Social Security, Estate Planning, Annuity Safety: Q&A #2631

Speaker A: The retirement denier ratio represents the words and views of the show hosts exclusively and should not be construed as investment, legal or tax advice. All information is believed to be from reliable sources. However, we make no representation as to its completeness or accuracy. All economic and performance information is historical in nature and is not indicative of any future results. Any indices mentioned on the show are unmanaged and cannot be invested indirectly. Diversification and asset allocation strategies do not assure profit or protect against loss. Never make any investment or financial decisions based on information offered on this show without first consulting your financial, legal or tax advisor. Financial planning services offered through Jim Solner Associates, LLC. Uh, a registered investment advisor.

Speaker B: This is the Retirement and IRA show coming to you from beautiful Northern Colorado. Join us as certified financial planner Jim Saulnier as well as Colorado State University finance instructor and certified financial planner Chris Stein teach you about IRAs, 401s, annuities, uh, Social Security, pension plans and estate planning in a fun and enjoyable show. Whether you are listening live in Colorado or streaming from their website or itunes podcast, Jim and Chris want you to know that they're available to help you plan for your retirement. Just visit their website@jimhelps.com that's Jim H E L P S.com and click the Meet the team button on the homepage. Now here's Jim and Chris with today's show.

Speaker C: Well, hello and welcome to the Retirement and Ira show show Q A edition for this week. I've got a pretty standard Q and A show set to go for you today. Jim, uh, just recently off of his travels back east in Ohio, will be joining us momentarily. And, um, I hear he has a new microphone, so we'll see if it's. There's any difference, uh, in the audio quality. Um, yeah, so I guess we'll dive right in While he's getting his new microphone ready to go. Um, I will let everybody know if they want to send in their own questions to the show. Just send them to Jim directly. Jim helps.com is the email. That's Jim H E-L-P S.com put in the subject line. It's a question for the podcast and we'll do our best to get you an answer on the show. Can't answer every single email, but if we don't answer yours, hopefully we'll answer one that's substantially similar. And, uh, yeah, and we always do usually, uh, do a new question of the week. So some of these questions we don't get to for a while. They just kind of will come up randomly as Jim's looking for particular topics to cover on the show. But, um, to, um, add interest, I guess, and, and some, some immediate feedback. We usually do pluck out one every week that is very recent, so you always have a chance of getting your answer real quick. Might also be many months before you get an answer, uh, if yours doesn't come up in the rotation real soon. So, Jim, hopefully you had a smooth, uh, travels back to Ohio. It's, uh, going to be super hot again this weekend. But, uh, you can tell us how Ohio's going.

Speaker D: Well, I did the, the flight went well. I was a little nervous because it was allegiant and with them similar to Frontier, you just never know if your flight's going to be on time. But kudos to Allegiant. They got us there on time. And I'm not quite sure if Allegiant or Frontier has the most uncomfortable seats of any airline. So I think they're in strong running with each other, but nonetheless, they remind

Speaker C: me a little bit of a bus bench.

Speaker D: Yeah, kinda. It's, it's, it's just not.

Speaker C: Yeah, they're not comfy.

Speaker D: No. For the flight, it's like 2 hours, 15 minutes. I could handle it, but I also take the aisle seat and I purposefully go to the bathroom all the time sometimes because I have to, but most of the time I just want to get up and stretch. Um, but anyways, it made. It was on time, things went well. I'm here now, folks. I'm going to bitch and moan about something, but which y' all are going to stick your hands through the, the podcast app and try to wring my neck? It's going to rain this weekend, Chris. And my plans have been rained out and I'm pissed.

Speaker C: Oh, in Ohio, your, your hike or whatever you're going to go on?

Speaker D: Yes, I was going to go to Kentucky. The whole thing's got blown up. So, um, I was talking to the woman on the plane in the middle seat. You have no choice on allegiant because you're like touching them. They're. You're right there. You, you like sardines. And, um, she was from Ohio. She grew up in Columbus and she lives in, um, Colorado now and has for, for 20 plus years. And we were talking about that and I says, oh, man, I was looking and looks like it's going to rain. And already my trip to Kentucky's been rained out. And she says, you know, in Colorado, we take it for granted that, hey, next weekend you want to go hiking. Sure. You don't even look at the weather because it's not going to rain. And here it's total opposite folks. So they're predicting some fairly heavy rain on Saturday. Part of me is excited. I'll be in the hotel room, not the hotel, the apartment complex. And I'll probably work knowing me, but also maybe watch TV and just listen to the rain and watch it. But my, my two day weekend to Kentucky has sadly been half canceled. Saturday's hike totally has been canceled. So I'm not heading down to Kentucky on Saturday. The, the reason they said is apparently the caves flood not, not to the point where you're going to drown, but where they fill with water where you're walking and, and they canceled the, the hike because of all the rain and predicting a hell of a lot of rain. And then Sunday is still on and that's the one at Red River Gorge. And I was going to go down and spend uh, Saturday night because I was going to already be in Kentucky. I was going to go to Lexington, spend the evening in Lexington and meet the group in the morning and go hiking at Red River Gorge. And in fact Saturday night I was going to meet a gentleman who now works for us, uh, part time, not as a planner but as a programmer using CLAUDE code actually to help us improve some of the visualizations we use on uh, security, time and income process with our clients. So people who are going to be going through our security, time and income process, those who put themselves on the waiting list and your time is coming, uh, we have a wait list to work with us folks, but uh, we hope to have a much more intuitive. It's going to be based on our current Excel spreadsheet system that we use to project, but much more intuitive. Anyways, the gentleman who's helping me with that lives in Lexington and we were planning on getting together Saturday night. Uh, I'm going to be meeting with him after this recording. I'm recording this on July 31, a Friday. I will be chatting with him shortly and letting him know, hey, I don't know if I'm, if I will still meet. I'm going to be here for three weeks but I'm not going to drive all the way down to Lexington and spend the night if I can't hike the next day. So anyways, rain folks. I've been complaining that Colorado doesn't get any. Well apparently Ohio does. That's why I'm moving and it's going to give me a strong taste of some heavy storms. On Saturday and into most of Sunday. They do think Sunday will be much more spotty. Saturday is when most of the heavy rains are going to happen. So anyways, that's what's new with me and Colorado. As I saw, it's going to be about 100 hot and dry, uh, this weekend. So I went from one extreme to the other.

Speaker C: Yeah, well, you'll see things growing in real time.

Speaker D: There they are. Everything here is green and growing. And it's. It's so far. Again, I, I know I sound like I'm complaining. Rain is what it is. It's just. I smiled to myself because in Colorado, you just, hey, let's go hiking next week. Sure, no problem. And you just go. Because it doesn't rain here, you actually get rain. All right. So anyways, we are going to do a typical Q A show and do a Social Security and an annu question. Now, we, instead of two Social Security questions, we do one Social Security question, one annuity question, and then we're going to dive into some of our regular questions. So, fairly typical Q and A show. Once we finish the, um, I guess series we're doing on the fun number, once we finish that, which should probably be wrapped up next week, maybe one more. But I think next week we'll wrap most of it up. Uh, we'll probably dedicate one or two Q&A shows just to the questions that we are generated from this fun number discussion we're having. So if you have any specific questions on the Fun number, Chris, uh, will, at the end of the today's podcast, explain to you how to reach out to us. Make sure you put in the subject line, you know, fun number, fun number question, or something to that effect. And I drag those now to a separate folder and it's, uh, that folder that I'll be referencing, uh, when we do some Q and a shows, probably one, maybe two. Definitely one. We have more than enough questions for one. Not quite sure I have enough questions for two shows, but if we do, we'll dedicate two Q&A shows to, uh, the questions on the fun number. Other than that, folks, I've got nothing else to report unless Chris does. Otherwise we can jump into the Q&As.

Speaker C: No, I think I'm good. Good to start here.

Speaker D: Excellent. Um, this one is kind of a question on something you said, uh, regarding Social Security, uh, on the previous shows, not to. I don't know if he references which particular show it was, and he does not, but it definitely was a more recent show. So I'M going to let you kind of, maybe you can dive in a little bit deeper to what GPO is and what his question is. But I thought it was, it was a pretty good one. So it's not going to apply to everybody, folks, but you all might find it interesting because you like to geek out on this stuff. The trivia question, you're definitely. I got it. If I got it, you can get it. Um, but I don't want to say it's an easy question. I just kind of knew it because I had heard this before. But the trivia question for the state he lives in. Chris. I, uh, live in the state where the world's first nuclear powered submarine called the Nautilus was launched in 1954. Hm.

Speaker C: Wow. Uh, that's something I know I should

Speaker D: know, but I'm going to give you a hint. The state. The state touches an ocean.

Speaker C: Thanks, that's great. You know, uh, I'd be Kansas. I'd be willing to bet it's east coast too, in 1954.

Speaker D: Okay, I'll give you that hint as well. So it touches an ocean along the east coast, which would be the Atlantic for the most part.

Speaker C: Um, I will go with Maryland, maybe from Baltimore area.

Speaker D: Baltimore.

Speaker C: Between that and maybe Virginia. Just trying to think of. There's a lot of naval military development and stuff like that. And in that area. Um, I'll stick with Baltimore. Maryland. Well, what was it?

Speaker D: This state?

Speaker C: I'm more than just a. Ah, the state is Connecticut.

Speaker D: Oh.

Speaker A: Yeah.

Speaker C: Uh, that's. I, I'm a little embarrassed. That's something I should know. Those are the types of interesting things that I usually pay attention to.

Speaker D: But it is the naval submarine base in New London. In. Oh, New London. In Groton, Connecticut. Never heard of that.

Speaker C: No.

Speaker D: Uh, probably because I grew up in Massachusetts. In New England. You just kind of heard of the Connecticut Naval base. So anyways, I, I guessed it. Not that that matters. I certainly wouldn't be able to answer the question, but I definitely did answer. Oh. At least no. Uh, Connecticut.

Speaker C: That was a good one. We haven't had that one before.

Speaker D: No, we have not. We've gotten some good, uh, state hints in lately. I'm anxious to get to some of those questions in the future, uh, because they had some pretty good state hints.

Speaker C: Yeah.

Speaker D: So thank you everybody who shares along with that. Kind of makes a regular boring finance podcast a little bit interesting. All right, so here's his question. I have a question about something Chris said. I never question anything Jim says because he's perfect. Why, thank you, Elizabeth. And it says that Chris, word for word. Trust me, just word for word. Just per. Thank you. All right. And if you believe that, I have some ocean front property to sell you in Arizona. But anyways, he says, I have a question about something Chris said about a benefit that started when GPO or the government pension offset was ended by the Social Security Fairness Act. Now this is his verbiage. You all know I call the Social Security Fairness act, folks, the Social Security Fairness act for government employees and nobody else. He changes it and calls it a little bit something different. And technically he's probably more right than me. He calls it the Social Security Fairness act for some government employees and no one else. That's probably more accurate way of putting it. Yes. Uh, for all, for you all know, the Social Security Fairness act. That's what it was called. And it did a very unfair thing. It was one of those Norwellian terms that Congress is good for. And then everybody, probably everybody, I think it was maybe a half, maybe one or two people voted against it. Everybody. How could you vote against the Social Security Fairness Act? Well, it gave something that nobody else gets unless you're a government employee. And that's what confused this person a little bit. And Chris will expand upon. And that's why I call it the Social Security Fairness act for government employees and nobody else. I guarantee you if that act was named that it would not have passed. But simply calling it the Social Security Fairness act, it passes, but it should have been called the Social Security Fairness act for government employees and nobody else. Okay, Chris said. This is now coming back to the listener's question. Chris said that mixed couples, those with one spouse that paid into Social Security while the other spouse had has a non covered pension. And Chris will explain what he means by non covered pension because that ties definitely into the Social Security Fairness act for government employees. And nobody else having a non covered pension can get a survivor benefit that other couples cannot get. And by other couples, Chris was referencing two more traditional, quote unquote, traditional married couples where each spouse paid into Social Security or maybe only one spouse paid into Social Security and the other spouse is getting a spousal benefit of just Social Security. That's the more traditional approach. Such couples again referencing the mixed, where one paid into Social Security and one paid into a non covered pension. Such couples have an advantage in the that the survivor of that couple gets to keep both the Social Security benefit instead of keeping just the higher of the two. M. Did I misunderstand something? And he did misunderstand what you were saying there, Chris. I can see it already. Can Chris please explain how that works and where in the Palms? The Palms is the bible of Social Security, folks. Chris will explain what that means in a minute because he's read the damn thing. Can you please explain in the Palms where that can be found? I have searched and every reference says that only the higher of the two is payable. He's definitely missing out on what these mixed couples, as he words it, actually get to keep and where that differs from the more traditional Social Security two earning spouse or two benefit spouse situation. Okay. And then he ends it with, thank you for the excellent podcast and for the banter. Well, thank you listener, and for your deep dives. That's mostly on EDU shows, but occasionally on a Q A show, we'll go into a deep dive as well. Well, you're welcome, listener. Thank you very much. He, uh, gave his real name, but we're going to call him George. And Chris, can you help George get a better understanding of what you meant?

Speaker C: I will. And it's either, uh, misunderstanding what I said or I misspoke. It's possible I'd have to go back and listen to it, but I'm going to clear it up no matter where the disconnect occurred. So, um, let's start with the basics. So with Social Security, if you have a married couple and each has their own Social Security, if one of them passes away, the survivor only gets to keep one of the benefits and they're allowed to keep the larger of the two, whether it's their benefit or the benefit their spouse was receiving, the system will continue to pay the survivor the higher of the two. So that's the, the base case with two Social Security benefits. If in what this listener is calling a mixed couple, where one spouse has a non covered pension, which is the technical term for paying into a pension as an alternative to Social Security and not participating in Social Security. That's what a non covered pension is. It's not covered by the Social Security system, uh, but the other spouse has Social Security. Then prior to the Social Security Fairness act, which was uh, signed into law in the last couple weeks of the Biden administration, the, prior to that there was a, um, rule in Social Security system called the government pension offset the gpo. And what this, the GPO did it was trying to make a mixed couple have essentially a similar survivorship pension, uh, situation that a two Social Security household would receive. In other words, the survivor only gets to keep the higher of the two. So The GPO essentially would look at this non covered pension and essentially said if that non covered pension is bigger than uh, your spouse's Social Security benefit, we're not going to pay you the Social Security survivor benefit, you're going to keep the higher the pension. Now there was more detailed rules on that and I'm not going to go into it because it no longer exists. Right, The GPO is gone. But that was its intent was to create a similar treatment as far as either Social Security or what was supposed to be a replacement for Social Security, the non covered pension, make those households treated similarly in a survivorship scenario. Well, when they did away with the gpo, what that then created was the two Social Security household still is re, you know, behaving the same way. The survivor only gets to keep the higher of the two. But now with the abolishment of gpo, that means that in a mixed household with one non covered pension and one Social Security benefit between the spouses, the surviving spouse gets to keep both. Now but what I mean by both, obviously on the non covered pension they would have to elect a survivorship benefit to be paid to their spouse. And it is possible with Social Security you don't elect a survivor benefit or anything, it just comes as part of the program. But with a pension, most of you probably realize that you make a pension election and sometimes there's a pension that only pays to the employee and that's it. Uh, most pensions, including these non covered pensions, which are, you know, essentially a replacement for Social Security, will have an option to pay a survivor benefit to the surviving spouse. And that amount could be a hundred percent survivorship or a reduced amount like a 50% or 25%. But those do have to be elected. So obviously for the surviving spouse to collect quote, uh, both benefits, the pension would have to have a survivor option on it. But let's pretend for a second that they elected that which is very popular, right? That you want your spouse to be well taken care of so you elect the pension to continue after you pass away with the absence of gpo. Now the person with that uh, non covered pension not only gets to keep their pension, they also get to keep the Social Security benefit for their deceased spouse, essentially receiving quote, both. Whereas if they had Social Security instead of this pension, they would only get to keep one. And that's the disconnect, that's where we make this kind of tongue in cheek, uh, for government employees and no one else is that everybody would love to have to keep both, right? The both of the pension, Social Security benefits from both spouses after one of them passes away. But now only the mixed households have that situation. And that's caused an imbalance if you will in the M. US Population between households that these mixed households now have a leg up if you will on a 2 Social Security benefit household instead. And that's why um, the point of GPO wasn't to harm government employees. It was essentially just to put them in a similar situation to if they had Social Security. So the removal of GPO wasn't to fix uh, a a past bad act that was, that was thrust upon these government workers. GPO specifically was to eliminate what now exists. This advantage that mixed households have over traditional 2 Social Security benefit households. So uh, that's what I meant. Now, now if I said they get to keep both Social Security benefits, I misspoke last week. I think we talked about this last week on a question. I hope under uh, the proper way for me to say it is the surviving spouse gets to keep both benefits, right? The pension benefit from the non covered and the Social Security benefit, whichever had that one. Obviously one of them is not a Social Security benefit. One of them is this non covered pension but it's supposed to serve as a replacement for Social Security. So that's what I meant by keeping both benefits. If you're talking about two Social Security benefits, one for each spouse then uh, like you found in the palms, that is absolutely correct. Only the higher of the two will continue to be paid to the surviving spouse whoever happens to that that to be. If it's, if it's yours that's bigger you get keep collecting yours. If, if your spouse's was the bigger one then you get to keep that one. Now one other thing I'll mention that um, probably is more in alignment with the title of the, the, the Social Security Fairness Act. There was a pretty good case for um, the other elements that was eliminated in the Social Security Fairness act and that was the abolishment of WEP the windfall elimination provision. That one had nothing to do with survivorship benefits or spousal benefits. That was all about your own retirement benefit and that also reduced your potential Social Security benefit if you were affected. And ah, it affected these workers with a non covered pension who also worked another job in their career either simultaneously with their government work or maybe before or after their government work and they earned a Social Security benefit. The formula that they use to determine the benefits for Social Security favors, it allocates a greater percentage payout of your average earnings to low wage workers compared to high wage workers. So the WEP was uh, meant to have non low wage government employees. So government employees that had a decent pay and decent job from being seen in the Social Security system if they earned a Social Security benefit, maybe working in the summer part time or in the years before they became a government worker or something like that, uh, the WEP was supposed to look at that and say no, you're not really a low wage worker so we're not going to give you the same formula for calculating your benefit as a true low wage worker. That was the intent of wep. And I'm not going to get into the calculations or anything because again it's gone now. That one, there were some pretty good arguments about whether that was fair or not. And there were plenty of anecdotal stories about certain circumstances where I would look at it and say yeah, that probably was really unfair to that person. That's kind of ridiculous. Um, other cases it probably achieved its goal and was not that, you know, wasn't uh, offensive uh, to the Social Security recipient. Uh, but in any case it's gone as well. So the Social Security Fairness act eliminated two things, WEP and gpo. The wep, because it was, you know, there were valid arguments on both sides about fairness. On that one, I think that one has a good chance of staying gone. GPO though GPO for people who truly understand what it did, I think have a really hard case to make that it's fairer with it gone than with it in place. So I suspect uh, we've talked in the past here recently about Social Security kind um, of restructuring or revisions being made, hopefully sooner than later. And during that what probably will be a fairly monumental task. I'm betting that there's a fairly good chance that GPO is going to come back. Maybe not exactly the way it worked before, but it was put in place specifically to rebalance things between mixed households. Those with one of each kind of benefit and two benefit Social Security households. It was meant to do that. Maybe it was a perfect in doing that. Maybe or maybe not. That's why I'm thinking it, it might come back in a slightly different form but I think some version of it is probably going to come back because really is tilted in favor of mixed households now. So those of you who have that situation, it's great right now. It's great right now. I have no idea. Even if it comes back, if they grandfather people in and just make it for the future, I have no idea how that's actually going to work. But right now, if you happen to be receiving benefits that you otherwise might not have received due to gpo, just be happy you're getting that money now. And maybe it'll last a long time, maybe it'll never go away, but it might also suddenly shrink back again. So hard, uh, to know. Hard to know. But that's, that's the whole story behind what, what the GPO was. Why we joke about how there's this imbalance, the you know, kind of special treatment of, and we refer to government workers not because there's anything. We're not picking on government workers. It's just they're the ones who typically have these non covered pensions. Right? They're, they're the ones that have these alternatives. So not, not all government workers have those, those alternative non covered pensions. Many, many, many have, you know, participate in Social Security and um, and um, uh, aren't in that situation. But there's quite a few out there, particularly state employees. A lot of teachers and other state employees in, in many states actually have this exact circumstance and they're happy, uh, the GPO is gone. So I think that clears um, everything up. Um, let me see if Jim is ready to, to uh, dive back in. See if he actually, I might have put him to sleep this, uh, this time so.

Speaker D: Oh no, I'm here. I'm here. You did good. You did good. Okay folks, anything else you want to add on the Social Security fantasy Act for government employees and nobody else. No, I think we, or some government employees is right at some, it's not all. Yeah.

Speaker C: Those of you like federal government employees in fers, you are not outside uh, of Social Security as you know, you pay into Social Security, um, as well. So there's a whole, you know, hundreds of thousands of you out there that maybe millions actually in that circumstance. The old CSRS participants were non covered, um, lots of state employees or a lot of state employees here in Colorado. Not all of them, but a lot of state employees in Colorado are participating in a non covered pension. Um, but there's plenty of states that uh, that force their employees into Social Security as well. So it's kind of a mixed bag all over the country, but there's quite a few people out there in this. What, what we're recalling. Mixed households.

Speaker D: Perfect. All righty folks, let's jump into some regular questions. I've got way more open than I open them now. I don't think we're going to get through all of these. And now my mind is like God. First, why did I open so many? And which ones do I want to prioritize? I think the first, most important one, and I do not know if this came. I think someone emailed me this, and I cannot find their email. Uh, while you were talking, I was trying to find the email. Or did I stumble across this? I don't think I stumbled across it. I think somebody sent me, uh, Bugs Bunny's birthday. Did you know Bugs Bunny's birthday?

Speaker C: I don't know his birthday.

Speaker D: Neither did I. Well, it's very close to chocolate cake and white frosting day.

Speaker C: Really?

Speaker D: Well, not quite on. He was born July 27, m. 1940, so he's a lot older than me.

Speaker C: He's aged pretty well, though.

Speaker D: He has aged well. He looked the same. But, uh, Bugs Bunny first appeared in the American, um, I guess culture. July 27, 1940, when hunts.

Speaker C: Huh. Uh, and was it as Bugs Bunny? Because I thought he started as Oswald the rabbit.

Speaker D: I don't know. The. You can actually Google it. And I did not watch the first cartoon, but it looks like Bugs Bunny huntsman Elmer J. Fudd meets the pesky. The pesky wabbit for the first time in a wild hair. An adapted short from Warner Brothers. What's up, doc? For Bugs Bunny, it'll be a crazy popularity, decades of movie releases, an Oscar win, a. Ah, TV competition. Complex complication. Help me out there. Completion. No, help me out there. What is that word, complication?

Speaker C: I was. I'm reading about his birth.

Speaker D: Stop. Help me pronounce you a stupid English language and not do that.

Speaker C: What are you trying to pronun?

Speaker D: I just copied this from Google. It says that Bugs Bunny went on and grew in crazy popularity and released decades of movies, an Oscar win, and a TV complication show that runs for 40 years. But I believe I'm pronouncing that word wrong. Um. Oh, compilation. Okay, perfect. Thank you. I hate your language, by the way. Chris.

Speaker C: Yeah.

Speaker D: Anyway, so what were you reading about

Speaker C: Bugs Bunny lies on Wikipedia? It said it was created in the late 30s. Um, Bugs, an early iteration of the character first appeared in Porky's hair hunt in 1938, but then in a wild hare in 1940 was his official debut,

Speaker D: apparently as Bugs Bunny, or by that other name.

Speaker C: You said Bugs Bunny. I thought, uh. But it's, uh, Porky's Hair Hunt. Let me see what he was called.

Speaker D: We don't have to go deep into that. Anyways, I want to thank the listener who said, because it was right around my birthday, that I received this because as you all know, why are we making a big deal of Bugs Bunny? Because Chris and I have our own little nicknames that were given to us by a fighter pilot. Um, I don't. The call signs, I guess, is what fighter pilots call it, not nicknames. Uh, Chris is Bugs. Uh, no, I'm Bugs. Chris is Cowboy because he grew up in Wyoming. And I'm Bugs because I tend to go down rabbit holes. So Cowboy, uh, and Bugs. And for a little while there, people used to reference us by Cowboy and Bugs because of what the fighter, uh, pilot did. So I appreciate my little, uh, nickname or call signal. And, uh, I'm pretty sure someone sent me this and then I googled it. And what I'm doing is just reading the, the top two lines from the Google search on, uh, Bugs Bunny. Anyways, I thought I would share that since I am called Bugs. And chocolate cake and white frosting day was just a week ago.

Speaker C: So my confusion about Waldo just real quick is I was thinking of Oswald the Rabbit different character that was a Disney character that predates Mickey Mouse. And then Mickey Mouse replaced him as the main Disney character. So that's somehow I was thinking, um, Oswald, who I called Waldo, was connected to Bugs Bunny, but I was mistaken. Glad we got that cleared up.

Speaker D: Okay. All right, so let's get into some questions. We're going to do a new question of the week before we jump into an annuity question. Uh, it begins. Jim and Chris, thanks so much for your show. It has been a great help for me. I'm 43 and my wife. As we think about our future, future selves. Oh, and then he says, insert disclaimer here, blah, blah, blah. So do the disclaimer that, um, he is not a client, this gentleman. He was not compensated for saying that. And to the best of our knowledge, there are no conflicts of interest. Okay. Anyway, silly that we have to say that now just because somebody says they like our, uh, show. Okay, state hint. This one was intriguing. I don't think you're gonna get it. And I vaguely remember this. That's the scary part. Vaguely. Uber vaguely. But I did not guess the state we live in. The state where a well known city succeeded from and um, then declared war on the United States. On April 23, 1982, the former mayor who turned prime minister of the newly established Republic, surrendered one minute later and then requested foreign aid of a billion dollars. I, I remember this happening. I could not remember the city that.

Speaker C: Yeah, I have a vague recollection of that too. But it sounds like something Somebody in Texas would do so.

Speaker D: Texas, that would be a good guess. That would be a good guess. Florida. And it was Key west was the city. And I, I didn't Google, I meant to Google it or chat GPT or uh, whatever you use Claude chat co pilot, um, to get some more background on that. But I vaguely remember that happening. It's now in 82. I wasn't paying attention to much of this, but um, yeah, interesting. So here's the question. It says, my wife and I recently established and funded a joint revocable living trust with all of our assets. Okay, and that's good. Remember folks, a revocable living trust allows, especially if you live in multiple states, but you title assets to the trust and then the trustee of that trust actually can manage the assets. And it's easier than a durable power of attorney form if you were to become incapacitated. I always thought many attorneys oversell and to this day I will stand by that many attorneys still oversell in my opinion trusts. But I'm softening that stance on revocable living trusts. I think they go beyond, in my oh so humble opinion, an estate planning tool and become an incapacity planning tool. Now as we repeatedly said, you cannot title your retirement accounts to the revocable living trust. And merely having a revocable living trust but no assets titled to it is useless. That's not going to accomplish nothing. The assets actually have to be retitled where the revocable living trust now owns the assets. And that's the reason you cannot put retirement accounts in there. IRAs, 401s, 403s, TSPs, 457s, the gamut, they cannot be titled to a piece of paper, but non retirement assets can. And when the homes or multiple homes, if you uh, have homes in multiple states or bank accounts, brokerage accounts, high yield savings accounts, if they're entitled to the trust, especially your personal residence. Now the trust owns the residence. The trustee of the revocable living trust therefore can manage the asset and make decisions about that asset. Most revocable living trust will be structured, let's say you're, you're a married couple that spouse one a spouse two, whether it's husband, husband, wife, wife, husband, wife, whatever the approach is, spouse one names spouse two as trustee and vice versa. So as long as both of you are together and functional and can make legal decisions, the spouses are managing the property even if one of uh, them became incapacitated. Try selling a jointly owned home with a poorly worded and sadly Most durable power of attorney forms I have read were nothing more than boilerplate, useless verbiage. Try selling a home where one of the joint owners is no longer legally able to make a decision. Uh, it can be very difficult, especially when it comes to title insurers. They don't want to insure that title. Much easier to sell a home where the trustee of a revocable living trust which owns the property is saying, yeah, sell it. So I have changed my opinion a lot on revocable living trusts. I still think they're improperly sold to a lot of people who might not need that level. But I do feel they serve a purpose. And I am much more, from a incapacity standpoint, well, on board with them now. From an estate standpoint, yes. They also help because at, uh, death, they generally become irrevocable when both spouses die. This is a joint one, so it doesn't appear in your public will. Wills are public. It does not appear in there. Your neighbors can't look up and say, uh, I wonder how much they used to own. I think they had much more than they ever let on to. Oh, they'll never know because the trust is not going to be public. And it bypasses estate. Um, not everyone say bypass estate. It bypasses. Thank you, Chris. It bypasses probate in many states. If you have multiple properties in a couple of states, you might have a house in Ohio and a second house in Colorado. Or you might have a place in Florida and a place in Massachusetts, like my mom and sister. So you often see this. And a revocable living trust is much easier at the death of the founders of that trust, because paper doesn't die. People die. The trust continues and can easily bypass probate. So there can be some advantages to it. Anyways, this gentleman has a joint husband and wife to get a joint revocable living trust. But then he goes on to share something. He says this, okay, so they funded the trust with our assets, including making the trust a contingent beneficiary on all our retirement accounts. Uh, we did the same for our life insurance. And I know Jim detests IRA assets being, uh. Excuse me, IRD Assets being transferred on death to a trust. But hang in a minute with me, Jim. Exclamation point, exclamation point, exclamation point. So what he's saying, an item of ird. What's that, Chris?

Speaker C: That is, um. I don't know if I want to call it an account, but I probably could, just to keep things simple. It's an account where the dollars inside of that account or insurance policy, uh, when distributed from that account or insurance policy are treated as income. And that income is uh, owned by someone, a human who can die. So income with respect to a decedent, it's income that is assigned to and owned by someone who can pass away or a human, if you will. So it treated always as income.

Speaker D: The only thing I'll correct there, Chris, on you is life insurance is not an item of ird. Life insurance is not taxed as income at death when you inherit it.

Speaker C: I didn't say life insurance, I said insurance policy, which would be. I was talking about annuities, but ah, uh, okay, I avoided the word life.

Speaker D: Okay.

Speaker C: I could see what someone might interpret it as. Life insurance.

Speaker D: Well, yes, because he mentioned and I read life insurance, so I thought that's what you were accessing.

Speaker C: Yeah.

Speaker D: So Chris is correct. Retirement accounts like IRAs, 401ks, 403bs and annuities, uh, bonds that have not paid out interest yet, those are all not the principal in the bonds, but the embedded interest in the bond that has not paid out prior to your death. All of those are considered items of IRD income. With respect to a decedent, they have two unique characteristics. They will never receive a step up in basis ever. Even if the item of IRD is invested in an investment that had it not been been in the retirement account wrapper, uh, in the case of an IRA or an annuity, or in a bond that has not paid out interest, if it wasn't because of that wrapper, they would have received a step up in basis. If you have an ETF inside an IRA and an ETF outside of an IRA, you invested 50,000 in both of them. You died when it was worth 150,000. The ETF inside your IRA will have $100,000 of actually 150,000 of IRD.

Speaker C: Why?

Speaker D: Uh, money inside an IRA is always taxed as income. That's why I call them always taxable accounts. That 150,000, the 50,000 you invested, and the 100,000 of growth giving you 150,000 inside the IRA will not get a step up, um, in basis. The entire 150 is IRD. It hasn't been taxed yet. But in your brokerage account, the 50,000 that you put in will never be taxed because it's after tax money. So that's just a return of basis, as you know. The $100,000 of gain though steps up at your death and only if your Beneficiaries sell it for $151,000. Will they pay taxes? But they'll only pay tax on that $1,000. So the 150 of embedded cap gains, well, 100,000 of embedded cap gains gets wiped out. But an item of IRD is always going to be considered income. And yes, I don't like IRD paying into an accumulation trust. And that's where what he writes in a minute. I'm just going to clarify a few things for him. I don't like an item of IRD being paid into an accumulation trust. I do not mind an item of IRD being paid into a conduit trust. The conduit trust will simply take the item of IRD as it comes into the trust it gathers. Any money that's paid into the conduit trust is gathered and then shot out to the beneficiary and then the beneficiary will pay taxes on it because the beneficiary received it. The reason these were very popular in their day. Conduit trusts were popular and I had no problem with them. And I still don't to a degree have a problem with a conduit trust receiving an item of ird. Because what the conduit trust does and the visualization I want you guys to remember with a conduit trust is like water that flows through a pipe. And at the end of the pipe is a one way valve that only pushes out. So as water rushes through the pipe, it hits the valve, it pushes the valve open and the water goes right through that, that pipe. But as soon as the water passes, that valve slams shut again. Why? So nothing can run up it. Rabbits, squirrels, mice, rats can't get back in. So a conduit trust is still good even to this day if your intent is to protect the account that's passing the IRD out every year to protect that from being accessed by the beneficiary during the payout phase or by the creditors of that beneficiary during the payout phase. But at all times as the account that's paying out the ird, every time that item of IRD or non ird, any money that pays into a conduit trust does not build up in that trust. It just passes right through. A conduit trust is designed to keep people from getting back up that conduit. Just like in a regular pipe. It's designed to keep rodents mostly from climbing into that pipe and clogging it. That's what a conduit trust does. No problem with an item of IRD in a conduit trust. Why DNI deductible net income. The trust is still going to have to file a trust tax return. Let's just say one, uh, hundred thousand dollars went from your IRA into a conduit trust and then to the beneficiary of that conduit trust. So the IRA trust is still going to have to file a tax return that year. It's got to. And it's going to say income received $100,000 income tax owed zero. Why? It has a DNI deduction on that deductible net interest. What did you pay out? Essentially like paid out $100,000 as well of income. Can deduct it zero. So the trust files the trust tax return and doesn't pay anything because of DNI deductible net income. Instead that net income was passed to the beneficiary in an accumulation trust. Totally different. An accumulation trust holds that item of IRD and may or may not pay it out because IRD is always taxed as income. It's right there in the damn name income. With respect to a decedent, the I is income. It's going to be taxed not as a capital gain, it's going to be taxed as income. Now life insurance proceeds, not an item of ird. Pay them into a accumulation trust. I don't mind Roth IRA assets. Not an item of ird. Pay that into an accumulation trust. The brokerage account that received a full step up in basis. I love it. Pay that into a accumulation trust. No problem. Because the accumulation trust receives it tax free. Why it received a step up in basis. So you have all these initially tax free items building up inside that discretionary accumulation trust so they don't have to pay taxes on the money that went in. They will have to pay taxes on any earnings that have happened. Now if it's capital gain earnings and the trust hasn't sold them, no problem. At least under current rules. There's politicians looking to also tax unearned capital gains. But that's a whole conversation for another day. Assuming that never happens, and I doubt it ever will. As long as that trust is not realizing any interest or dividends or capital gains, it will continue to grow tax deferred. But as soon as money starts paying into the trust from the investments as dividends, as interest, or the manager sells something at a gain and there's now gain if the trust holds it. In an accumulation trust, also called a discretionary trust, the trustee may or may not Pay it out. It depends what the trustee wants to do. If the trustee holds it, then the trust has to pay taxes at the much more compressed trust tax rate, where essentially anything above 15 or so thousand dollars of income will be taxed at the highest federal marginal rate, which is currently 37%. And pretty much the same thing with cap gain not at 37%, but there's very precious little zero cap gain tax bracket for trusts or uh, what is it, 15, uh, is the next one and then what, 20. So most will pay it at 20 and you get the high compressed cap gain tax rate as well. Very quickly inside a trust, unless the trustee passes out the income, then because of the DNI deduction, the trust won't pay taxes. So that's kind of what's happening here and why I keep warning you guys. Don't on an accumulation trust leave an item of ird. You either have to pass the whole damn thing out to the beneficiary or, or if the trust holds it, it's going to hit with high trust tax rates. And if you're looking to control the distribution of your assets post death, why have a trust at all if you ultimately want it all to go to the beneficiary? That's the issues that you run into. But this guy has a unique case and here's what he's saying, folks. We know it's not advantageous for our item of IRD to be placed in, in a trust upon death because of the compressed trust tax rates. However, we currently have two minor, uh, children who are teenagers. So that means 13 and older, right, Chris?

Speaker C: Yes. Generally okay.

Speaker D: Generally. Okay. Our thought was to leave the trust as the contingent beneficiary until the children reach age 21 and are uh, legally allowed to begin the 10 year distribution process. We would then add them as the content, them being the children. So they would change the beneficiary form at that point to the children directly. We would then add them as the IRA contingent beneficiaries and remove the trust. We understand additional expenses. We understand that if something happened to both of us and those IRD assets end up in the trust, it will be more expensive. But we thought it would be worth the additional expenses because of simplicity. All assets are in one trust and the trustees are clearly established. Would either of you approach this differently or are the things we are not considering? I will give my thoughts. Chris will give his. I do. This is not specific advice for you. These are just my ramblings of someone who geeks out on estate planning. But is not an estate planning attorney. But I do understand IRA distribution rules and I want to make sure you do. So you understand a few things. You seem to be under the impression that no money will be coming out of your IRA until your children are 21 and the 10 year rule applies. And you are wrong there. What's going to happen? You have teenagers. Let's assume both of them, worst case scenario are 13 and both you and your wife die right away. So you're in a auto accident. I'm not trying to be mean and horrible, but both you and your wife are gone because you have a joint trust. Both of you have to die before your children will get it. So let's just say you have two kids and they're both 13. What's going to happen even with this trust as beneficiary is IRAs, uh, that are inherited will be able to stretch even if you. This gets a little confusing. But children, folks are uh, eligible designated beneficiary. What does that mean in English, Chris? What are they eligible for?

Speaker C: They are eligible to stretch over their life expectancy. But the minor children have a. They don't remain a designated eligible beneficiary only until they turn 21.

Speaker D: So what happens? And Chris is right. Eligible designated beneficiary. When I'm trying to teach you guys IRD and designated beneficiary. Longtime listeners should already know be thinking human. You see the words designated beneficiary. That's an IRS and bureaucratic government term. Just call it human. Designated beneficiary. Human eligible. Human eligible to what? Eligible to stretch your kids. That's it. Your biological kids or your legally adopted kids. Not your grandkids, not your great grandkids, not someone kid who lives down the hall and just really like them. Has to be your biological or legally adopted children. Your kids are eligible designated beneficiaries. There's another step to this process that confuses people. This might be where this gentleman is falling. He's only 43. I don't know how old his wife is. She might be a few years older, she might be a few years younger. They are no way near their required beginning date. What do I mean by that, Chris?

Speaker C: That means that they themselves are nowhere near the year in which they have to start taking required distributions from their IRAs. All right, um, at those ages it's going to be 75 years old.

Speaker D: So they're. And they're only 43. Well, I know he's 43. I don't know how the wife is. But he's 32 years away. Um, I guarantee you over the next 32 years that age 75 RBD required beginning date is going to change and it's April 1st of the year following the year you turn 75. So he, he's one almost one year even after. So a hell of a long time before he has to take money out. So he might be thinking, uh huh. I heard that if I die before I have to start taking money out of my ira, whoever inherits my account doesn't have to take anything, it just has to be closed in 10 years. That is true. However, he I think is conflating this with something else. He probably heard that kids are going to be subject to the 10 year rule at age 21. Your kids, your biological, not any kid, your kids, your biological children that you had or uh, legally adopted. He's getting that conflated too. I think a little bit. That rule is true. At age 21 your child is no longer an eligible designated beneficiary. They're just a designated beneficiary or technically speaking a non eligible designated beneficiary with beneficial designated beneficiary being human. So at age 21 your kids become a non eligible human. But prior to that listener they are eligible designated beneficiaries or eligible humans. So they m eligible for what? Stretching. So they must begin stretching. So what's going to happen is irrespective of if this trust is there or not, they have to begin. If you and your wife sadly died together in a car accident. And again, in my hypothetical example, you have two children and they're both twins and they're both 13. Those 13 year old kids beginning the year after you die, so there'll be 14 then will have to stretch for seven years. They have no choice. They must start taking money out of that IRA for the first seven years. Why? They're eligible humans. They're eligible to stretch. You must stretch. No matter your age. You can die before you require beginning date or after you require beginning date. That doesn't matter. That only applies to the ten year rule. But your kids have to begin stretching. So for the first seven years, money is going to be coming out of your IRA and paying into your trust. Why did I begin with the discussion of conduit and accumulation? You didn't tell me if your trust is conduit or accumulation. If it's accumulation and I don't know how much you have in these accounts, but if it's accumulation and your trustee does not distribute those assets out, they're going to hang inside the trust and be subject to the compressed trust tax rates. But my gut tells me the trustee might find the heart to send that money to the children even though they're minors. Maybe to pay for certain things, I don't know. But if they don't pass it out and the trust holds it, there's no DNI deduction for money not paid out of the trust. So for the first seven years, yes, there will be distributions then in when they turn 21. Now the 10 year rule applies and they have to close the account by the end of the 10th year. They become non eligible designated beneficiaries. Now running through my head is something that Chris is going to have to chat real quick, Claude, real quick or Google real quick because I'm starting to doubt my memory. I am getting old folks and there's so many things I know, but so many things I don't know. I believe, Chris, that in the situation I just described, when a child turns 21 and the 10 year rule is now going to apply, the fact that the parents died before their eligible beginning date or required beginning date does not matter because RMDs had occurred for the first seven years in my example, they must continue. Or does the law revert back to that other rule when people who can't stretch inherit and they're going to keep it for 10 years. That rule says if the person who died died before the required beginning date, no RMDs. If they died after their beginning date, there will be RMDs for the first nine years I believe because. Because of Alar at least as rapidly once that IRA was subject to RMDs, they must continue for that child from 21 to 31 when the account must be fully closed. I'm um, not 100 sure on that. Can you google that real quick as Chris looks that pile? I already did. Wow, that was fast.

Speaker C: Unless you want to. Unless you want to divert for a while and come back to me. No, I was already recalling that they didn't have to take RMDs during that 10 year period after they turned 21. As long as the parent died before their own required beginning date. Chad agrees. So I can dig a little deeper to an official source. But I um, was already thinking the same way you were because we've talked about this before, but this is. It doesn't come up real often. Right. There's not too many Minor children inheriting IRAs. Um,

Speaker D: okay.

Speaker C: Since this rule has changed so. But. But yes, so they'd have to take RMDs up until 21, but then they've got a 10 year where they might choose to still take distributions. But there's no RMDs assuming the decedent, uh, the original owner, uh, died before they're required. Beginning paid. Perfect.

Speaker D: Okay, so a couple of things here. Is this really a bad thing, listener? That's what I'm trying to go to. If you feel you give no indication of the size of these accounts, but I don't think whether they're 50,000 or 500,000 or 5 million or 5 million changes a few things. I admit they could still be large enough where you want to protect your kids from making poor decisions. Do keep in mind, if there was no trust involved and your children inherited the account, they're not legal. Well, they're legal humans, yes, but they're not able to make legally binding contracts. They're minors. So the guardian of the children are going to be the ones creating the Iraq. And the IRA is going to be overseen by the guardian of the children. So you're going to have an IRA created for your children. They'll be able to stretch over their remaining life expectancy for the first seven. My example that you have a 13 year old, they will be able to stretch the distributions. Uh, Chris, while you're googling real quickly, uh, what would the single, uh, life table, the single life expectancy of a 14 year old. Maybe you go the year after because that's when the first distribution has to be this divisor that Chris will get us in a second. For a 14 year old. The single life table divisor for 14 year old. It's going to be tiny, going to be very big, giving a very tiny distribution amount that would pay into a guardianship ira. It's just, well, excuse me, from the guardianship IRA to them. So the kid will get a little bit of money. I don't think that's a bad thing. I don't think it's going to be a huge amount and the child will get some money every year from you. But uh, the guardian kind of controls that IRA until the child reaches the age of majority, which is age 18 or 21 depending on what state you live in. The government just said, hey, this gets confusing. Some states are 18, 19, 20, 21. We're just going to say 21 before the 10 year rule applies. Your age or majority in your State might be 21, might be 18, who knows? Then yes, the child, if they so desire, has access to that IRA and they can close it hopefully they don't, but they could. Your strategy, I will admit, will allow the RMD during the stretch period, which is going to be in my hypothetical example from 13 to 21. That's the federal age of majority. As far as RMD rules go, those dollars would pay into the trust, either accumulate and be subject to the compressed trust tax rates or be paid out to your child if the trustee so desires. But yes, at age 21 it could be written in such a way. And if Chat is correct or Google is correct, and I believe it is, that because you died before you required beginning date, at that point at 21 the 10 year rule applies and there'll be no distributions until 31. That gives you, yes, 10 more years to prevent the child from getting those dollars. And if that's your goal, to try to keep them from making bad decisions, I can concede this with you and say okay, I can see where this trust might help. But do recognize there will be RMD for the first seven years and if they're not paid out, they're going to be subject to the compressed compressed trust tax rates. Unless you created a conduit trust which was going to allow those RMDs to go to your minor children every year, they would go into a custodial account for the benefit of those children. And then the custodian of those custodial accounts, your parents, grandparents, whoever it may be, could decide if the children get it or not until they reach the age of majority. So I can see what you're trying to do, but I don't know if it's necessarily still to use the trust and by time you get past your age of maturity, your kids will be adults anyways and there'll be no need for this. So I just kind of wanted to fill that bit in listener that there will be RMDs up until 21, then the 10 year rule applies. At 21 they are no longer eligible designated beneficiaries and the 10 year rule applies. And if Chat and Chris and my memory is correct, the RMDs at that point can stop until the child is 21. Excuse me, 31. And then the entire amount has to pay out. If it pays out to the accumulation trust, which it will, that pays out to the accumulation trust and it doesn't send it to the kids, then the compressed trust tax rates would apply again. Anything you want to add to this whole long tirade? See where trusts get so confusing?

Speaker C: Yeah, the single life divisor for a 14 year old is 70.9. So on a 2 million dollar IRA, um, the required distribution for a 14 year old be about $28,000.

Speaker D: Did he indicate he had 2 million? I didn't, no.

Speaker C: I just, just put it in context just to put it understand even if the IRA is pretty large, the distribution isn't going to be gigantic.

Speaker D: And on a $50,000 IRA it'll be negligible.

Speaker C: Right.

Speaker D: So anyways, I'm not against what you're doing. I see what you're doing. I just wanted you to understand the RMD rules. There will still be some RMD rules. Then there'll be that ten year blackout period. For lack of a better term, when the 10 year rule applies and the no more RMDs have to go out unless the trustee wants to send them out. That might be your ultimate goal. Hey, I'm willing to deal with the cost of the first seven years. In my again example, assuming you have a 13 year old for the first seven years, I'm willing to let those very small m. Relatively speaking, RMDs sit in the trust and the trust pay compressed trust tax rate for the benefit of keeping my children from getting the rest. Yeah, but it's, it's a, it's a tough call at that point. And the final thing, when you have an accumulation trust, which I'm under the impression you have, you had better make sure I would recommend two things. In my hypothetical example, I said you had two kids, you should have two sub trusts. You no longer have to name the sub trusts on the IRA beneficiary form, thankfully. But as long as your trust breaks into sub trust, so each child can have their own inherited ira. Otherwise you're going to have two kids who probably not going to get along perfectly all the time and going to want to invest it differently. Always arguing and bickering with each other other have each get. In my hypothetical example, you have two kids have two sub trust. One for kid A, one for kid B. And the money divides in whatever percentages you want. Equal or uh, unequal. That's up to you. So each child has their own inherited IRA trust. You're definitely in my opinion going to want that done?

Speaker C: Yep.

Speaker D: Anything else you want to add?

Speaker C: No, I think that's good. And we're gonna have to pick a super short one if. Unless you want to have a show with only two questions.

Speaker D: Oh goodness no. All right, we'll continue in here. Oh, we had the Bugs Bunny one that's kind of uh, long.

Speaker C: Yeah, I didn't count that one.

Speaker D: All right. We have a couple of short ones here. Let me get to them. Okay, here's one. He says, uh, hi, Jim, Chris and the crew. Um, I live in a state where Phil Collins donated his priceless collection of artifacts from the war for. I heard of this, too. I didn't know Phil Collins had such a collection from, uh, Revolutionary War. It was strange for me to learn of a Brit with a collector's obsession on the U.S. war of Independence. You just go back to the first state you named and then you'll get it right.

Speaker C: Delaware.

Speaker D: No. Didn't you name Texas? Oh, no, I'm sorry. You didn't name Delaware first. All right, Texas.

Speaker A: Oh.

Speaker C: Huh. Anyway, thanks for misleading me.

Speaker D: Hey, I do. Okay, here's the thing. Cute little question here, though. I'm 67 and be retired for almost six months now, and I think it's going well, but I want to start considering the purchase of a single premium immediate annuity somewhere in my 70s. I do like the advice you gave recently on show 2603. If you remember, that guy was wanting income from a US treasury bond ladder and you chatted about keeping funds in both investments and utilizing an annuity so he could have liquidity and income. I remember that question. We're not going to dive into it, folks, but if you go to show 2603, you can see the question he's referencing. Here is his question. I know I should select Spia Single Premium immediate Annuities, Spia products only from highly rated companies. But I still have a fear that the insurer will go belly up, and I do think that's something I will be concerned with. My home state of Texas protects $250,000 on payouts from the Texas Life and Health Insurance Guarantee Association. I. If I wanted to buy a half million dollar single premium immediate annuity, do you think I should split that between two companies to limit at least some of the risk? The risk he's talking about, folks, is that the state of Texas and their guarantee fund, which is not guaranteed, but they call it the guarantee fund. The state won't fully cover his annuity payouts. I have nothing against you dividing it amongst two carriers, listener. And I don't think any competent advisor would. If you're okay with opening two annuities and dealing with two paychecks, and if it'll make you sleep better at night. The only thing I want to remind everybody on is the state guarantee fund, though only protects dollars at risk, so do keep that in mind. They are not going to protect money in a variable annuity that's invested in the variable sub accounts and on the case of single premium immediate annuities that have begun paying out their income, which by their very definition will do so within 13 months of the purchase of this annuity. So they are the verb annuity. There's no longer an account balance. The state guarantee funds generally will look at the payments you are receiving. Your life expectancy, the net present value of that calculation. What are these remaining payments worth for you? Because they're only going to protect the amount at risk. Well, they don't know how long you're going to live and when you're going to die. So they're going to go to whatever mortality tables are in use that state of Texas accesses when you pass away. And I'm sure between now and then they'll be updated. But they're going to go to the mortality tables. They're going to look at the income you're getting. They're going to try to develop what the, the net present value, uh, of your annuity payments are. As long as that comes in at less than 250, they will take over those payments and continue paying you. They're not just going to give your estate a lump sum payout. They go, not your estate. You're not the dead person. The insurance company went belly up. They're not going to give you just, oh, uh, here's 250,000. They're going to take over the payments. I don't know the math of exact. Depending on the age you die at a $500,000 annuity today, in the future may be worth less than 250,000 at some point because of the mortality table. And then you wouldn't need two separate insurance companies. But the biggest risk is you die the day after you open these. So yes, I understand what not you die. I keep saying that the insurance company goes belly up right after you open these. So I think short term, yes, it could be a good strategy. Long term, it may prove to be unnecessary if you live long enough. That's all I'm trying to get to because of the way they protect or guarantee a single premium immediate annuity.

Speaker C: Um, I go with a highly rated insurance company. The chances that that rating deteriorates to the point and there's their company deteriorates to the point of insolvency or failure, for lack of a better word. That'll take a while if it happens at all. So, you know, if you're already 67, I would, you know, not that I can Predict the future. But I wouldn't be shocked if a company goes from highly rated. You're picking something in the very highest

Speaker D: rating level should be A plus plus.

Speaker C: If you're buying a speed to drift all the way down to boy, they're on the insolvency. Gotta take time. Right. So now you're talking about 80 something. And the present value of that annuity has dropped tremendously because you're much, much older. Right. There's just not that many payments actuarially owed to you anymore. So this might be overkill.

Speaker D: But you know, I see nothing wrong with it.

Speaker C: I wouldn't split it like four different annuities or something like that at different companies because there is, it is. Uh, he was looking to two insurance companies.

Speaker A: Yeah.

Speaker D: And he said two. Yeah.

Speaker C: I don't think there's anything wrong with it. But you, it might be, you know, the, the threat might be not as uh, immediate in doomsday as you are worried about because a lot of things would have to fail. Right. The insurance company itself, then the guarantee that you're made falls short, all of those things. So. Yeah, but if you're overly cautious, uh, there's nothing wrong with it.

Speaker D: Yeah. I, I think the risk is minimal. But your strategy is sound. I have no problem with it. It's whatever you feel comfortable with.

Speaker C: Totally.

Speaker D: And I mean. Yeah, it's just it. I just wanted again people to understand a little bit. It's with a single premium immediate annuity or any annuity that has entered the payout phase. The verb payout phase. Not a withdrawal benefit of a, of a living benefit rider, but the actual annuitization. It's not, gee, the insurance company went belly up. You put 500,000 in 18 years ago. Uh, we insure only $250,000. Here's $250,000 lump sum check. It doesn't work that way. They're going to again look your remaining life expectancy based on whatever tables they use, the payments you are getting, current interest rates, all of that factor in, okay, this is worth X amount of dollars. And even then you still don't get a lump sum check. They're simply going to make sure the money that you are, that total value, the actual wearily net present value of your remaining annuity payments over your remaining life expectancy that they're using comes in less than 250. If it comes in more than 250, they're going to lower your payments until it comes to 250. But Chris is correct for a plus plus rated carrier over your remaining life expectancy. To go that far down and to just go belly up before the net present value of your annuities were to ever exceed 250. It's, it's, I don't know. But if it makes you feel better, listener, by all means invest in two, uh, annuities instead of one and that'll help you sleep better. Because the riskiest time isn't insurance company going belly up when you're 92. From an actuarial standpoint, it's the insurance companies go belly up the very next year and the chance of a A plus plus rated carrier goes belly up within a year of you buying it, I just think is slim, not impossible, I freely admit. But my God, uh, I think you have a better chance of being hit by lightning. And I don't know for certain. But again, remember, it's only if the insurance company is declared insolvent by the state regulator of a state it's based in. And these top rated A plus plus rated carriers, I just can't see them going that insolvent that fast.

Speaker C: Yeah,

Speaker D: okay. Anyways, that I guess wraps up another show here. I'll uh, let Chris, I guess do the wrap up.

Speaker C: Yep. So if you want to send your own questions for a future show, just send them into Jim directly. That's Jim helps.com is the email address. That's Jim h l p s.com put in the subject line that it's a question for the podcast in particular, like you mentioned earlier in the show, uh, since we're doing a, a series on the EDU shows about the fun number, how you arrive at your own fun number. If you've got questions related to that, make sure you put that in the subject line. And we'll probably have a dedicated Q A show in the next few weeks that deal with those kind of interlace. Uh, it with our conversation over on the EDU show, we really appreciate everybody listening and sending in questions. Um, Jim, you have a nice wet weekend in Ohio and I'll be out here hot and dry in Colorado.

Speaker D: Yeah, you'll be sweating and I'll be uh, swimming.

Speaker C: Uh, I'll be staying inside where I have ac, but ah, yeah, well, at least you can go outside squirrels and birds, so, so yeah, thanks everybody. Stay safe and we'll be back with you next week with a brand new show.

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