annuities

029: Annuities: The Good, The Bad, and The Ugly

Aug 27, 2020

When many people think of annuities, they say, “Oh my gosh, that’s horrible.” Many people either love or hate them, but this is almost never the right perspective to take. Why is this? It’s simple: many financial planners can’t clearly explain where it makes sense to use annuities or make sense of the complicated industry terms surrounding them. 

Annuities are one of many investing tools available – just like stocks, bonds, mutual funds, or real estate. You have to have the right tools to get to where you want to go, and you need to understand exactly which tools will better your situation, whether you’re transitioning into retirement or already retired. 

In today’s episode, we’re breaking down what annuities really are, how they work, and how they might – or might not – make sense as part of your retirement portfolio. You’ll learn the basic terminology surrounding these products, the different types of annuities, and the ways that the financial industry makes this far more complicated than it ought to be.

Here are just a handful of the things that we'll discuss:

  • Why so many people have such polarized opinions about annuities – and why either loving or hating annuities is such a flawed approach. 
  • Red flags that should always stop you from buying any financial product, including annuities. 
  • The four basic types of annuities and the important terminology that defines these products. 
  • The major difference between fixed indexed and variable annuities – and how these terms get used interchangeably.

Inspiring Quote

  • “If you don’t understand it, never buy it.” – Ed Siddell
  • “It’s insane to risk what you have for something you don’t need.” – Warren Buffett

Transcript

LeAnne Siddell: It’s The Retirement Trainer with Ed Siddell, a podcast about finding ways to help you become financially fit for your future no matter what shape you’re in now. Annuities, what are they? How do they work? Do they make sense? Ed is here to help us wade through the good, the bad, and the ugly of annuities. This is LeAnne Siddell, and here to help us with all of our questions and give us some guidance to help us stay in the best financial shape possible, the retirement trainer, Ed Siddell. Hi, Ed.

 

Ed Siddell: Hey. Man, that was kind of Clint Eastwood-esque, right? The good, the bad, and the ugly?

 

LeAnne Siddell: I don’t like how my voice sounds so I’m trying to change it up a little. Anyway, the subject today for this show is annuities. And the reason I’m using myself as an example is to make all of you out there feel a little bit better. When I first was out taking my life, health, and annuity licensure, I can remember sitting through. I obviously sat through the class, took the test, everything, and then I came in and started dealing with what they were in the workplace. And I can only tell you, I still struggled with annuities for many years, many years.

 

Ed Siddell: Because they didn’t really explain it where it made sense. It’s a foreign language and it really is.

 

LeAnne Siddell: And I look at a lot of things. Life application is so key.

 

Ed Siddell: It is. And if you don’t understand the lingo, it’s all these industry terms and blah, blah, blah. I mean, it’s horrible. It really, really is. So, I think we’ll just kind of wade through that craziness because there is good, there’s definitely bad, and there’s a lot of ugly.

 

LeAnne Siddell: Oh well. Help us understand annuities and make people feel better about the fact that it sounds like a bad word when you say it.

 

Ed Siddell: It does. Everybody kind of runs and go, “Oh my gosh, that’s horrible, annuities.” And here’s the thing. It’s just like anything else when it comes to investing, it’s a tool. Annuities are a tool just like stocks or bonds, mutual funds, exchange-traded funds, precious metals, investment real estate, whatever it is. And here’s the thing is that the biggest mistake that people make when it comes to tools that they use for their retirement or as they transition into it is they become polarized, right? It’s either really good or really bad and there’s nothing in between. So, love them or hate them but each tool has a purpose. So, I say this all the time. You have to have the right tools to get you to where you want to go to finish your plan. I mean, that’s really what it comes down to. So, I mean, you wouldn’t use a hammer to cut a piece of wood. That’s stupid. This one is going to be worse, right? You’re not going to use a drill to hammer a nail. Right?

 

So, you need to use the right tool for the right purpose. And it really comes down to making sure that that’s why having a plan is so important. If you don’t have a plan, there’s no way to know what tools to use that’s going to better your situation, as people transition into retirement or even if they’re already retired. So, that’s probably the most important thing to get out of the way.

 

LeAnne Siddell: And I think we’re coming to talk about annuities because of the volatility that we’re experiencing right now.

 

Ed Siddell: Right. And there’s nothing perfect. I say this all the time. There’s no perfect tool, there’s no perfect investment. You just have to find out what’s going to be the best for your situation at that point in time. And it is hard. So, understanding the different types of annuities, right, because there are different types, the lingo, the industry terms. You know, they make it really hard and it really didn’t have to be. So, we’re going to try and simplify it so that it’ll even make sense for me.

 

LeAnne Siddell: Yeah. It’s like translating a foreign language.

 

Ed Siddell: Oh, it is. It is. So, we’re going to break it apart. We’re going to be repetitive. Okay. So, just like when I teach classes, I always bring up everything first and then we repeat it a couple of times. So, we’re going to talk about the terms first then we’re going to talk about the different types of annuities. And then we’re going to apply the terms that we talked about first to each annuity so that that way it makes sense and we’re going to give some examples. How’s that sound?

 

LeAnne Siddell: That sounds great. Well, and the best part of this being a podcast is you can listen to it over and over again.

 

Ed Siddell: Or not.

 

LeAnne Siddell: Alright. So, let’s get started. Well, I’m going to start off by saying that it sounds like a bad word. When you say annuities, especially in the financial realm, people cringe. So, why is that?

 

Ed Siddell: You went right for the throat on that one, the death kill, right? So, think of it this way. I mean, how many families have we helped over the years that have pensions?

 

LeAnne Siddell: Almost all of them.

 

Ed Siddell: Yeah. A lot, right?

 

LeAnne Siddell: Yeah. Yeah.

 

Ed Siddell: Okay. So, when people say, “Oh, annuities are horrible,” well, that’s what a pension is. A pension is an annuity. So, they’re not all bad. But having said that, you really need to understand how they work. And so, purchasing a tool like an annuity, you need to make sure that it’s going to solve a problem, better your situation, so that that way it can put you in the right perspective for retirement, even if you’re already retired. So, let’s kind of go through some of the basic terms. I’m going to give a brief explanation upfront, then we’re going to go back and talk about the different types of annuities and apply all that. All right? How’s that sound?

 

LeAnne Siddell: Sounds good.

 

Ed Siddell: Okay. So, let’s talk about some of the terms. So, we’re going to talk about crediting methods and this is what people really don’t understand. So, crediting how they work, how they make money, and how they don’t make money. So, crediting methods are how you get to participate in the interest rates and growth in the annuity. So, the first one is a cap. So, a cap says that you can earn up to a certain amount. So, if it’s a 4% cap or 5% cap, that means that’s the maximum that you can earn no matter what.

 

LeAnne Siddell: Okay. Got it.

 

Ed Siddell: Then you have participation rate. So, participation rate is how much of that growth can you actually participate in? And this is really important and we’ll get into based on timeframes like bonds here in a minute, but how much can you actually participate in? Can you participate 100%? Over 100%, 50%, 20%, and what makes sense? And then you have spreads. So, this is probably the toughest concept for most people to understand. A spread is the percentage amount that the insurance carrier, the insurance company is allowed to make whether it’s 1%, 1.5%, 2%, 3%, 4% spread.

 

LeAnne Siddell: Over what?

 

Ed Siddell: Which comes off the top. And so, I’m going to give an example because there are companies that only have one of these, some have two, and then some have all three. And these are the things that’s why you have good, bad, and ugly. And then you need to know industry terms, like a rider. So, what’s a rider? So, a rider is something that’s put on to – so annuities are policies, okay, they’re insurance policies, and you can buy riders on them just like you can like with a life insurance or even long-term care that allow you to do things over and above what a traditional policy allows for, but you pay for it. Then when it comes to fees, you have rider charges, you have mortality fees, you have expense fees, you have administrative fees, you have average account fees. And we’re going to break this down so it’ll make more sense.

 

LeAnne Siddell: Some have all of it and some have just a few of those fees.

 

Ed Siddell: And some have none.

 

LeAnne Siddell: And some have none.

 

Ed Siddell: Right? And then you have surrender charges. So, the surrender charge is you’re giving it’s an exchange, right? So, you’re giving up something which is time in order to get something in return. So, if you put your money out early, just like a CD, you’re going to get a penalty.

 

LeAnne Siddell: That’s a good comparison. So, it’s a commitment of time.

 

Ed Siddell: It is. So, now let’s go through and talk about the different types of annuities. And I think as we go through these, they’ll make a little bit more sense. I’m going to try not to get down a rabbit hole but it’s really easy to do because there’s a lot of intricacies as we go through this.

 

LeAnne Siddell: And I guess what I want to come out of this overall is there is no stupid question when it comes to annuities, and that you should be asking a lot of questions until you understand.

 

Ed Siddell: And number one, if you don’t understand it, never buy it. That’s number one. Number two, even if you understand it, but you can’t figure out how it can help your situation, don’t do it. And if you’re still not clear and you’re like, “You know what, I just I’m not sure,” don’t do it.

 

LeAnne Siddell: Well, and I think on the other side of this, a financial advisor giving direction, if they are unable to answer all of your questions, then that should also be a walk away.

 

Ed Siddell: Well, if you’re a fiduciary, that’s why you should always work with fiduciary because the whole role as a fiduciary is to always do what’s in your best interest whether they make a penny on it or not. And so, to put your interest above their own. And the only way to do that is for them to understand what it is that they’re recommending.

 

LeAnne Siddell: Exactly.

 

Ed Siddell: All right. So, let’s talk about there’s four basic types of annuities. So, you have an immediate annuity, a fixed annuity, a fixed indexed annuity, and a variable annuity. So, now let’s go ahead. We’re going to start with the easiest first, which is an immediate annuity. And with an immediate annuity, the rate of return is usually pretty low, right? It’s pretty close to prime, right? So, right now, that’s nothing. It’s about a half a percent. And it’s that rate that determines the monthly payout. So, an immediate annuity is just like it sounds. If you put in whatever that dollar amount is 50,000, 100,000, 200,000, whatever that is, then you start receiving those funds immediately. And it is based on whatever that interest rate is for 10 years certain, which means no matter what, it’s guaranteed for 10 years or lifetime or joint life. Okay?

 

LeAnne Siddell: Got it.

 

Ed Siddell: And so, just to understand that the principal, so the amount that you put in, it’s not protected and you can’t lose it. It’s just gone because now…

 

LeAnne Siddell: Because you’re immediately chipping away at it.

 

Ed Siddell: You’re chipping away at it. And that’s why when some immediate annuities are 10 years certain, which means, God forbid, you use this tool and 12 months into it, you pass away then your beneficiaries receive nine years of those payments or whatever that principal balance is left.

 

LeAnne Siddell: But if you sign up for lifetime income…

 

Ed Siddell: And you kick it then it’s gone.

 

LeAnne Siddell: It’s gone.

 

Ed Siddell: It’s gone. Yep.

 

LeAnne Siddell: That’s the important component to that one.

 

Ed Siddell: And so, taxes are a big part of this too because the principal which is your cost basis. So, if it’s after-tax or if it’s an IRA, it’s completely different, but let’s just say that it’s after-tax money. You’ve already paid the taxes on it. You’re going to pay taxes on the growth just like a dividend and it’s going to be ordinary income. Now, obviously, if it’s an IRA, it’s 100% taxable. If it’s a pretax or traditional IRA or a Roth, it’s 100% tax-free. So, lifetime income, that is the rider. We already talked about that. That is available. Can you say, “I have changed my mind and I want my money back?” No, you cannot. So, once it’s in there, it’s in there.

 

LeAnne Siddell: Well, from the moment that they start getting this.

 

Ed Siddell: Yep. So, there’s no…

 

LeAnne Siddell: Because there’s a 30 days or something like that now on all?

 

Ed Siddell: Free look period.

 

LeAnne Siddell: Yeah.

 

Ed Siddell: Yeah. But once you start getting that check, it’s done. And so, why would anybody do this? You know someone who wants that guaranteed income, for whatever reason, they just want to know that it’s going to be there and that’s their pension, and that’s really what it is. Okay. So, let’s talk about the fixed annuity. So, the fixed annuity think of it, it’s the insurance version of a bank CD is really what it is. So, it typically has a little bit higher rate than a bank CD. The terms, they don’t have them six months and one year but they’re usually two, three, five, seven. We’ve seen nine and 10 years. And traditionally, the longer you go out, the higher the rate, but right now, not so much, but they are where I was just looking at the rates before we started the show and the rates are higher for some companies than the average CD, but not much because everything’s so low right now.

 

LeAnne Siddell: And the biggest difference that I’ve seen between CDs and fixed is the initial investment is generally, you can’t do $1,000 annuity.

 

Ed Siddell: Well, that’s true. Yeah. So, most of them have a minimum of 5,000 or 10,000 or 25,000 and the principal is protected. Just like with the CD, that principal, that money that you put in, whatever that dollar amount is that 5,000, 10,000, 15,000, 25,000 or more, you can’t lose it. The growth is tax-deferred so it compounds. Now, from a taxability standpoint, again, you can have fixed annuities that are IRAs. And so, everything including the growth, just like a traditional IRA, when it comes out, it’s 100% taxable. Roth, it’s 100% tax-free.

 

LeAnne Siddell: Gotcha.

 

Ed Siddell: Now, if we’re using after-tax money, what I mean is money that we’ve saved in our own bank account, and then we’re saying you know what, I want something more than 0.5% or 1%. I can get 1.75 and I’m going to stick it in a fixed annuity, as an example, right? Then those earnings that 1.75% that’s being compounded when you pull it out, it’s LIFO. It’s an accounting term. Last in first out. So, those earnings are 100% taxable, but they’re all tax-deferred until you pull the money out. So, let’s just say that you did a three-year term, just like a CD, you can continue to roll it over and over and over. But unlike a CD where you have to pay it every year, you don’t. You just defer it until the end.

 

LeAnne Siddell: This is kicking the can down the road, right?

 

Ed Siddell: Kicking the can down the road. That’s exactly it. And you do hear me. I say that all the time. Ain’t that horrible? And then you can take a lump sum. So, unlike an immediate annuity if you say, “You know what, I’m done. Just give it to me now,” at the end of the term, it’s yours. It’s walkaway money. Now, if in the middle, you say, “You know what, I want my money now,” just like a CD, there’s a surrender charge. And that is the reason you’re getting the rate that you are, you’re giving up something which is the time. The bank or the insurance company, whether it’s a CD or fixed annuity, they’re buying another instrument that they’re making more money on. So, if they’re giving you a 1.75, they’re making whatever it is, 2.5%, 3%. And so, they’ve already locked that money up. And so, when you pull their money out, they have to pull it out and so they have to charge you to make up the difference.

 

LeAnne Siddell: I think that’s a really good point of showing how the money is made on all sides.

 

Ed Siddell: Yeah. When people say, especially in 401(k)s we’re going to do one of our next shows is on 401(k)s and they’re like, “Yeah, it’s free.” There’s no fees. Well, just like anything, yeah, there’s nothing free. I mean, you’re paying for it somewhere. You just have to understand what it is. So, let’s talk about fixed indexed annuities. So, these next two are a little confusing. So, a fixed indexed annuity, it has greater higher potential than a fixed annuity because you have the ability to mimic an index. You’re not participating any index. You’re mimicking it. So, that’s a big distinction because it’s not an investment. You’re buying an insurance policy. And for that reason, they’re charging different fees and that goes back to the caps, the participation rate, the spreads, the surrender charges. That’s going to be the tradeoff. And we’ll get into detail here in a minute. And as you’re participating in whatever that index is, that growth is being deferred. And we’re going to talk about returns here in a minute, but I just want to set the stage and kind of plant that seed.

 

The principal is protected. It’s guaranteed. Now, each year depending on whether it’s a one-year, three-year, two-year index strategy commitment, which we’ll talk about, but again, I’m planting the seed here, once it hits that one-year or two-year or three-year, it locks in those returns and so it can never go backwards. So, like this year when the market was down over 36%,

 

LeAnne Siddell: Zero is zero.

 

Ed Siddell: You can’t lose any money. All right. You can’t lose your principal. And once it’s locked in, you can’t lose the lock-in amount. So, it resets every year, or every two years or every three years.

 

LeAnne Siddell: Depending on that strategy.

 

Ed Siddell: And the growth is tax-deferred for after-tax money, and even for IRA. So, again, it’s the same tax treatment. If it were a traditional IRA, it’s going to be the same thing that money it grows tax-deferred, and when it comes out, the original contribution as well as all growth, it’s 100% taxable as ordinary income. So, as you’re buying these annuities, you need to understand the taxability because it does have an impact on Medicare, your means based testing as well as social security. So, it should be again part of your overall planning strategy.

 

LeAnne Siddell: Again, this is where that puzzle is the best visual to provide to people because the puzzle is connected to other pieces. If you don’t have them all…

 

Ed Siddell: The circle, right? The retirement fitness? Well, you can’t have one without the other.

 

LeAnne Siddell: That’s right.

 

Ed Siddell: And it’s key. And so, the same thing with a Roth, right? So, it’s just treated just like a Roth. So, that growth is tax-deferred but the original contribution because you already paid the taxes on it. It comes out tax-free along with any and all growth so you don’t owe taxes on it. But if it’s after-tax money, that basis, whatever you put in, whatever you’ve already paid taxes on is not taxed, but the growth is. LIFO. Last in first out. Because Uncle Sam wants their money first. So, let me just explain it. So, last in first out, so if you have the principal of $100,000 and let’s just say that it grows 5%. So, now it’s 105,000 and you cash it in and you say, “Give me my money,” well, you pay taxes first on that $5,000. So, the last end is the interest that was earned because the first in was the principal. Does that make sense?

 

LeAnne Siddell: Yeah. It completely makes sense.

 

Ed Siddell: And you have the ability for lifetime income, and not just lifetime income for you, but for your spouse so you could have joint lifetime income, which is really important, because if it makes sense for your plan to have lifetime income, and that’s your joint pension, then that’s a big deal. We’re working with a family right now. Unfortunately, they lost their spouse but the spouse really did a great job putting things together and they have that guaranteed income. So, the surviving spouse, that is their income for life, so they don’t have to worry about things. Does that make sense all the time? No, but in this, it did for this situation.

 

LeAnne Siddell: It’s like a paycheck coming from your investment. It’s just that monthly paycheck.

 

Ed Siddell: It’s a guaranteed pension paycheck every month. Now, taxes are owed but you can count on that income. Alright. Who does it make sense for? It makes sense for those people who are looking for more potential upside than a CD or a fixed annuity but still having that principal protected. And so, that is really important when we’re talking about different strategies as part of the overall plan and looking at different fees and the crediting methods and how they’re getting the additional income.

 

LeAnne Siddell: Because when you enter into retirement, you’re looking to continue. If you’re not taking income, you’re looking just to protect that principal and build upon it as like stair steps, just those stair steps going up. The up and the down volatility, you can’t afford that when you’re in retirement.

 

Ed Siddell: So, you need growth, safety income growth. That’s the whole premise behind the retirement fitness plan. You have to have growth. I mean, you just do. You have to have money in the market stocks, bonds, mutual funds, precious metals, exchange-traded funds, real estate, whatever it is to hedge against things like inflation and health care costs and long-term care. But one of my favorite quotes from Warren Buffett is you would be crazy to risk what you have for something you don’t need. And I’ve said it before. The families that we helped and I’m being conservative. 90% that come in have the majority of their money. When I say majority, 90%, 95%, some 100% still in the market when they’re retired. And as they go through and they start to understand, they’re like, “Okay, now that I get it, hey, let’s take some chips off the table.” Now, the last 10 years that’s been good up until this year but thank goodness they recovered.

 

LeAnne Siddell: We’re waking up every morning and watching that news feed, that’s got to be super stressful.

 

Ed Siddell: Oh, absolutely. Absolutely. Okay. So, let’s talk about the last one, variable annuities. So, when we talk about variable annuities, these are the ones that probably fixed indexed annuities, FIAs, are really confusing, especially when we’re talking about crediting methods and everything else. But variable annuities are just as confusing sometimes if not more confusing because they have layered fees. And so, let’s just go through it. So, number one, the rate of return it’s just like you’re investing in the market but you’re investing in sub-accounts, not in the individual stocks or mutual funds or ETFs so their subaccounts.

 

LeAnne Siddell: Sorry. I’m going to make you explain subaccounts to those of us that don’t understand what a subaccount is.

 

Ed Siddell: So, a subaccount, those are investments that were already purchased by that insurance carrier that you’re now investing in. So, you don’t actually own those underlying mutual fund shares or stocks or bonds or whatever it is, exchange-traded funds. You just own the shares of what the company’s already bought. Okay. So, that’s why they call it a subaccount, and then they charge a fee for it. So, we’ll get into the fees here in a second.

 

LeAnne Siddell: That’s where I was going next.

 

Ed Siddell: Now, here’s the big thing is that the principal is not protected. It’s just like you’re investing in the market like we’re talking about growth. So, I should have said variable annuities underneath there because it’s 100% at risk. Okay. Now, the growth, again, it’s just like from a tax perspective, it’s tax-deferred. Just like the fixed annuity, fixed indexed annuity, whether it’s a traditional IRA or Roth or after-tax. So, it’s the same tax treatment. Nothing has changed. It does have a lifetime income rider that is available. And so, that lifetime income that’s available. Just like the fixed indexed annuity, they charge a fee for it. Okay. And there are some nuances because each company is a little bit different but we’ve come across a couple of situations with different carriers where once that they call it a separate gas tank or they have different terminology for it, but it’s a separate account, but it’s not walk away money.

 

So, just like with a fixed indexed annuity, and I want to get to this variable annuity first so we can kind of compare and contrast. When you’re talking about the lifetime income benefit rider or enhanced income, whatever the terminology is.

 

LeAnne Siddell: Which there isn’t.

 

Ed Siddell: Yeah, they call them different things. Different carriers call them different things. It’s a completely separate account and it’s not walk away money. So, let’s just say that you put in $100,000 and it’s the same whether it’s a fixed indexed annuity or a variable annuity. And you have an income rider, lifetime income rider on it, and it grows to $200,000. And at the end of seven years or 10 years, whatever it is, you say, “You know what, go ahead and give me my money.” Well, you put in 100,000, the income account is 200,000, but the accumulated cash value is 150. How much do you get?

 

LeAnne Siddell: 150.

 

Ed Siddell: You get 150. That 200,000 has nothing to do with the walkaway cash. It has everything to do with the income that you’re able to draw. And that’s important because as you’re drawing down, whether it’s a fixed indexed annuity or whether it’s a variable annuity, when you’re drawing down on that $200,000, it’s actually still drawing down on that 150,000 in both situations. So, if you pull out over however many years because the withdrawal amount is based on your age and the withdrawal amounts or with variable annuities, it says that you can pull out 4.5% or 5% or 6%, whatever that cap is, and it’ll be guaranteed for life. But what happens is as you’re pulling that down, it also draws down directly on the principal accumulated cash value. So, if you pull down 50,000 and you say, “I’m done. Give me my money,” well, you don’t have 150 left. Your walkaway is now 100,000. Does that make sense?

 

LeAnne Siddell: Yes.

 

Ed Siddell: Okay. So, I’ll just go through it again. So, if the income values 200, the accumulated cash value, which is the cash value. If you say I’m done, you get 150, not the 200. But at the end when you say, “You know what, I pulled out $50,000. Now I’m done. Just give me my money,” you only get 100,000. So, you’re giving up the rest of that accumulated value inside of the income rider, that separate account.

 

LeAnne Siddell: Got it.

 

Ed Siddell: Okay. I know it’s so confusing. It’s hard to do it because I write everything down. I’m actually writing it down as we talk so I can make sure that I’m explaining it well. Now, here’s the problem. The difference between a fixed indexed annuity and a variable annuity is that the fixed indexed annuity is that 100,000 or that 150,000 accumulated cash value, that principal is protected. So, this year when the market went down 36%, it didn’t lose any money. Whereas with a variable annuity, it did. So, depending on how you’re invested, you could have lost nothing, you could have lost a couple percent, you could have lost 36% or more.

 

LeAnne Siddell: Well, I think the biggest thing that differentiating the two is referring to guaranteed withdrawal benefit and guaranteed income. Those two words are interchangeably used and I think…

 

Ed Siddell: And they’re completely different.

 

LeAnne Siddell: They’re completely different.

 

Ed Siddell: Yeah. And so, I know we’re getting a little long in the tooth here. So, we’re probably you know what, let’s break this up into a couple of episodes. So, let’s go through what that is real quick first because this is important. And then we’ll kind of wrap it up here and then we’ll come back next week and…

 

LeAnne Siddell: And revisit.

 

Ed Siddell: And revisit. Yeah. I think that’ll be a little more helpful.

 

LeAnne Siddell: This is that kind of technically hard to understand.

 

Ed Siddell: Challenging.

 

LeAnne Siddell: Yeah.

 

Ed Siddell: So, what happens is with variable and not all of them, but with some of the variable annuities, once that account, that principal account, that mean walkaway money goes down to zero, your income, it doesn’t go away, but it can get cut pretty drastically. So, we’ve had a couple of families that were helping where we have gone through this and we’ve called. I mean, we’re thinking of the one couple that we’ve helped over the years and they purchased this before they started working with us. And we call it every single year. And the last two years, we got a different answer. And it was recorded on that recorded line and they’re like, “Yeah, we gave you misinformation.” Yeah, once it goes to zero her benefit is going to be reduced by over 40%. Well, that’s a big difference when you’re on a fixed income. When you’re counting on that lifetime income for the rest of your life and now all of a sudden, it’s going to be cut by 40%. Think of that as like a 40% tax.

 

LeAnne Siddell: Yeah.

 

Ed Siddell: I mean, that’s huge. Alright. So, let’s go ahead and end it there for today for this show, this podcast, and then we’ll come back, revisit what we talked about and then finish it up. How’s that sound?

 

LeAnne Siddell: Good information. Again, if you want help from Ed or you want a copy of the good, the bad, and the ugly annuities, you can request a copy at info@egsi.com. You can give our office a call at area code 614-526-4118 or you can visit our website at www.EGSIFinancial.com.

 

Ed Siddell: I think everyone’s eyes are glazed over.

 

LeAnne Siddell: Well, that’s the one humongous benefit of having a recorded podcast.

 

Ed Siddell: Yeah. The good, the bad, and the ugly. All right. Thanks, Leanne.

 

LeAnne Siddell: Thanks.

[END]

 

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