Social Security, Annuities, and Life Insurance – Mailbag Edition

Full Transcript:

Ryan: It's very likely that you could receive more than a million dollars over the course of your lifetime from Social Security and benefits. So it's underrated sometimes, I think, but it definitely shouldn't be.

Announcer: When it comes to financial planning, you need to cut through the jargon so that you can understand how to achieve your own retirement success. This is Candid Conversations: Retirement Talk with Ryan Cravitz of Cravitz Financial and Insurance Solutions.

Ben: Hello and welcome in to Candid Conversations Retirement Talk with Ryan Cravitz of Cravitz Financial in Irvine, California. Ryan, I got a little bit of different format today for the podcast. We've gone through some of the core financial planning topics to lead things off, but I thought today would go through some questions, some questions that you've been asked maybe recently in some meetings and just some different scenarios, some things that come up that I think not only would be helpful to anybody listening, but hopefully maybe this will kind of provide some answers when somebody else maybe comes into a similar scenario down the road as well. So I think it'll be fun to kind of go mailbag today.

Ryan: I think so too. I think this'll be really helpful.

Ben: All right, so we're going to jump into this again, I'll remind you CravitzFinancial.com is the website, and you can jot down this number as well, if you want to call Ryan. If there are any questions you might have, if you want to sit down and address something specifically within your plan or your financial situation, you could do so is 714-462-9155. So let's lead off with this one. I have an annuity. I'm going to kind of present you the question, Ryan, and you can tell us how you answered or how you would answer in these scenarios. So I'll start off with this one. I have an annuity that I bought nine years ago. It's going to mature in a year, right around the time my wife is scheduled to retire, I'll have the option of turning it into a lifetime income or moving it into a different investment altogether. Which one should I do?

Ryan: Well, you said right there he has the option of turning it into a lifetime income. So the first thing that's making me think is, is this an income rider? So there's two different ways to get lifetime income from an annuity. The one option is just annuitizing the annuity, and that's typically where you're going to give up access to the lump sum of money to the insurance company. In exchange, they're going to pay you depending on the option you selected, a guaranteed payoff for life, a guaranteed payoff for as long as you and your spouse live. There's other types of options within there as well. But if this is a guaranteed income rider that's attached to this annuity, then we really want to take a look at the current values. In other words, in these types of annuities, you're going to have the account value. Then you're also going to have a separate value, which is specifically a value that's used to determine the income.

Then there's a certain percentage that you would be able to take from that. So I'm not sure if this is referring to just going ahead an annuitizing or if it's assuming we're talking about a lifetime income rider. But I would say certainly before making any change, it's critical to understand how that annuity works and if there's any rider that are attached to that, again, such as that lifetime income rider. And then based on that, the question then is what is that purpose of that money? When are you going to use this money for income? That's going to be the primary question that's going to help drive the answer to figure out really what's the best thing that you should do?

Ben: So a lot to think through there with the annuity there. A great question to be asked, and I'm sure those options come up with for other people as well. So again, with all these, you always want to sit down with Ryan or your advisor to go through them in detail and to really answer the questions beyond what you've presented here in these. But I think it's a great starting point there for sure. All right, next one here. My husband is 13 years older than me and he's retiring next year. The only life insurance he has is provided by his job, so he'll have none when he retires. Should I take out a policy on him since I'll probably outlive him by several years?

Ryan: All right, so for this one, I just have to give the standard answer here, and that is that it depends. And the reason that I say that is it very much depends upon your financial situation. The question that you want to ask yourself, and it's not something that any of us like to think about, but if your spouse were to pass away tonight, if the worst were to happen, what would your situation be like tomorrow? What would your financial situation be like? And if it would not be impacted, if you would be just fine financially, you may not need life insurance at all. However, if you think that it would have a big effect on your retirement plan and your financial situation, then you should definitely consider looking into getting some life insurance.

Ben: Alright, great question there as well. Life insurance, I know, comes up quite a bit, so an interesting scenario there. But again, one that will require a little more info. So the customary, depends, is always a great way to answer these questions for sure, because it always does and every situation's a little bit different. All right, next one here. I'm retiring soon and I asked my financial advisor when I should think about starting my social security. He seemed completely befuddled that I even asked him the question and didn't seem to have any insight at all. What am I missing here? Shouldn't that be a basic part of retirement planning?

Ryan: Well, that's a great question. So I think that there's a couple of things at play. I mean, the first thing is to understand that not all financial advisors are the same. Not all financial advisors specialize in the same areas. So it's kind of like a doctor. I mean, you're going to have doctors that are going to specialize in certain areas, same with attorneys. And really financial advisors are similar in the sense that for me, my area of specialty, and really what I focus on, is helping people that are either already retired or planning to typically within the next five to 10 years and to make sure that their retirement plan is intact, that they have the income that they need all throughout their retirement years. So I believe if you're helping people in that area that you absolutely do need to understand social security and how to maximize all the benefits that somebody may be entitled to, whether that's spousal benefits, survivor benefits, divorce benefits, any of that.

I think that what comes up here is some advisors are, for instance, focused on the people that are in the accumulation stage of life. Maybe they are real good at helping people with their budgeting, helping kids get through college and saving and investing, and saving and accounts there. And with helping to set up the 401k plans, there's certain advisors who just focus on that area. That's really their expertise. There's a lot of advisors that are focused on that accumulation stage of life, but aren't so much focused on the income phase or the de-cumulation stage. So it's just a different area of expertise. The other thing that I'll say that I definitely do believe, I've been in this industry for many years, is I believe that there's a lot of advisors that just aren't very interested in knowing all the nuances of social security.

Because I believe that there's a lot of advisors that get into this industry because they like investing. They like stocks, bonds, mutual funds and all that sort of thing. But when it comes to really understanding different government benefits and things like that, it may not be what they really enjoy learning the most and really focusing on. I don't know, that's just kind of my speculation. But I definitely believe if you're retired or planning to soon, social security is critical. A lot of people just look at it as an afterthought. But if you're a higher income earning couple, or even if you're married, and even if only one of you were a higher income individual over the course of your working years, it's very likely that you could receive more than a million dollars over the course of your lifetime from social security and benefits. So it's underrated sometimes, I think, but it definitely shouldn't be.

Ben: Yeah, significant money and a big part of the income. So you don't want to overlook that. Here's one that probably comes up quite a bit for you, Ryan. What's better, term life insurance, universal life, or whole life?

Ryan: Alright, I'm going to use my favorite answer here.

Ben: I should just play this clip before every answer.

Ryan: Yeah. Can we just record the word or the two words? I guess. It depends. And then I could save some words there. But it's so true. It completely depends because again, it depends on somebody's family situation. So let me give an example here. All right, so what's better term life, universal life or whole life? So kind of break this down. When it comes to life insurance, to look at it real simply, there's really only two basic types. There's term life and then there's permanent life insurance. Within permanent life insurance, there's different types. There's universal life, there's whole life, there's index universal life. So there's different nuances within there. But the key thing that you always want to think about when you're thinking about life insurance is number one, how much do you need God forbid if you were to pass away tonight? If the worst happened now, how much do you need?

And secondly, how long do you need it? Some people don't know how to think about that. How do long do I need it? Well, I need it till I die. And that may or may not be the case. You may only need the coverage for a particular period of time. Then after that period of time, even if you were to pass away, if your dependents are going to be okay financially, you may not have a need for life insurance.

So it really depends on the purpose, and that's kind of a reason that people will buy life insurance for the income protection aspect. I will say that in retirement, a lot of times people don't think they need life insurance, but a lot of times I find that they do because different things come up such as if we talk about social security again. That if you're married, when one of you passes away, you lose a social security check.

That income will affect you financially. That income stream that was lost, if it will affect you financially, that might be a reason to own life insurance, as an example. I'll give you one more, and those are kind of some reasons why you might want term. Some of the reasons why you might want permanent insurance is let's say that you want to pass some money along to the next generation. Maybe it's kids, grandkids, maybe it's to a charity or something like that,.when you ultimately pass away, well you don't want to keep paying money into a policy that's ultimately going to lapse, because term life only lasts for a certain period of time if your intention is to make sure that you're just able to pass money along to kids, grandkids, charity, whatever it is. So again, I'm going to say it again, it depends, case by case basis.

Ben: All right, so one more I wanted to ask you here before we close out this episode of the podcast, Ryan, is this one here. I really want to protect my retirement money, but I'm not a big risk taker at all. So I feel like I should be getting a better return than the stable value fund in my 401k that it provides. So should I loosen up and be a little more aggressive?

Ryan: Well, this is definitely a tough one to answer because there, there's a lot of variables at play here, a lot of factors that we don't know. In other words, how old are you? You know, what other assets do you have? How much is inside of that 401k? When do you plan on using this money? When are you planning to retire? Right? Are you married? What's the whole extent of that situation? Now, having said all that, for the most part, a stable value fund, I mean, you're going to earn very, very little interest in. And a key thing I think for everyone to be aware of is there's several different risks in retirement, or in the overall investing in a retirement planning process. Most everyone is familiar with market risk, the risk of losing large sums of money in the stock market and wanting to be very conservative and wanting to be much more safe with their money so that they don't lose substantial amounts of money.

But the other thing that we need to consider here is that there's other risks again. For instance, inflation risk is another one. For several years, their inflation really wasn't that high. But certainly in 2022, we've seen inflation increase quite a bit. It's a reminder that that's a very real risk because if our money's not keeping up with inflation, then over time we're losing purchasing power. So we need to think about all the different risks that are out there. And with a stable value fund, it's going to earn very little interest over time. If it's not keeping up with inflation, again, you're actually losing purchasing power. But again, we come back to, are you planning to retire next month, or are you planning to retire in 10 years or something like that?

Ben: Yeah, there's a lot of factors that go into that answer for sure on when to become more aggressive and how to treat your investment. So again, if you have that kind of question, you want to sit down with your advisor. Again, with all these situations, no matter what it is, you can always lean on an advisor to help you out. Ryan Cravitz can do that at Cravitz Financial. You can also get your retirement ready checkup to kind of see where you stand in general as well. Just go to CravitzFinancial.com. You can start there. Or if you plan to call Ryan's office, you can do so at 714-462.9155. So a lot of good questions. And again, if you have one for us, we'd love to hear from you. Send it in, CravitzFinancial.com, or you can just call Ryan directly. Ryan, as always, it's good to catch you up with you and we'll do it again soon.

Ryan: You as well.