put $100,000 in, for instance, the markets have plummeted, your money is only worth $70,000.

It's not like you can say to.

That annuity company, I want my money back and they'll give you $100,000. No, that guarantee for you to get.

Back the $100,000 in this case reads like this.

You will get back on your death because you are the annuitant or the insured.

You will get back the $100,000 that.

You put in or the value of that annuity if the annuity at that time is higher. So whichever one is higher, you will get back that amount of money.

[Suze Orman]

But you have to have died to.

[Unknown]

Do so, number one. Number two, for them to be able to guarantee you that, they charge you a mortality charge of about 1.3% a year of your money.

[Suze Orman]

So you are paying for that, everybody.

[Unknown]

That is not just something that a.

Variable annuity gives you.

But all right, let's just say you put in $100,000 years ago and now.

It is worth $500,000 and you die and your beneficiaries get that $500,000, they are going to owe ordinary income tax on $400,000.

Why 400,000? Because you put in 100,000 of your.

Own money that you already pay taxes on, they get back 500,000. So the difference between your original deposit and a non qualified annuity and what.

[Suze Orman]

They get is taxable.

[Unknown]

Understand that. Now, why am I stressing that? Because if you put $100,000 directly into an index mutual fund or ETF at a brokerage firm and you left it there for years while that money is growing, in most cases you do not pay a penny of income tax on it anyway. However, upon your death, if it grew to $500,000, your beneficiaries wouldn't have to pay any.

You better underline this in your notebook.

They wouldn't have to pay any income tax on that whatsoever.

[Suze Orman]

Why?

[Unknown]

Because when they inherit it from you, they get a step up in cost basis. If it goes from 100,000 to 500,000, they inherit it.

Their cost basis now is 500,000. If they turn around and they sell.

It, absolutely no income tax at all.

If they sold it for 500,000.

[Suze Orman]

If they keep it, let's just say.

[Unknown]

They do and now it grows to.

600,000 or 700,000 and they decide to sell it.

[Suze Orman]

Hey, if they kept it for at.

[Unknown]

Least a year, they'll pay capital gains tax on whatever increase above the 500,000.

[Suze Orman]

But let's talk about you.

[Unknown]

Forget about when you're dead.

Let's talk about right now.

You are alive and you want to.

Be able to use this money while you are alive. So you simply take $100,000 that you've.

Already paid taxes on and you put.

It in a brokerage firm where you.

Buy an index fund or etf.

Just that simple. Like the Vanguard Total Stock Market index fund or ETF that I've been talking.

About now for all three four years on this podcast and you put in $100,000 and now years later it's worth 500,000.

Any money that you take out that's.

Been in there for over one year, you are only going to pay capital gains tax on that money. That is a big difference everybody than paying ordinary income tax on the money that you withdraw from from a variable annuity. Oh, and what else?

There is no surrender charge.

There is no 10% federal tax penalty if you take money out before you are 59 and a half years of age. There is no mortality charge of 1.3% like there is in a variable annuity. In fact, there are many index funds that don't charge any fees to buy or expenses anything in them whatsoever. So more of your money goes to work for you. This sales pitch, and I underlined sales pitch of a variable annuity allowing you.

To invest and be guaranteed that you.

Will get all of your money back. Number one, costs you if you leave.

Your money in there for a long.

Period of time, chances are your money would have come back anyway and had.

Grown to be far more.

And you would just be better off.

Buying a mutual fund or exchange traded.

Fund outside of a variable annuity. And remember, variable annuities also come with.

What surrender charges in most case.

And if you take money out before.

The age of 59 and a half.

The 10% penalty by the government. And in all circumstances, whatever money you.

[Suze Orman]

Take out or your beneficiaries take out.

[Unknown]

Will be taxed as ordinary income indexed annuities. They are a type of annuity that is linked to to a market index.

Such as the Standard and Poor's 500 index. So they offer you the potential to get higher returns than fixed annuities, for.

Instance, providing some protection against market risk.

[Suze Orman]

Why Is that because they usually will.

[Unknown]

Guarantee you a minimum return, that you will get a year on your money. But for that minimum guaranteed return, if.

Your annuity is indexed, let's say to the Standard and Poor's 500. If the Standard and Poor's 500 index.

Skyrockets and it goes up, let's just say 10%, the most you may make on that annuity would be maybe, you know, 9%. So usually they only give you 70, 80, 90% of what the index does. But for you giving up some return on the index, they usually guarantee you a minimum return on your money.

Many people like indexed annuities. All right, you can do that if you want.

They have less risk than a variable annuity, truthfully. But what people don't like about them usually is they can be very complicated to understand.

But hey, if that's something that you.

Want to do, you absolutely can do that. Next, most non qualified annuities also can come in the form of income annuities, usually immediate income annuities, where you take a lump sum of money, the insurance company invests it for you, and they guarantee you a monthly income for either.

[Suze Orman]

The rest of your life or a period certain.

[Unknown]

So they will certainly pay you for.

Let'S just say 10 years, which means that if you buy an immediate annuity and you do die in the next.

[Suze Orman]

Year after you bought it, they will.

[Unknown]

Pay your beneficiaries for, let's say, 10 years.

[Suze Orman]

But after that it stops.

[Unknown]

If you live past 10 years, they'll.

Continue to pay you for as long.

[Suze Orman]

As you are alive.

[Unknown]

I talk about these in some detail.

In the ultimate retirement guide for 50 plus. Because for those of you who just.

Simply want a guaranteed income for the.

[Suze Orman]

Rest of your life because you don't.

[Unknown]

Have it anywhere else, and you want to know that I do not have a problem with you doing that right now.

Just look at the ins and outs of them. So now let's go to qualified annuities, which means you are funding them within.

Normally a retirement account with money that you have never paid taxes on. A retirement account is the type of account where everything in there is tax deferred. So what sense does it make, for instance, for you to put money in a tax deferred account like a retirement account, and purchase a variable annuity, for instance, that is also tax deferred.

What sense does it make for you.

To put a tax deferred investment in a tax deferred account? It makes absolutely no sense whatsoever if you want to put a fixed annuity within A retirement account, again, if it's.

Guaranteeing you a really high interest rate.

For the exact time that it's in there and you know you're not going to be taking money out, I don't.

Have a problem with that.

But a variable annuity where they are.

In essence again putting your money into.

What mutual funds and you are paying mortality charges and so forth and possible.

Surrender fees and things like that, that, that makes absolutely no sense. If you are in a retirement account.

Why not just buy mutual funds, exchange.

Traded funds, not have any limits as to when you can take money out, when you can't take it out.

So variable annuities within a retirement account is absolutely, in my opinion, just stupid.

[Suze Orman]

Everybody, tax sheltered annuities, TSAs are usually.

[Unknown]

Qualified annuities where if you are a teacher or something like that, where you work, that's where they put your money. If that's the only retirement choice you have, again, I don't have a problem with that.

[Suze Orman]

If, however, you have other choices at your place where you work, such as.

[Unknown]

A Roth retirement account or whatever, I think there might be better ways for you to invest your money.

[Suze Orman]

But if all you have offered to.

[Unknown]

You is a tax sheltered annuity, I don't have a problem with that. So that is my summation on annuities. Now I know I went a little long here, but I think it was worth it. So just in summary, truthfully, I don't hate all annuities. Don't think that you have made a mistake. Especially if you're doing a single premium deferred annuity and you can get a really high interest rate now, guaranteed for the entire time that your surrender charge is in place. Make sure you know the insurance limits at your state of how much you can put in. Other than that, I think this should have given you a good education on how annuities work.

[Suzio]

Well, did that help you?

[Suze Orman]

I hope so.

[Suzio]

The main thing I want you to take away from today is this. There's no such thing as Susie hates everything.

[Suze Orman]

Susie loves everything.

[Suzio]

Personal finance is personal to every single person. So don't try to take somebody else's advice and make it be beneficial for you. Take the time possibly to write in to the Ask Susie S U Z e [e-mail]. ask your question there and if KT chooses it, we'll answer it on the podcast and you just never know. Also start watching my YouTube channel, you know, my official one. I think you'll enjoy it. So just stay in tune with the Women and Money podcast and really, hopefully you will listen every single week. Now before I sign off. Today, May 25th is a really, really important day in my life and let.

[Suze Orman]

Me tell you why.

[Suzio]

I don't know whether it was 20 years ago or more than that or just around there, but a woman by the name of Carla Freed entered my life. She had written a letter saying she would like to write with me. NKT in her wisdom read the letter. We were in San Francisco and invited Carla over and again to KT's wisdom. She was hired to be my co writer on everything that I was doing. Articles for Oprah, articles for Costco books, everything. And to this day, she is still my co writer. And without her, honest to God, I don't know if we would have been as prolific as we've been, written as many number one New York Times bestsellers as we have. And I refuse to stand here and take credit for absolutely everything that we have ever published when the truth of the matter is she has been with me word by word and sometimes knows my words so much that she can just write them without me being there.

[Suze Orman]

So, Carla, I wish you a very, very happy birthday.

[Suzio]

I have no way to express my gratitude towards you for your integrity and always being there for me. And today I know is your birthday, but today you and every day are truly my gift. All right everybody, until Thursday when Ms.

[Unknown]

Travis joins us again for an Ask.

[Suzio]

KT and Susie anything. There's only one thing that I want you to remember and it's this. People first, then money, then things. Happy Memorial Day.

[Unknown]

Bye bye now.

We are strong, we are wise we will not apologize we are here we will thrive Together we will rise we're.

The.

And everything it takes. We are strong, we are wise Together we will rise.

[Suzio]

Hi everybody.

[Suze Orman]

Suzie O here.

[Unknown]

Now if you are looking for a.

Way to start saving to get the most out of your money, I want you to go to myalliant.com, that's M Y A L L I A nt.com and look into opening an Ultimate Opportunity SA account.

Put in at least $100 a month, every single month for 12 consecutive months. Earn 3.10% interest on your money right.

Now and get $100 at the end. Are you kidding me?

[Suze Orman]

It's the best deal out there.

[Unknown]

Start saving right now.

Neither Susie Orman Media nor Susie Orman is acting as a certified financial planner advisor, a certified financial analyst, an economist, CPA accountant or lawyer. Neither Suze Orman Media nor Susie Orman make any recommendations as to any specific securities or investments. All content contained in this podcast is for informational and general purposes only and does not constitute financial accounting or legal advice. You should consult your own tax, legal and financial advisors regarding your particular situation. Neither Suze Orman Media nor Suze Orman accepts any responsibility for any losses which may arise from accessing or reliance on information in this podcast and to the fullest extent permitted by law, we exclude all liability for loss damages, direct or indirect, arising from the use of this information. The must have documents discussed in this podcast are legal documents created by a lawyer and distributed by Hay House.