so today i want to incorporate tax
strategies into the guaranteed lifetime
income planning continuing along with
this annuity series that we've been
doing to show you how we can have
positive ripple effects throughout the
rest of your income in retirement and
what i find in my experience is it helps
people feel more comfortable and sleep
better at night and bring more security
and peace of mind to their retirement
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hi i'm troy sharp ceo of harvest
financial group host of the retirement
income show a certified financial
planner professional and also a
certified tax specialist so this has
been a great series educating you about
annuities and how they can play a role
in your retirement if you're someone
who's looking for safe growth or
guaranteed income which is a paycheck
that's deposited into your account every
single month no matter how long you live
and how those tools can work with your
stocks or your bonds how they can work
inside a retirement plan and today we're
going to focus on the tax side of things
so we have a couple of examples
married filing jointly with what we call
non-qualified assets that generate
capital gains and dividends or if you're
like a lot of our clients you don't have
many non-qualified assets most of your
money is inside an ira so we want to
look at the impact of rmds and then
we're also going to look at this for a
single filer because i know i get a lot
of questions and comments asking me troy
don't do it just for married people do
it for us single people as well so we're
going to show you both of those examples
today so
so there's a lot of misconceptions out
there about annuities one there are many
different types of annuities and people
tend to lump them all together into one
single word where you have immediate
annuities you have variable annuities
you have fixed annuities you have
indexed annuities you have multi-year
guaranteed rate annuities they all have
different features benefits here i'm
talking about the deferred income
annuity which the most competitive ones
the ones that give you the most
guaranteed lifetime income are fixed
indexed annuities that have what we call
an income rider attached to them so you
make your deposit this is your walk away
value this is your death benefit the
insurance company doesn't keep your
money and when we add the income rider
we get a guaranteed growth component
usually a typical market rate right now
is around seven percent guaranteed
growth and what it does is it ensures
that at some point down the road when
you want to start taking income from
your retirement savings this is a
long-term planning tool
that you get to take a lifetime income
off whichever side is higher if the cash
value performs better than the income
side your lifetime income will be based
on the performance of your cash value
these are designed to average somewhere
between four to six percent though the
best growth ones out there so i wouldn't
anticipate this side outperforming the
guaranteed income side so it compounds
at seven percent so that ensures at some
point in the future you have a much
higher balance to withdraw a lifetime
income from you'll take that income it's
a math calculation as we talked about in
the other videos
fully guaranteed you know what it is
before you ever make a deposit and
that's a lifetime income that if you
live to be 85 or 185 you'll always
receive that income in your bank account
if you're like most of our clients most
of your money is probably inside that
tax infested retirement account the ira
the 401k we get a great benefit by
deferring those taxes throughout our
working years but once we get to
retirement and we roll that money over
to our ira
you have to take it out and you have to
pay income taxes on every single dollar
that you've ever put in as well as all
the interest that you've ever earned so
that creates a tax problem over time
because at age 72 you're forced to start
taking that money out it's called
required minimum distributions and it's
an increasing annual percentage and when
you have to take larger amounts out
combined with your social security if
you have a pension if you have
rental income dividends interest etc
it stacks on top of all your other
income and a lot of times we find people
in their 70s or 80s and they have
massive amounts of income that they
don't necessarily need because there was
no tax planning leading up to that point
so
just want to give you a kind of quick
example here
let's i'm assuming this is about a 65
year old couple
social security combined of about sixty
thousand dollars a year they've decided
you know what it makes sense for us to
take a portion of our retirement savings
set it aside into something that's 100
protected from loss that's going to give
me guaranteed growth guaranteed lifetime
income
and that calculation is about 30 000 a
year now in the planning process to show
you the impact
we've assumed that this has now been
converted to a roth so you can't just
convert the annuity to roth it has to be
inside a retirement account and you
convert the retirement account now just
briefly i want to address a
misconception out there many years ago
and even in some circles today people
say you shouldn't put your annuity
inside a qualified retirement account
and the reason they say that is because
both of those tools the ira and the
annuity they both grow tax deferred so
if you're of the singular mindset that
the only reason to buy an annuity is
before the tax deferral then yes it
would not make sense to put that inside
of a retirement account but the truth is
today the reason people buy annuities
and add them as a part of their overall
retirement plan is because fixed indexed
annuities in particular can provide 100
principal protection they can provide
reasonable opportunity for growth and
that four to six percent average return
range and they have additional benefits
that we've talked about in this series
such as lifetime income for you and your
spouse that income can double if you
need home health care or long-term care
so there's many many benefits with these
tools the fact that they're tax deferred
per the internal revenue code is
today is really only an ancillary
benefit if you're very wealthy and
you're looking to put some money
somewhere that's safe and growing and
you're trying to defer taxes 99 of you
you're going to look or consider an
annuity for your retirement because of
the income benefits because of the safe
growth so when we have our ira that owns
that annuity
you own the annuity but it's the
annuities inside the retirement account
we have the option of converting it to a
roth a tax-free roth which then means
the lifetime income that we'll receive
is 100 tax-free for as long as you and
your spouse are alive
so we have social security guaranteed
lifetime income stream sixty thousand
per year your roth guaranteed lifetime
annuity at thirty thousand per year so
this is ninety thousand dollars of
paychecks that as long as you're living
that income will be 100 income tax free
multiple streams of income we're big
fans of multiple streams of income
now over here we have dividends in
capital gains so this is if you do have
money outside of that retirement account
in what we call a non-qualified account
and i'm assuming here let's call it it's
a million dollar account maybe it's 700
maybe it's 1.2 doesn't matter i'm
focused on the income that that account
generates let's assume it's generating
forty thousand dollars per year of
either capital gains from rebalancing or
dividends
um
from qualified dividend stocks now i
want you to guess with this level of
income ninety thousand guaranteed
lifetime income plus 40 000 of dividends
or capital gains i want you to guess
what the income tax liability do is for
this level of income
if you guessed 220 dollars you're
absolutely right
so in this scenario we can have ninety
thousand here plus forty so a hundred
and thirty thousand dollars of income
and only paid two hundred and twenty
dollars in taxes so here's the tax
calculation we have forty thousand
dollars of qualified dividends social
security of 60 000
the roth fixed indexed annuity
guaranteed lifetime income that's a roth
as we've talked about before it was
previously converted to a roth and
that's always 100 tax free
so
we have adjusted gross income of sixty
eight thousand one hundred
provisional income which we've done
videos on social security this is a
social security term provisional income
twenty eight thousand dollars of your
social security is subject to income tax
but because of the tax brackets in our
progressive tax system
you don't have to pay tax on that entire
amount now here most people aren't aware
of this either there's a zero percent
long-term capital gains bracket most
people just think there's a fifteen
percent bracket for long-term capital
gains there's actually a zero percent a
fifteen percent and eighteen point eight
and a twenty three point eight when you
look at medicare um
excise taxes or surcharges based on your
overall income level
so long story short here
the total tax is two hundred and twenty
dollars with a hundred and thirty
thousand dollars of income
and what this really does what i find is
this is a small portion of this overall
portfolio i would never recommend
someone take a
most of their money and put it into some
type of guaranteed lifetime income
product typically that's not going to
make sense these are tools they're tools
that are meant to complement a broader
retirement investment strategy now when
we incorporate a tax plan into this we
start to see
how many of you would feel comfortable
if you knew come heck or high water you
had 90 000 of income coming in if the
market crashes it doesn't bother you if
the market's going great excellent your
investment accounts will be doing really
really well but you don't have fears of
running out of money you also don't have
fears about the government increasing
taxes later in retirement
so what this does is it really brings
for me a ton of security
peace of mind knowing that hey no matter
what happens i always have these
paychecks being deposited into my
account and i'm not paying any income
tax on it
the dividends as i said
we could change this number but i wanted
to go up to about the maximum amount
under current law and still have a
negligible tax liability now many of you
may not have that much money in a
non-ira or a non-qualified investment
account so i want to show you the impact
of taking additional withdrawals from
your retirement account we can take a
little bit less income before we start
to pay taxes but ultimately we're still
in a position where we have a lot of
income and paying a very small amount of
tax relatively speaking
so
same situation we just looked at social
security married filing jointly of 60
000 per year we still have the roth
guaranteed lifetime income of 30 000 per
year so that's 90 000 coming in now if
we take 25 000 out of our ira either for
a required minimum distribution later in
life or maybe it's a one-time withdrawal
or maybe that's just what you need you
add all that income together to maintain
your standard of living
either way
we
notice down here that the total tax for
this is
14.45 and the reason why
with capital gains
or excuse me long-term capital gains or
dividends that we're paying only 220 in
tax with four forty thousand dollars of
income there is because that special
carve out in the tax code that
for dividends and capital gains you can
be in the zero percent bracket for ira
withdrawals that carve out doesn't exist
it simply adds on to the rest of your
income but still that's 60 plus the
fixed indexed annuity lifetime income 30
in a roth
it's 90 and 25 that's 115 000 of income
and
we're paying
1445. little more than one percent of
the total income received
in federal income taxes so when we start
to introduce this tax planning it really
makes a big big difference and this is
why a proper retirement plan isn't just
put 60 40 in stocks and bonds take out
four percent and you know pray for the
best we need to incorporate these
different elements tax planning income
planning social security planning
medicare health care legacy estate these
are all components that need to be
optimized in order to have a fully
functional retirement plan that puts
your best interests first now for those
of you who are not married
same situation we have social security
now a little bit less because this is
one spouse versus two of 30 000 per year
guaranteed lifetime income inside a roth
of 30 000 per year so this gets us to 60
and then we have dividends or capital
gains can max out at about 29 000 these
are long-term capital gains
so
about 89 000 of total income take a
guess on what the tax will be
five bucks
so pretty cool when we start to
incorporate the tax strategies with an
income plan we start to see how we can
really create this
synergy of different planning strategies
techniques looking at the broader
picture to put you into a much more
optimal situation not just with income
but of course with taxes now i'm giving
straightforward examples here just to
show you the power
of planning but ultimately the income
need needs to be identified your risk
tolerance your current tax bracket your
estimated future tax brackets we have to
extrapolate all this out we have to have
conversations the pros the cons
there is a lot that goes into this i
just want to convey that if we do this
properly for many of you there's a
tremendous amount of benefit that can be
had and if you don't do it properly
there's a tremendous amount of money
that you're leaving potentially on the
table now if you're single without the
non-qualified investment account you
just have a retirement account invested
in stocks and bonds to go along with the
guaranteed lifetime income that we've
converted to a roth and the 30 000 of
social security if we take out 25 000
from the ira we're starting to get a
little bit higher in the tax bracket
but still
30 000 in social security 30 000 from
the guaranteed lifetime income 25 000
here that's 85 000
of total income received and due to the
planning we're only paying about twenty
four hundred dollars in total tax so
let's call it about
three percent now i've done a lot of
videos on this in the past if you look
at our roth conversion videos or tax
planning videos if you look at those
you'll see this is a very very important
concept
and what it is is you can have much less
income as a single taxpayer than a
married filing jointly taxpayer before
you start to go into the higher brackets
so if you're single there's nothing you
can do about this except plan like i've
kind of showed you today and of course
there are other techniques and
strategies available
but when you're a married filing jointly
taxpayer when one spouse predeceases the
other especially if this happens
unexpectedly or early on in retirement
without any planning on the tax side of
things all of a sudden you have all
these assets the required distributions
are forced to come out you have the
social security maybe some other income
and what was supposed to be in the
married filing jointly brackets you
actually are penalized it's punitive you
drop down to the single brackets and
from that point you're paying
usually a lot more tax than you
otherwise would have so the big takeaway
from from this is that tax planning not
only helps you during your lifetime but
if one spouse happens to pre-decease the
other
unexpectedly it has tremendously more
benefits and it's much more powerful to
be looking at this stuff now as opposed
to later because later there's really
not much that can be done okay so in
this annuity series we've covered so
much you really should be a lot more
educated about annuities at this point
we talked about the safe growth
annuities we talked about the guaranteed
lifetime income features the pros the
cons we've looked at the hood into the
insurance industry to give you insight
that you probably otherwise would not
have gained now we've talked about
strategies in the past couple of videos
and we've also now introduced tax
planning incorporating that into not
only those possible income strategies
but your overall retirement plan as well
so i hope this has been very very
powerful for you i hope you are a more
informed and educated investor at this
point and if you have any questions feel
free to go ahead and reach out to us
we'll be glad to help
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you