What if I told you that the single largest account that you’ve worked so hard your whole life to build could be the exact account that hands you and your children a huge tax bill instead of a blessing for later in retirement? Well, that is one of our topics for today’s show. I’m Anthony Saccaro. Thank you for listening to the Providence Financial Retirement Show.

We are your retirement income source, and this is the place where retirees come for income. Thank you for joining us wherever you might be, and I’m really glad that you’re here. And today, we have four very good questions from you, our listener, that we’re gonna spend our time answering. The first question has to do with taxes.

The second question has to do with long-term care insurance. The third question is all about annuities, and the fourth question has to do with the stock market. So if you’re retired or close to retirement, you’re going to wanna stay with us. Without further ado, let’s jump into our first question, and it comes from Donna in Thousand Oaks, and she wrote in this: “My husband passed away three years ago, and since then I’ve been thinking a lot about what happens to everything when I’m gone.

We were always faithful givers to our church, and I’d like that to continue after I’m gone. Plus, I want to leave a good amount to my two kids and four grandkids. The problem is that most of what I have is in IRAs, and I’ve read that whoever inherits an IRA is gonna get hit hard at tax time. I don’t want to leave my children a tax headache, and I don’t want Uncle Sam getting more than my family and my church.

Is there a smart way to handle this?” Well, Donna, you’ve got great instincts, and I really appreciate you asking the question because, yes, there are certainly things you can do and think about that will help you mitigate the taxes upon your demise. I would even go so far to say that if you don’t do anything, Donna, that’s gonna be the worst possible case, the worst scenario for you and for your kids, and even for the charities Before I jump right away to some conclusions though, and some things, Donna, that you might be able to do, for the rest of our listeners, I wanna give an idea as far as what are some of the issues with your question.

Well, the first issue is that you have everything in IRAs, and when you think about it, an IRA is the only asset that you own that you’ve never actually ever paid taxes on, and that means that the IRS is a silent partner waiting to collect. This has the potential to create not only some problems for you during your lifetime, but also problems for your beneficiaries, and you mentioned that you wanna leave some money to your kids and to your grandkids, and also to charity.

The problem for you is that you have required minimum distributions. So if you’re not 73 years old yet, once you turn 73 years old, you’re gonna be forced to start taking withdrawals from your IRA, and then you’re gonna have to claim it as income and pay tax on every dollar that you withdraw. If you give me a minute though, I’m gonna show you how you can actually take those RMDs out completely tax-free, but you have to know how to do it.

The second issue is with regards to your beneficiaries. If you leave them money in your IRA, they’re gonna have to take required minimum distributions as well, and yet they have to take it over a period of 10 years. And there are some pretty significant rules and detailed guidelines as to how much they have to take, but oftentimes they just wind up taking 10% per year over a 10-year period of time.

And if your beneficiaries are doing well, they’re in their peak earning years, they’re making a lot of money, well, the last thing they want is more taxable income because it might push them into a higher tax bracket, and they’re gonna wind up giving a chunk of it to the IRS. And depending on the state in which you live and their income levels and so on, it wouldn’t be unthinkable for them to wind up paying a third to half of your IRA in taxes before they get to keep whatever is left.

And that’s kind of sad because you’ve spent your entire lifetime working for it, only to see a third of it or half of it go to the government instead of to the people you love. But once again, if you give me just a minute, I’m gonna show you how you can actually give them that money tax-free. Before I go any further though, I wanna suggest that being proactive with your taxes in retirement is always going to be better than being reactive.

And there are a lot of proactive tax saving strategies that you can use, but you have to know about them. We’ve created an animated video that’s called Proactive Tax Saving Strategies, and I wanna email it to you absolutely free of charge. You’re gonna love it because it’s gonna show up in your inbox, and all you have to do is press play.

It’s only seven or eight minutes, but it’s pretty powerful and you’ll learn about some proactive tax saving strategies that you’re probably not even aware of. If you would like to receive this video so you can learn how to be proactive with your taxes, all you need to do is go to our website and ask for it.

Our website is providencefinancialradio.com/video. Again, it’s providencefinancialradio.com/video. Leave us your name and phone number and email address and we will get it right on over to you and you’ll be able to watch it. But I know you’re really gonna enjoy learning how you can actually be proactive and save taxes over the long run when it comes to your retirement.

To claim your free animated video, just go to providencefinancialradio.com/video and we’ll get it right out. I’m Anthony Saccaro. If you just tuned in, you’re listening to the Providence Financial Retirement Show. We’re spending our time together today answering four questions from four different listeners, and the first question we’re answering now has to do with tax efficiency in retirement, and specifically with regards to IRAs and leaving IRAs to beneficiaries.

In a few minutes though, we’re also gonna answer a question about long-term care, and we’ve got another question about annuities, and we have a question about stock market from someone that wants to know whether or not they’re taking too much risk. We’re in the middle of answering Donna’s question, though, and Donna has an IRA that she wants to leave to her kids, and she is very charitable-minded, and she wants to leave some of it to a charity as well, and we’re discussing what some of the ways are she might be able to do that.

And that’s where I wanna go next, is what are some of the possibilities for you, Donna? What if there was a way for Donna to leave more to her children and grandchildren, and more to her church, and less to the IRS all at the same time? Well, the good news is that there is, and there are three things, Donna, that you may wanna consider.

First of all, when you give an IRA to a charity, there’s no tax at all. The charity doesn’t pay any tax on that money at all. So if you were to leave all of your IRA to the charity, then they’re not gonna pay any tax, and you never paid any tax when you put it in. That is truly a tax-free account. But the problem probably is obvious, and that is that you now are not leaving anything to your kids and your grandkids, which means that although we’re solving one problem, we’re actually creating another problem.

How do we solve that problem? Well, the first thing that comes to mind, Donna, is life insurance. This is exactly what life insurance was built for. Because when you leave a death benefit through a life insurance policy to your kids and your grandkids, it’s completely tax-free. In this situation, what we have done with a lot of our clients is we’ve helped them take the required minimum distributions, money that you have to withdraw from your IRA anyway, and if you don’t need it, use it or use some of it to buy a life insurance policy.

And ideally, that life insurance policy would be enough to give to your kids and grandkids the amount that you actually want to give them. And again, because you were smart enough to buy a life insurance policy, they’re gonna get that money tax-free. None of it’s gonna go to the government. What this allows you to do then is to give whatever your IRA balance is at the time of your death, you can give that to a charity, and they’re gonna pay no tax whatsoever.

So it’s really like having your cake and eating it too. You’re giving a chunk of tax-free money through the life insurance death benefit to your kids and grandkids, and you’re giving the balance of your IRA to a charity. Seems like a win-win situation. The challenge, though, is you have to qualify from a health standpoint, and I don’t know how old you are.

The older you get, the less attractive life insurance becomes. But I don’t want you to think that just ’cause you’re in your 70s, you can’t get it. It really starts to become unreasonable once you get beyond 80 or 82 or somewhere in that range. But even late 70s, even early 80s, life insurance still may very well make sense as long as you are healthy enough to be able to qualify.

But that is the immediate solution I think that kinda works for everything you wanna do Another way to think about this, Donna, has to do with your required minimum distributions. The government’s gonna force you to take them, and then you have to claim it as income if you actually take the distributions and they show up on your tax return.

But what a lot of our clients will do, especially when they’re charitable-minded like you, is they will do what’s called a qualified charitable distribution, or QCD. That allows you to give your required minimum distribution directly to the charity, and it becomes a tax-free distribution because it stays off of your tax return, and that is certainly a way to make sure that your RMDs are not taxable.

You just give them to charity through a QCD. The problem, though, is that if you’re using your RMDs and you use a QCD to give it to charity, well, now you can’t use it to buy life insurance. So it’s gonna be kind of one or the other, but I don’t know what other assets you have. If you have money outside of your IRA, then you might be able to use some of that money to buy life insurance and still be able to accomplish everything you’re trying to accomplish.

But I think you said that all of the money is in IRAs, and if that’s the case, then you just have to kind of manipulate that required minimum distribution. Maybe you take out some of it, you pay taxes on some of it, you use it to buy a tax-free death benefit for your kids and grandkids like you want, and then maybe you give the rest of your RMD to a charity through QCD.

That’s really, really gonna minimize your taxes. So Donna, I hope that helps answer your question and certainly gives you some things to think about, and I truly appreciate you taking the time to write in. Now, if you’re sitting there listening to this show, and you’re in the same situation as Donna, where you’ve got a lot of money in pre-tax retirement accounts, whether it’s IRA or 401Ks or any other type of pre-tax account, and you wanna know how to be as tax efficient with it as possible, in my book, More Life Than Money, I wrote an entire chapter about exactly how to do that.

I talk about QCDs, I talk about IRAs, I talk about required minimum distributions, and I wanna send you a copy of More Life Than Money absolutely free of charge. If you wanna receive a copy of More Life Than Money, no cost, no obligation, you just need to go to our website, which is providencefinancialradio.com/book.

Again, it’s providencefinancialradio.com/book. Leave us your information, and a hardcover copy of More Life Than Money will show up on your doorstep in just a few days. To claim your free copy of More Life Than Money, all you gotta do is go to providencefinancialradio.com/book and we’ll get it right out, but I know you’re gonna enjoy reading it.

And since you have the book anyway, you might as well read about some of the other more common mistakes that I’ve seen retirees make in my career as well, because that’s what More Life Than Money is all about. providencefinancialradio.com/book is the website you need to go to to get a free copy.

If you’ve been with us for the entire show up to this point, you know that I’m Anthony Saccaro, and you’re listening to the Providence Financial Retirement Show, where it truly is all about the income. We’re answering four questions that we’ve received from listeners over the last few weeks. The first question we just answered had to do with tax efficiency when it comes to having all of your money in IRAs.

And the next question that we’re gonna answer now has to do with an expense in retirement that a lot of you aren’t really thinking about, but that can wipe out everything you’ve spent 40 years building. Charles from Irwindale, I’m gonna let his question really just set the table for what we’re gonna talk about now.

And he wrote in this: “I watched my mother spend down nearly everything she’d worked for her whole life during the last few years in a nursing home. It was heartbreaking, and frankly, it scared me. I’m 64 now, I’m in good health, but I don’t wanna put my wife or my kids through that. What are my options?”

Well, Charles, first thing I wanna do is thank you for taking time to write in that question. I know it takes a little bit of effort to actually go to our website and do that. And it’s probably a good time to remind you that if you have a question for the Providence Financial Retirement Show, all you need to do is go to our website and ask, and it’s providencefinancialradio.com.

Again, the website to ask your question is providencefinancialradio.com. You can click on Ask a Question button and write in your question. Maybe we’ll get a chance to address it in a future episode. Charles’ question, though, has to do with how does he protect his wife and his kids, really his assets, from a long-term care event if, in fact, something like that happens to him in the future.

Before we jump right into the answer, though, there’s a couple of things that I think are worth noting. The first thing is that Charles is not asking a financial question. It’s important to understand that he’s asking a family question. This isn’t about the money. It’s about not becoming a burden to the people that you love In my almost 27-year career of being a retirement advisor and also an estate planning attorney, I’ve seen this scenario happen too much all too often where someone will need long-term care for a number of years and wipe out the whole estate, and then they’ll pass away, and the surviving spouse maybe doesn’t even have any money left to live.

And even if there is no surviving spouse, then there’s not a lot left to give to the kids. And if you’re like most people, you wanna leave a legacy to your kids and grandkids as well. I also find, though, that this is an area that is ripe for procrastination. Most people really don’t understand what the odds are when it comes to going into a nursing home, and they don’t wanna think about it.

When you look at the odds, if you’re over 65 years old, the odds are about 7 out of 10 that you’ll wind up needing some type of long-term care before you pass away. That’s a 70% chance, so it’s really high. And if you ignore it, it doesn’t mean that the problem goes away. The risk is still there. It just means that you’re ignoring it.

Also, I find that people don’t really consider how expensive long-term care is. If you have to go into a nursing home today, it’s not unfathomable to think that it’s gonna cost you $100,000 a year And that’s if you’re in a nursing home. If you actually wanna stay at home, that could go to $150,000 a year or even $200,000 a year, just depending on the level of care that you need.

And Charles, in your situation, you’re 64 years old. Most people don’t need care until they get into their 80s. So in 20 years, what’s it gonna cost you? If it’s 100 to $200,000 today, it could very well be 300 to $500,000 in 20 years, and that can wipe out an estate very quickly. And for most of you, it’s not the one year that you’re in a nursing home that’s going to wind up having the huge impact, it’s the multiple years back to back that are what’s gonna deplete your portfolio.

For most of you, though, you can’t afford a multi-hundred thousand dollar a year event in the next 10 or 20 years, and that’s what could potentially break your retirement. Now, many of you think that Medicare pays for it, and it does not. The best case scenario for Medicare is that it cover the first 100 days, but after that, you’re on your own.

Another thing that I often hear as well is that Medi-Cal or Medicaid will pay for it as well, and those are government assistance programs, but you pretty much have to go broke before the government’s gonna step in and pay anything. So that’s really not a good plan. Before I go any further, though, and talk about what some of the solutions might be, I wanna offer you a commission report that we’ve written just because you’re listening to the Providence Financial Retirement Show here on KNX AM 1070.

The report is called Don’t Let Long-Term Care Be Your Financial Blind Spot. And if you request the report, you’ll have it show up in your email box shortly and you’ll be able to read it. But you’ll learn what you need to know about long-term care and the potential impact that it can have on you and your family.

To receive the report about long-term care, just go to providencefinancialradio.com/report. Again, it’s providencefinancialradio.com/report. Leave us your information and it’ll show up in your email very shortly. One more time, to get your free report to learn more about long-term care, go to providencefinancialradio.com/report and it will be in your inbox very quickly.

We’ll get it out as soon as possible. I’m Anthony Saccaro. Thank you for joining us today where you’re listening to the Providence Financial Retirement Show. We’re taking our time together today and we’re answering four questions that our listeners have written in over the last few weeks. The first question we’ve already answered has to do with tax-efficient giving when you have all your money in IRA accounts.

We’re also gonna answer a question later in the show about annuities and another question about whether or not you’re taking too much risk in retirement, and the risk really becomes a stock market discussion. But right now, though, we’re talking about long-term care. It’s the one event that a lot of people underestimate.

A lot of you are procrastinating because it’s something that you just don’t wanna think about. But just like everything else, the longer you wait, the harder the problem becomes to solve, and just because you’ve procrastinated, just because you might not be acknowledging that there’s a problem, doesn’t mean that the risk has gone away.

And Charles saw this happen firsthand with his mother, who basically wiped out her entire estate because she needed a few years of nursing home care that she had to pay for And he wants to know how to make sure that he doesn’t leave his wife and kids in a situation where they don’t have any money if he has a long-term care situation in the future.

So I think it’s really smart, Charles, that you’re thinking about this. And as I mentioned before, you might be thinking that, well, Medicare’s gonna pay for it, but that’s not the case. The best-case scenario for you and Medicare is that they cover the first 100 days, but that’s it. After that, you’re gonna be responsible for the entire amount.

Additionally, there are government programs that could pay for it, like Medicaid, or here in California, they call it Medi-Cal. It’s really just California’s version of Medicaid. Either way, though, you pretty much have to go broke before the government’s gonna pay anything, and that usually is what happens if you don’t do any planning.

So Medi-Cal or Medicaid is not a strategy you wanna use to pay for long-term care. It’s kind of a plan that’s gonna happen to you if you don’t do the planning. And of course, you’ll still leave your wife and kids without anything as well if you rely on Medicaid. If Medicare’s not gonna pay for it, and you don’t wanna rely on the government program, well, how do you then pay for these long-term care expenses if something happens?

Well, there’s two general things that I think you need to think about. Two options. One is you can self-insure. You have to ask yourself, though, whether or not you and your situation, your finances, your portfolio, your assets, whether or not you can afford a two or three or $400,000 annual expense for a long period of time.

Some of you have the assets to be able to do that. There are some experts out there that have said that if you don’t have at least $10 million in investable assets, that you probably can’t afford to self-insure. I’m not sure if you need that much, but the simple fact is that you do need to be able to handle potentially two or three or $400,000 of annual expense for four, five, or six years or more.

And if you have those kind of assets, then that’s fantastic. You might be able to self-insure. On the other hand, though, the question that you would probably be asking is, why would you wanna self-insure if you could then pawn it off to an insurance company and transfer that risk? And that’s option number two, transferring the risk to an insurance company through some type of long-term care insurance.

And long-term care insurance has come a long way, and for those of you that have researched it in the past and kind of poo-poohed it because it’s too expensive, you really need to pay attention because it’s evolved There are several different forms of long-term care insurance today that have become known as asset-backed insurance.

There’s annuities that have some type of long-term care protection where you put money into an annuity, you earn an interest rate along the way. If you never need it, then that money passes right to your beneficiaries. But if you need long-term care, it will multiply the amount that you put into the annuity for the purpose of long-term care, and that’s certainly a viable option.

There’s also another option, though, which is a combination of long-term care insurance and life insurance. If you never need long-term care insurance, well, then there’s a tax-free death benefit that’s gonna go to your beneficiaries. So y- they’re gonna get the money pretty much no matter what. It’s not a use it or lose it situation.

But if you do ever need long-term care, some of these policies will actually pay out a lot for the purposes of long-term care. To answer your question then, Charles, the best way for you to make sure that your wife and kids are protected if you have a long-term care event probably would be to consider some type of asset-backed long-term care, whatever form that looks like.

And I certainly hope that helps answer your question. Thank you for taking the time to write it in. If you’re like Charles, though, and you realize that this is a risk and you wanna learn more about the idea of transferring that risk to an insurance company, maybe just exploring asset-backed long-term care a little more, in my book, More Life Than Money, I wrote an entire chapter all about asset-backed long-term care.

I even give some very specific examples as to how much you might have to put in and how much it might cost, although I’ll say it’s a lot more affordable than, for sure, you’re thinking. If you’d like to explore the idea further, though, I wanna send you a copy of More Life Than Money absolutely free of charge.

You just have to ask for it, and you can do that easily by going to our website, which is providencefinancialradio.com/book. Again, it’s providencefinancialradio.com/book. Leave us your information, and we’ll send you a hardcover copy of More Life Than Money. It’ll show up on your doorstep in just a few days.

To claim your free copy of More Life Than Money, just go to providencefinancialradio.com/book and we will get it right out. But you’ll learn what you need to know about asset-backed insurance and how affordable it really is to transfer the risk of a long-term care event to an insurance company

Thank you for staying with us. I’m Anthony Saccaro, and you’re locked into the Providence Financial Retirement Show, where it truly is all about the income. We are your retirement income source, and this is the place where retirees come for income. Really glad that you’re here, wherever life may have you today, and we’re answering some of your listener questions.

There are four questions that we’re answering. We’ve already answered a question about tax efficiency when it comes to having all your money in retirement accounts. We’ve already answered a question about long-term care. We have a question that we’re gonna answer next about annuities, and then in just a few minutes, we’re gonna answer a question about the stock market and whether or not you might be taking too much risk in retirement.

Our next question, though, comes from William in Valencia, and William wrote in this: “I keep hearing the word annuity. My brother-in-law swears by them and says it’s the best decision he ever made. But then I read articles online that make them sound like the worst thing you could ever do with your money.

So I’m confused. Can you just give it to me straight?” Well, William, I love the question, and I love the bluntness, and that’s what we do here on the Providence Financial Retirement Show, is we give it to you straight. So the answer is yes, I’m definitely gonna give it to you straight. But I appreciate you taking the time to write in the question.

First off, I have to say that, William, you’re not confused because you’re not smart. You’re confused because annuity is one word that describes a dozen completely different products. That’s really the root of the entire argument. And it’s not whether annuities are good or bad. They’re just a tool. It’s really like saying, “Are mutual funds good or bad?”

Well, they’re not good or bad. They’re just a tool. For some of you, annuities would be the worst thing you could do, and for others of you, the mutual funds would be the worst thing that you could do. So again, it’s just something that’s available to you that in some of your situations makes sense, and in some of your situations they don’t.

If you’re confused about that word annuity as well, like William is, well, you’re gonna wanna stay tuned because in a minute, I’m gonna give you a free resource that’s gonna help clarify the annuity debate so that you have a good understanding of what annuities are and whether or not they may make sense for you or not.

Because there are so many types of annuities, though, I’m not gonna be able to go through them one by one. But let me give you just a couple of things to think about, kind of a broad brush overview of annuities in general. You can really break them down into three different categories. The first category is annuities that are just designed to give you income.

These are called immediate annuities, and essentially, you exchange a lump sum of cash for some type of guaranteed lifetime income. They’re not my favorite because they’re very inflexible. Once you give that cash away, you don’t have access to it anymore. What you’re really doing is you’re buying a pension.

You’re buying a lifetime income, but the cost of that is that you give away a chunk of cash, which you’ll never see again. You can never touch it, you can’t change it, and that lump sum’s not gonna go to your beneficiaries. They might wind up getting the payment if you die too soon, depending on how long you set it up, but the cash itself is gone And yet, despite that inflexibility, there are times when it does make sense.

You might use that payment to buy a life insurance policy, which would then replace the cash. And when you set up an immediate annuity with money that is not retirement money, it actually is very tax efficient. So if you have an annuity now that has grown tax-deferred, and there’s a lot of taxes that you’re gonna owe on it if you were to cash it in, then using an immediate annuity to mitigate some of the taxes could be something that you wanna consider.

So there’s definitely a reason for them, but it’s just not my first option, primarily because of the inflexibility. There is another type of annuity, however, that I really don’t like, and this is a variable annuity, and I could spend an entire show talking about variable annuities. The reality, though, is the reason I don’t like ’em is because all the risk is on you.

You could lose your money just like you could if you had all your money in the stock market, and they’re very, very expensive. They might cost you 3% or 4% a year. As far as I know, they’re really the most expensive, or at least one of the most expensive investments you could buy. Because I don’t have time to get into all the ins and outs of variable annuities on this episode, though, I do have a resource that I wanna give you that talks about variable annuities and the ins and out.

It’s an animated video that’s only seven or eight minutes long, but it’s very powerful, and you’ll learn everything you need to know about variable annuities so you can understand why it is that I’m not a big fan of them. And if you have a variable annuity, you’re gonna wanna get this video for sure ’cause you’ll learn some things that I know that you don’t know.

To get your free video about variable annuities, just go to providencefinancialradio.com/video. Again, it’s providencefinancialradio.com/video. Leave us your information and we’ll email that video to you shortly. You’ll be able to press play on your computer and watch it right on your computer. To claim your free video about variable annuities, just go to providencefinancialradio.com/video and you’ll have it in your inbox shortly.

I’m Anthony Saccaro. Thank you for taking time out of your day to join us here for the Providence Financial Retirement show. If you just hopped on, we’re answering four different listener questions that we’ve received over the last few weeks. We’ve already answered a question about tax-efficient giving when all of your money is in IRAs or other pre-tax retirement accounts.

We’ve also already answered a question about long-term care and the best way to protect yourselves. And now we’re in the middle of answering a question about annuities. And this question came from William, where he really just wants to know whether or not annuities are good or bad because he’s heard a lot of different things, and I’m sure some of you have heard conflicting information as well.

I’ve already discussed why immediate annuities aren’t my favorite and why I really don’t like variable annuities. But there are two different annuities out there that I think could make sense, especially if you’re trying to keep your money safe or you’re trying to get income.

And I wanna break these down into really two different categories: annuities that are designed for interest or accumulation, where you’re just trying to save money conservatively, and annuities that are designed to give you income.

Let’s start talking about the accumulation annuity first. There are several different forms, but the entire idea is you keep your money safe. You really can’t lose money with an annuity. At least as far as I know, no one who has ever had this type of annuity has ever lost any money at all. And yet, there are several different ways in which they will actually credit you interest.

There are annuities out there today that will give you 5% per year of interest, guaranteed every single year for as long as 10 years. And the people who often gravitate towards these kind of annuities are people that want their money extremely safe. Maybe they’ve just got their money in a money market fund, earning 2 or 3%, or maybe they’ve got a CD paying 4%, and they realize that if they can get 5% for 10 years, then sign me up.

And that’s just one version of the annuity that will be designed to give you more interest than you can really get anywhere else, especially when you consider the safety. But there’s another type of annuity out there as well, and that’s what’s called a fixed indexed annuity. It’s safe, so you can never lose money to the market, but the interest you earn every year isn’t guaranteed.

It’s actually tied to the stock market. Every year the stock market goes up, you’re probably gonna get some interest, whereas every year the stock market goes down, you’re not gonna get any interest, but you’re also going to not lose any principal. In the good years, then, you make some interest. In the bad years, they protect your money.

You’re probably then wondering what the trade-off is. Well, the trade-off is that because they’re protecting you in the bad years, when there are those good years, you don’t get the full thing. So, in some regards, you’re gonna share in the gains in the good years, but they’re gonna take all the risk in the bad years.

And the whole idea is that it still allows you to participate in the market while protecting your principal. And having been an annuity expert for well over a quarter of a century, I’m gonna guess that these annuities are probably average somewhere between 5 and 7% a year, maybe even closer to 6 or 7% a year.

But if you like the idea of participating in the market and the potential upside, but you wanna make sure that you can’t lose your principal, well, that’s where the indexed annuity comes into play. And in my book, More Life Than Money, I wrote an entire chapter about annuities, and I get into a lot more detail than we could just talk about here in a few minutes in our show.

And I wanna send you More Life than Money absolutely free of charge. All you need to do is go to our website and ask for it, and you can do that by going to providencefinancialradio.com/book. Again, it’s providencefinancialradio.com/book. Leave us your information, and we’ll ship a copy of More Life than Money right out to you.

You’ll have it in just a few days. And not only will you learn what you need to know about annuities and the good, the bad, and the ugly, but while you’re at it, I’m sure you’re gonna find some other topics of interest as well because in More Life than Money, I talk about the 10 most common retirement mistakes that I’ve seen people make and how to avoid them.

To claim your free copy of More Life than Money, then just go to our website. Go to providencefinancialradio.com/book and we’ll get it right out.

Thank you for staying with us. You’re listening to the Providence Financial Retirement Show. I’m your host, Anthony Saccaro. We’re spending our entire show today talking about, or really answering four listener questions that we’ve received over the last few weeks. The first question that we’ve already answered had to do with the tax efficiency of retirement accounts and how to be as tax efficient as possible when making your withdrawals and also when leaving these IRAs to your beneficiaries.

We also answered a question about long-term care. We’ve just now answered a question about annuities, and now we’re gonna answer a question from Barbara that has to do with her retirement and whether or not she’s taking too much risk. So Barbara from Santa Barbara wrote in this: “I’m 68, and I retired last year.

When I look at my statements, it seems like almost everything I own is in the stock market, and every time the news talks about a downturn, my stomach drops. Shouldn’t someone my age be playing it safer than this? How do I even know if I’m taking on more risk than I should be at this stage of life?” Well, Barbara, thank you for taking the time to write in that question.

And you’re not alone because many of our listeners have the same question as well, which is why we’re taking time to answer it. A good time also to remind you that if you have a question for the Providence Financial Retirement Show, all you need to do is go to providencefinancialradio.com and you can ask your question there, and I’d love the opportunity to answer it in a future episode.

Barbara, when you get that knot in your stomach and your stomach drops, what that tells me is that your instincts are instructing you and telling you something that your statement is not telling you. And it could be very well that you’re taking more risk than you should be. One of the things that I find about retirement, having been a retirement advisor for 27 years, is this, and that is that it’s not all about the money.

It’s not all about the portfolio balance. It’s not about trying to just get as much as you can. Retirement has to do with peace of mind. If you’re invested in such a way that mathematically looks great on paper, but you’re not sleeping at night, and every time the market moves, Barbara, your stomach drops, you’re probably not invested right, and I think you probably wanna listen to your intuition.

I find that something that a lot of retirees don’t consider is the fact that the strategies that work so well to get you to retirement can often be deadly if those same strategies are used in retirement. There are really two reasons why the strategies that you use to build your wealth, whatever your nest egg happens to be, could actually work against you in retirement, and a worst case scenario, could even be deadly to your retirement.

The first reason is because you’re making withdrawals from your portfolio, and the second reason has to do with what is known as sequence of returns risk. So let’s talk about withdrawals first. Whenever I sit down with someone and they tell me that they’re getting income from their portfolio, it doesn’t mean that they’re really getting income.

What it means is that they are making withdrawals, and if you’re making withdrawals from your portfolio, that’s a whole lot different than getting income from your portfolio. When you’re making withdrawals, if you’re invested for the accumulation phase of life, meaning stocks and mutual funds primarily, and you’re making withdrawals, what you’re really doing is you’re selling principal in order to get the cash flow that you need to live every day.

The money shows up in your checkbook because you have some type of automatic withdrawal set up if you’re like most retirees. But behind the scenes, shares of your mutual funds or shares of stock are getting sold so that that money can show up in your checking account. You’re really cannibalizing your principal, and if you live long enough, the danger is that your principal could be gone before your life is gone.

On the other hand, when you’re truly getting income from your portfolio, that means you’re getting interest and dividends. The nice thing about interest and dividends is you can spend them without ever selling any principal. Now, you never have to worry about running out of money because you’re living off of your interest and dividends.

There’s a significant difference between living off of withdrawals or living off of interest and dividends. If you’re invested in retirement just like you were as you were heading to retirement, there’s a good possibility you’re actually making withdrawals. But in retirement, if you make the shift to income like we talk about so often here on the Providence Financial Retirement Show, then you’re living off your interest and dividends, and the worry about running out of money before you run out of life all but disappears And I find that most people have never been taught about the idea of investing for interest and dividends.

So this might be a new concept for you. If that’s the case and you wanna learn more about it, we put together a short animated video that’s only seven or eight minutes long, but you’ll learn what you need to know about how to live off of interest and dividends so you can have the peace of mind of knowing that you never have to worry about running out of money before you run out of life.

I’ll send it to you absolutely free of charge. You just have to request it, which you can do by going to our website, providencefinancialradio.com/video. Again, it’s providencefinancialradio.com/video. Leave us your information, and it will show up in your inbox shortly. We’ll email it to you. Just go to providencefinancialradio.com/video and we will get the video out to you so you can learn how to live off your interest and dividends and quit making withdrawals from your portfolio I’m Anthony Saccaro.

Thank you for continuing to be with us here for the Providence Financial Retirement Show. We are your retirement income source, and this is the place where retirees come for income. We’ve spent our entire show today answering four questions that we’ve received from you, our loyal listeners, over the last few weeks, and we’re in the middle of answering a question from Barbara in Santa Barbara, who really, she’s just kind of concerned that maybe she’s taking on too much risk.

We talked about one reason that this could be is because she might be making withdrawals from her portfolio instead of living on interest and dividends. But there’s a second problem with making withdrawals from your portfolio when you’re in retirement, and that is what is known as sequence of returns risk.

If you’re invested in stocks or mutual funds like most of you are, when you’re in the accumulation phase of life, meaning that you’re heading towards retirement, you’re constantly buying shares. You have money coming out of your paycheck, it’s going into your 401k, or your 403b, or your IRA, or whatever other retirement plans you have, but you’re buying shares.

The stock market’s gonna be volatile. It’s always gonna be volatile. But when you’re buying shares, volatility actually helps you. When the market goes down, because you’re constantly buying shares, you actually get to buy more shares for the same dollar because the price of the market went down.

Everything went down, so when you buy more shares, you get them on sale, and that actually is beneficial for you. On the other hand, though, when you’re in retirement and you’re making withdrawals, you’re selling shares. And when the market goes down, now all of a sudden, you have to sell more shares to get your income.

And this is something that I often refer to as a double drain. The market goes down and you’re selling principal at the same time to get the income you need to be able to make your monthly expenses. It’s a double drain. The biggest potential killer to a retirement plan, though, is this sequence of returns risk.

You might have heard of it, but if you’re like most people, you’ve probably never even heard of what that means. You probably have no idea. But the sequence of returns essentially says that the sequence of when your returns happen in the stock market, whether positive or negative, have a huge impact on you as to how much money you’re gonna have left later in retirement.

If the stock market goes down several years in a row right when you retire, that’s gonna have a significant impact on the rest of your retirement. Whereas if you’ve been retired for ten or twenty years, and then the stock market goes down several years in a row, the impact of that is gonna be much smaller.

The reason’s simple. If the market goes down right away and you’re making withdrawals early into your retirement, you don’t have that money to be able to recover when the market does because you’ve been selling principal to live off your income. But if you’ve been living off your income and the market’s been going up for 10 or 20 years in your retirement, and then the market goes down a few years in a row in the latter half of your retirement, well, you had all those years where the market was able to grow while you were making withdrawals, and the impact of the returns, the negative years later on in retirement’s much less significant to you.

Let me give you some numbers and just illustrate this. Let’s say that you retired in the year 2000 with one million dollars, and all you did was take out 5% a year, $50,000 a year. Well, based on the order in which the market has had its returns, by the time you get to 2022, which is 22 years later, your portfolio would’ve been cannibalized down to around $350,000.

You would’ve lost almost 70% of your portfolio based on what the market has actually done over the last 22 years. But let’s flip that. Let’s say that you retired in the year 2000, but the order of the returns was reversed. In that situation, by the time you get to 2022, your million dollars would’ve turned into $2.2 million, even though you were still taking out $50,000 per year.

Why? One reason, and that is that the sequence of returns was different. In the first example, the real-life example of what the stock market did, the market had three bad years from 2000 to 2002, right up from when you retired. But if we reverse the order, then those three bad years happened 20 years into retirement, and that makes all the difference in the world, and it’s one risk that most of you are absolutely missing.

There are two reasons then, Barbara, why you might have that knot in your stomach, and that is because you might be making withdrawals from principal and the sequence of returns that we just talked about. But I appreciate you taking the time to write in that question. If you wanna learn more about investing for income or how to avoid withdrawing from principal and start withdrawing from interest and dividends so that sequence-of-returns risk goes away, well, in my book, More Life Than Money, I wrote an entire chapter all about that.

I wanna send you More Life Than Money absolutely free of charge, and all you need to do to get it is go to providencefinancialradio.com/book. Again, it’s providencefinancialradio.com/book, and you’ll learn what you need to know so that you can have the peace of mind in retirement and never have to worry about running out of life before you run out of money.

That’s why I call the book More Life Than Money. If you’d like to get a free copy, just go to providencefinancialradio.com/book, and we’ll get it right out. I’m Anthony Saccaro. Thank you for taking time to join us today for the Providence Financial Retirement Show. I’m really glad that you were here.

Have a great week, everyone. God bless.

Disclaimer: This transcript is provided for educational and informational purposes only and reflects a general discussion from a live radio broadcast. It is not intended as personalized financial, tax, or legal advice. Individual circumstances vary, and listeners should consult a qualified professional before making decisions.